Hospital’s five-year fight to move shows health care isn’t free market

By David McElroy · May 22, 2013

We’ve been told over and over that problems with health care in this country prove that the free market has failed. But what if the medical industry is already so regulated that its problems have nothing to do with the free market?

There hasn’t been a free market in health care for a long time, certainly not in my lifetime. Probably not since sometime in the 19th century. An item in the local news this week is a stark reminder of that to me.

In 2008, Trinity Medical Center in Birmingham proposed relocating from an older part of town to a fast-growing area along U.S. 280, very close to affluent southern suburbs. A major hospital company (HealthSouth) had built a state-of-the-art building already, but the company was hit hard in an accounting scandal involving the company’s founder and former CEO. The company unloaded various properties around the country just to survive, including this hospital which was about 90 percent complete. (That’s the new building above, framed by a nice sunset I shot last year.)

Trinity is currently in an older part of Birmingham near downtown that’s declining. The hospital was founded as Baptist Medical Center-Montclair many decades ago, but the Baptist system sold that hospital to a private company a decade or more ago. Before too long, the new management was looking to relocate to a newer facility closer to a suburban population that didn’t have a hospital close by.

In the current location, the hospital competes with various huge hospitals downtown. Although most people don’t realize it, Birmingham is a major center for medical research and health care. The medical industry — clinical and research combined — is the biggest in the area by far.

After an aborted plan to move to the suburb of Irondale, Trinity decided that moving to the unused HealthSouth building was more economical and would provide access to a better market. There was only one problem.

In Alabama — as in every other state, as far as I know — a hospital needs what is called a “certificate of need” in order to operate. Whereas a restaurant or dry cleaner can just pack up and move to a new location (or expand) with nobody’s approval, a hospital or nursing home needs the approval of a state board to operate.

The State Health Planning and Development Agency has a Certificate of Need Review Board. These people have the power to decide who gets to operate a hospital or nursing home (and what types of services they can offer) in order to “protect” the interests of the public. The board is composed of three “consumers,” three representatives of the medical industry and three representatives of the governor, but the governor appoints all of them.

The Certificate of Need Board ended up approving Trinity’s application to move, but then we see how dedicated the other health providers in the area are to the free market. Brookwood Medical Center and St. Vincent’s Hospital both sued to stop the move. Here’s what the CEO of Brookwood said when the suit was announced:

“We’ve been the primary provider of services down the 280 corridor. We have been adding services and expanding our campus to address the needs of that population. This is not the right time, for many reasons, for a market share grab like this one to be permitted and for an unnecessary duplication of services to be added in that same corridor.”

In other words, “Those are our customers. How dare someone try to compete with us?”

This is the environment in which the medical industry has operated for many decades. Doctors were regulated starting more than a hundred years ago — for the public’s health and safety, of course — and then hospitals and other health facilities were tightly regulated. Who could possibly think it had anything to do with protecting market incumbents from competition?

Nobody was allowed to operate without state permission. Nobody was allowed to offer services without state permission. Nobody was allowed to build a bigger facility without state permission.

This is how things work in a socialist system. This is not a free market.

After five years of wrangling, Trinity has finally won permission this week — from the State Supreme Court — to make the move that it wanted to make five years ago. How can we expect a medical system that can quickly respond to market forces and serve its market if it’s forced to operate at the will of a slow-moving state, while its competitors work hard to prevent it from competing.

I’m certainly no fan of Trinity or of the details of this particular move. The city of Birmingham is kicking in $55 million in tax rebates over the next 20 years to subsidize the move. Since the hospital was already in the city limits and it still will be after the move, why are city taxpayers subsidizing the move? (Why would they even if it were a net gain to the city, anyway?) Who knows? Nobody seems to ask such questions.

There aren’t any good guys in the fight. Trinity comes the closest, but I figure if the tables were turned, they’d be fighting tooth and nail to prevent competition, too. This is simply the culture of the sick health care industry today. They’re creatures of the state. They expect protection from government and they generally get protection — in the name of “the public good,” of course. Why would they have any incentive to operate more efficiently or compete more effectively?

When you hear people tell you that our mess of a health care system means that the free market has failed, remember this tiny story of one hospital in a mid-sized market. And multiply it a million times to account for all the horror stories that prevent effective and free competition.

We don’t have a free market in health care. Government has created this mess — in many different ways — and it’s about to get even worse as ObamaCare kicks in. If you want a real solution, we need to dump the socialist “certificates of need” and attempts to avoid competition and vague mumblings about “the public good.”

Let the market do its job. And quit blaming government failures on a free market that doesn’t even exist.

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