Will Hospital Care Be There When We Need It?

Published January 7, 2005

By now it is common knowledge that the retiring Baby Boom generation will impose tremendous pressure on Social Security and private pension plans as the number of workers per retiree shrinks. Less widely known is the impact this demographic trend will have on the availability of health care, and particularly hospital care.

The capacity of America’s hospitals can be increased in two ways: by making existing hospitals more efficient, or by building new hospitals. Both ways will have to be utilized to meet the rising demand for hospital care by an aging population. Unfortunately, public policies at the national and state levels stand in the way.

The Medicare Modernization Act of 2003 was mostly about adding a prescription drug benefit for senior citizens, but it also included an 18-month moratorium on the development of new specialty hospitals. These hospitals typically focus on a few areas of surgical practice such as heart surgery or orthopedic surgery. The general hospitals responded to this competition by asking Congress to protect them from their more efficient and less costly rivals. Congress delivered, but only temporarily.

Competition between specialty hospitals and general hospitals helps to prevent either from charging excessive prices. It also spurs innovation, as competitors look for ways to be more efficient and provide either better service for the same price, or the same service for a lower price. Innovations such as redesigned hospital layouts lead to lower costs and help explain why specialty hospitals report spending approximately 30 percent of their operating costs on labor, while general hospitals spend between 40 and 60 percent.

Also, by adding new capacity to the health care system, particularly in such areas as cardiac surgery and orthopedics, specialty hospitals could play a major role in ensuring there is enough capacity to treat the growing number of elderly who require more health services.

The American Hospital Association (AHA) is seeking a permanent ban on new specialty hospitals. For health care consumers today and in the future, that is a bad idea. A permanent ban would force us all to pay higher costs for health care, would reduce the number of choices we have for health care services, and would slow down the progress in making hospitals more efficient and increasing their capacity.

The American Medical Association (AMA), the nation’s largest association of physicians, is opposed to making the ban permanent. Physicians understand that specialty hospitals encourage competition and provide high-quality, cost-effective health care.

Calling for a permanent federal ban on specialty hospitals is only part of the general hospitals’ campaign against their competitors. They are also pushing certificate-of-need (CON) laws, which prohibit the construction of new medical facilities, or expansion of existing facilities, without a government agency’s permission.

A relic of Soviet-style central-planning, CON laws are based on the assumption that government can do a better job estimating demand and choosing businesses to meet that demand than can consumers and investors. CON has a terrible record everywhere it has been tried, which is why many states have repealed their CON programs over the years. The AHA wants to bring them back.

In industry after industry, competition keeps prices low and service quality high. Health care is no exception. Neither Congress nor state legislatures should bow to the special interests demanding their market share and profit margins be protected at the expense of patients.

The hugely increased demand for hospital care just over the horizon makes the case of specialty hospitals an especially urgent one. All of us, as health care consumers, should be paying attention and making our opinions heard.

Sean Parnell ([email protected]) is vice president for external affairs at The Heartland Institute in Chicago. He is the author of a recent three-part series on specialty surgical hospitals in Health Care News.