There are many economic theories that are debatable. The Law of Supply and Demand is not one of them. All reputable economists from all schools of economic thought agree - a high supply of a product results in lower prices. This is true of all goods that can be bought and sold - gasoline, food, labor, home services, and medical care. When there are more hospitals, hospital beds, medical services, and doctors that are willing to compete for your health care dollars there will be lower prices and better service. In a competitive market the consumer wins. When the supply is constrained the consumer loses.
New Jersey is one of 36 states that provides protectionism to existing medical suppliers by restricting capital improvements in health care by requiring all new facilities to obtain approval from a state board.
CATO Institute: The Cronyism of ‘Certificate of Need’ Laws
The agency that approves applications presumably consists of providers and consumers. The website of the State Health Care Administration Board characterizes five of its members as "Providers" and four of its members as "Consumers." The Providers have a stake in limiting competition. Theoretically the Consumers should support increased competition. The members listed as Consumers include:
- Mary Kary Roberts, Esq. - a lobbyist and partner at Riker, Danzig, Scherer, Hyland, & Perretti that specializes in Corporate clients and government regulation
- Ellsworth Havens - former Senior Vice President of Englewood Hospital
- Anastasius Efstratiades, Esq. - Co-Chair, Business & Finance Department Partner at Obermayer, Rebmann, Maxwell, & Hippel, specializing in Corporate law
- Christine Stearns, Esq.- Vice President of health and legal affairs for the New Jersey Business and Industry Association
This is a prime example of regulatory capture. Those who oversee expansion and regulation of health care facilities either directly benefit or represent others who directly benefit from the approval or denial of applications.
Even if the members of the Health Care Administration Board were outstanding citizens who believed they were looking out for the consumer, such a model would still fail miserably. This model was tried in the soviet union. Economic boards met and decided on the levels of production and prices for goods and services. The result was bread lines, shortages of medical doctors, and technology that lagged 50 years behind the progress made in the United States. Hayek referred to the problem of having bureaucratic boards deciding the levels of production and prices as being the "fatal conceit" of socialism. Without market forces and price signals the State Health Care Administration Board can not really tell what the correct number of hospitals, doctors, or hospital beds should be.
A true free market in health care would allow medical facilities to open and close based on market competition. Low cost alternatives and clinics would open that offered services most in demand by consumers at a competitive price. To make health care affordable, the entire concept of having state bureaucrats running health care should be questioned.
Thanks to Matthew Mitchell and Christoper Koopman of the Mercatus Center for educating me on the issue of State Certificates of Need. They have researched 40 Years of Certificate-of-Need Laws Across America here.