Code Red: Two Economists Examine the U.S. Healthcare System

March 28, 2013

Illinois’ Regulatory Dinosaurs

Filed under: Uncategorized — David Dranove and (from Oct. 11, 2013) Craig Garthwaite @ 6:40 pm

The Illinois hospital dinosaurs continue to defy evolution and prove that they are not extinct. I am talking about our health facilities planning board, which just turned down another Certificate of Need application for a new hospital, this time in the northwest suburbs of Chicago. The board justified the decision by stating that the new hospital would harm existing hospitals.

I know that the Chicago School of economics tells us that regulators serve the interests of those they regulate, usually at the expense of the public. But just because the Illinois planning board sits in Chicago, that doesn’t mean they have to slavishly follow the Chicago School. They could act in the public interest at least once in a while! (Though if the board started approving too many new health facilities, someone might notice that they are not needed and put them out of a job.)

The thing is, I am not 100 percent convinced that this is regulatory capture. I think the board actually believes that this decision helps the public, because they believe hospital competition is bad. This idea was floated in the 1960s and 1970, but it is now as extinct as Tyrannosaurus Rex. Studies by the Robert Wood Johnson Foundation, the U.S. Department of Justice and the Federal Trade Commission, and countless academics conclude that competition leads to lower medical prices and, often, higher quality. Numerous federal court judges have blocked hospital mergers on the grounds that competition is good. The Seventh Circuit Court of Appeals in Illinois recently approved class certification against a hospital system whose formation reduced competition in the north shore Chicago suburbs. And a unanimous Supreme Court recently blocked a hospital merger in Georgia, in the process affirming the benefits of hospital competition. Countless independent arbiters, including Supreme Court justices from across the political spectrum, have voiced their support for hospital competition. Whom are you going to believe, all of these independent arbiters, or a bunch of political appointees (appointed by Illinois governors, no less)?

Illinois is the laughing stock of the nation in so many ways — imprisoned governors, a broken pension system, and the Chicago Cubs. Do we have to show off our incompetent regulatory process? With taxpayers on the hook for so much government inefficiency, adding higher medical prices is just one more reason for Illinoisans to think about moving somewhere else, somewhere where government officials have evolved beyond the Cretaceous period.

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