Should the PSC set hospital prices?
The alarming cost of healthcare across our state and nation is a constant and vexing concern to all of us. As medical costs rise, so do the premiums we pay for our health insurance. While Rep. Woods can be commended for wanting to address the problem, his bill, HB 395, which focuses on symptoms rather than causes, would do more harm than good.
HB 395 is grounded in the belief that if prices are too high, all it takes is for the government to impose limits and prices will be fair again. Hmm. If that were true, we might as well have specialized government bureaus setting all prices across our economy. Logically and instinctively, we know that’s a bad idea.
It would be a different situation entirely, if the sixty-one hospitals this bill regulates were natural monopolies, where there is no opportunity for choice and price competition. The utilities the PSC regulates clearly fall into that category, requiring rigorous rate-regulation. But by no stretch can these hospitals, let alone the hundreds of clinics and other providers with which they compete, be thought of as monopolies and public utilities.
HB 395 would call upon the Public Service Commission – whose primary mission and expertise is the regulation of energy monopolies and other public utilities – to double its staff, double its budget, and begin regulating and enforcing the maximum allowable prices charged by all of the state’s sixty-one hospitals – a responsibility none of the other forty-nine states have assigned to their PSC’s.
At a time when state government must put itself on a much-needed diet, the Woods legislation would result, according to the fiscal note (conservatively comparing us with the $12 million budget of Maryland’s Healthcare Commission) in new expenditures exceeding $3.5 million. Where would this new money come from? Another line item on our power bills perhaps?
Moreover, the prospect of transforming the PSC into a two-headed bureaucracy with two distinctly different missions is mind-boggling. The PSC is tasked with the incredibly important job of regulating public utilities. That job must never be compromised, divided or diminished.
Yet how could a bifurcated commission – elected for its competence in utility regulation – somehow become experts in healthcare as well? How much will this major distraction from our core mission compromise our ability to protect the long-term interests of rate-payers, resulting in higher energy bills while we debate the cost of MRIs?
But the single overriding reason for rejecting Rep. Woods’ legislation is that it poses a political “solution”
with no economic eyes through which to view the long-term consequences.
The problem is not price. The problem is the causes of price. If you don’t get at the causes, you’ll never get at the solutions. That’s why economists will tell us that price controls never work. Free economies do not function in a top-down, government command fashion. They are markets, driven by consumers. Pricing plays a vital role in a free economy, signaling when to produce more, when to produce less, when to innovate, etc. You can’t put a blanket of price controls over an industry and think you’ve created a solution. You’ve only created a worse problem.
In the long run, price controls always create scarcity, because they reduce the incentive to produce. That’s the last thing we want for healthcare in Montana! We need to encourage the development and expansion of quality, cost-effective healthcare services, that will provide more consumer choice and greater price transparency. HB 395 would do the exact opposite of this, and would likely render Montana the most hostile and unfriendly place for health providers in the nation.
Throughout the bill’s hearing, the sponsor and his party faithful repeatedly stated, “Well, we’ve got to do something!” Beware of legislators driven by that simplistic mentality. They will drive us over the cliff. When passing legislation, you can’t violate the laws of economics. Good intentions are simply not enough.
– Roger Koopman,
Public Service Commission