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Appendix A STATEMENT - CLARK C . HAV IGHURST - AT

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- A2 - STATEMENT - CLARK C. HAVIGHURST Appendix A My views on the use of federal guidelines to limit the discretion of local health planners and regulators do not differ greatly from the committee's. If anything, I believe that for health planning to have an appreciable effect on rising health costs, we must allow the federal government, as probably the most cost-conscious participant in the entire process, an even more dictatorial role than the committee con- templates. Planning-cum-regulation, as it is now conducted, has no chance to work by itself since it lacks the incentives, the tools, and the will to be tough. Even when employed in conjunction with regulatory rate setting for institutions, which is inevitably geared to covering costs, the existing planning mechanism will give the system more resources than it should have, given society's other needs. Federally- imposed arbitrariness would seem to be the logical next step if we are to make planning "work." I do not share the committee's view that the results of health planning should not be too closely scrutinized because the process is well-meaning and in some marginal sense "democratic." The bench- mark against which planning must be measured is whether it improves the allocation of resources to and within the health sector. We must now face the hard fact that only a vastly more centralized and arbitrary planning system could possibly achieve improvements in efficiency. We must also face the hard fact that such a system would improve efficiency in only a haphazard fashion and at the expense of other important values, not the least of which is individual freedom of choice. Only when we have confronted this reality con we appreciate the need to reevaluate the entire regulatory and planning enterprise. I think that Congress rejected the Administration's hospital cost containment bill in 1979 precisely because it found its arbitrariness objectionable and realized the time had come to explore the nonregulatory possibili- ties for cost containment. Despite a common tendency to view health planning and certification of need as noble undertakings, I see them simply as attempts to make the best of a fundamentally unsound arrangement for providing and paying for medical care. Planning-cum-regulation is in fact a method of managing an industry that is noncompetitive with respect to price and

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- AS - eliminating costly forms of competition that develop in a poorly organized cartel. By promoting monopoly, planners have sought to control the pressures that flow from institutional imperatives and from the residual competition that exists among physicians for patients and among institu- tions for both patients and doctors. I see nothing inspiring in this effort, whose main effect is likely to be to legitimize the cartel's poor per- formance. Health planning would not be possible without the support that comes from the beneficiaries of protectionist and anticompetitive poli- cies, and it is not likely to perform in ways that are more than margi- nally offensive to these interests. The appearance of confrontation serves the interests of the regulated as well as the regulators by creating the illusion of effective control. Moreover, health planning has been a politically convenient way of letting well-organized consumer groups get a piece of the collective action so that they will not agitate for more fundamental change that would destroy the cartel's ability to function. It should thus be clear that, despite all the rhetoric that is advanced to glorify it, health planning is a highly conservative enterprise, accepted by dominant provider interests as the best defense against both competition and other government-sponsored forms of radical change. Some may believe that the planning effort is the best our overpoliticized society can do, but I think we can do much better. My own preference is for restoring competition to a dominant resource-allocation role. The committee acknowledges the existence of this point of view but minimizes its realism. Nevertheless, it is an idea whose time may well be coming--if one judges by, for example, the references to competition contained in the National Health Planning and Resources Development Amendments of 1979. Those amendments and the the accompanying committee reports, together with Congress's resistance to the proposed hospital cost-containment legislation, reflect a dramatic reversal in the unquestioning drift of public policy toward reliance on heavier regulation and other forms of centralized decision making. A number of innovative legislative proposals are pending at the moment that would give teeth to the new Congressional interest in relying on competition and consumer choice as an alternative to trying to make existing monopolies and cartels both more efficient and more accountable. This committee's report gives none of the flavor of the current policy debate and, instead makes it seem as if nothing has happened. What has happened is that Congress has reversed itself and declared competition to be the mechanism of choice, where it works, in health services. Aside from the Airline Deregulation Act of 1978, no other federal regu- latory legislation is nearly as explicit concerning Congress's preference that competition be allowed to operate wherever it can allocate resources reasonably well. The reason the committee believes that nothing has changed is probably that they sincerely believe that competition cannot do much and that, even though Congress might wish it could be otherwise,

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- A4 - planning and regulation must inevitably remain the dominant methods of allocating health resources. Many others in the planning community are unthreatened by the legislative change, however, because they recognize that, whatever the merits of the question, it is the planners themselves who, under the law, will have the final say on whether command-and-control regulation or market forces can better allocate resources of a particular type. Powerful ideologies and conveniently shallow analysis, which stops just at the point where it should begin, may therefore combine in practice to defeat Congress's initial attempt to change the orientation of national health policy. It is an interesting commentary on our governmental system that it frequently takes much more than a mere Act of Congress to change the behavior of well-entrenched regulators. I would have liked to have assessed the merits of competition as the allocator of particular types of resources, but the study did not do this. If it had' an interesting discussion might have been launched, although I appreciate that the questions raised would have been unman- ageable in the context of this report. While I accept this choice, I am not happy with the text that was used to gloss over the competi- tion alternative, or with the report's description of the market failure that arguably necessitates health planning and regulation. Although a superficially plausible case can indeed be made for central planning and regulation to offset huge defects in our current health care financing system' the only interesting question to my mind is the one the study neglects: how did the financing system get that way and why doesn't it change to serve consumers better? The explanations for the market's poor performance have to do with the tax law, private restraints of trade, the purchase of health insurance by unions and employers rather than by individuals, the design of government financing programs, and regulation itself. The striking thing about this list is that every problem it ider~tifies--and all others are, I think, de m~nimis--is remediable by legislation, regulatory reform, or antitrust enforcement. Moreover, none of the relatively straightforward measures required to unleash market forces are incompatible with maintairing improved public programs to subsidize the procurement of care by those who would otherwise be underinsured and underserved. The committee e S view of health planning and health policy is the one that prevailed generally until quite recently, but I do not think it has much relevance anymore in light of the 1979 amendments and the new Congressional mood. Certainly, it is no longer the case--as had been said so often by so many--that the political system has so firmly embraced planning and regulation that to talk of deregulation is irrelevant. Indeed it seems to me that the time has come to encour- age health planners to assist in building bridges to a world in which consumers would have a chance to choose for themselves and in which providers would be accountable, not politically (which they

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- A5 usually prefer), but in the marketplace. I fear that this report will serve more to confirm health planners' preference for business as usual than to alert them to their new responsibilities.

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