Jefferson Review

"Your Liberty is Our Interest"

Home /  Archives / Links / Quotes / Book Reviews / Advertise /Contact us / Subscribe / Calendar

Keeping out new hospitals won't cure health-care ills:

More competition, not less, would be best remedy for consumers, employees

By D. Eric Schansberg

In recent months, there has been considerable discussion about moratoriums on building hospitals in Southern Indiana. In Clark, Floyd, and Harrison counties, local government officials have been listening to the competing interests of existing county-run hospitals and those who would like to enter the market for hospital services. On the surface, it's difficult to imagine why one would want to prevent a hospital from opening. A hospital is not a porn shop or a toxic waste dump. Building and operating a hospital is not much of a zoning issue; one could seemingly find a suitable place to allow a hospital to operate somewhere within a county. The best explanation is a common one in the intersection between economics and politics: no supplier enjoys competition for the goods or services it sells-- and it may find government a cooperative ally in restricting its competition.

Unfortunately, restricting competition is only in the interests of the provider who wishes to maintain or extend monopoly power. Consumers and society as a whole will not benefit from having fewer options and less competition in a market. Because the general public is intuitively aware that restricting competition is not a good thing, the producers and their politicians must tell "good stories"-- rationales to explain why less of a good thing is supposedly better. In Harrison County, they're worried about "sky-rocketing health care costs". But how would a lower supply and less competition keep costs down? They've also expressed concern that another facility will "undermine the health, welfare, and economic well-being of county residents". But how would more health care options be a detriment to county residents? Even health care employees would benefit-- with more employment alternatives.

The best of the good stories is that a moratorium would "prevent unfair competition". Private-sector hospitals are accused of "cherry-picking" and "skimming profits" by avoiding less-profitable patients-- in particular, the indigent and those in prison. Doubtless, this is true to an extent and some cause for concern. But a more direct way to deal with this issue is to directly subsidize the care of those who cannot pay-- wherever they receive their care-- rather than setting up an arbitrary monopoly. Moreover, proponents of the moratoriums fail to mention that county-run facilities have lower tax burdens. A truly "level playing field" would also eliminate such subsidies.

In a sense, it is comforting to see politicians be so consistent. Most of them work to foster the monopoly power of government-run schools and the post office. Many of them vote for tariffs and quotas to restrict competitors in product markets. So, why should the market for hospital care be any different? Likewise, the business community proclaims its love for "the free market". But its love is often fickle-- wanting competitive markets for the inputs they purchase and open access to foreign markets, but clamoring for restrictions on competitors in the particular domestic markets where they sell their product.

Perhaps the most ironic thing in the discussion about hospitals: the county hospitals are fighting to maintain their local turf while seeming to ignore the far larger market. At present, hospitals in Southern Indiana already face their most significant competition from hospitals across the river in Louisville. What difference would it make to have a few more facilities in Floyd, Clark, and Harrison counties? To note, despite all of the competition in Jefferson County, Louisville has a robust market for hospital services. In a word, moratoriums on hospitals are not exactly what the doctor ordered.

D. Eric Schansberg

Professor of Economics, Indiana University Southeast

Adjunct Fellow, Indiana Policy Review

Weather (Louisville) / Mapquest /  White Pages / Business Search / CNN / Dictionary / E-card / MSN