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Central planning of health care investments: picking winners and losers on the same day

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In the last 24 hours the state of North Carolina, invoking the infinite wisdom of politicians and bureaucrats, has announced that it is subsidizing the investments of several favored bio-tech and pharmaceutical firms while at the same time denying the right of a Wilmington clinic to pursue its investment plans.

Governor McCrory and outgoing Commerce Secretary Sharon Decker announced that the state will be giving away over $640,000 in taxpayer money through the One North Carolina slush Fund to 13 research and technology related health care businesses. It should be noted that in order to qualify for  these state funds the 13 businesses collectively had to have already received millions of dollars in federal corporate welfare. So if we don’t know anything else about these companies we do know that they are particularly good at sucking up to politicians and latching on to the taxpayers’ udder.    

Almost simultaneously, using its near dictatorial powers over the creation and expansion of health care facilities under Certificate of Need (CON) laws, the state also announced that it is denying the right of Wilmington Health to add two new operating rooms. Wilmington Health is a private health care provider that describes itself as a "multi-specialty clinic with primary care providers integrated into the system."

Certificate of Need laws govern the expansion of nearly all health care facilities including the building of hospitals, the purchase of new technologies, the addition of new patient beds and operating rooms, and numerous other health care investments or potential investments made in the state of North Carolina. Central planning boards set up by state government decide whether or not CON covered investments can be made based on a complicated formula that allegedly determines whether the investment in question is "needed" by the community. The decision to go ahead with any covered investment is taken out of the hands of health care entrepreneurs and consumes, i.e., the health care market place, and placed in the hands bureaucrats in Raleigh. It represents a level of power over local health care investment decisions that President Obama, through his Affordable Care Act, can only dream of having.

These two decisions combined demonstrate quite clearly that the state of North Carolina is totally dedicated to the central planning of health care investment decisions. From what kind of technologies are researched and developed all the way down to basic health care consumers’ needs, like how many operating rooms there should be in a clinic, the state has decided that it knows better than the free market which businesses should be the winners and which should be the losers. The actual market place be damned.

Of course this is nothing new. The assumption of power to pick winners and losers on the part of bureaucrats and politicians has been a part of the political culture in Raleigh for many decades.  And, for certain, there is no economic justification for substituting the decisions of politicians and their appointees for those of entrepreneurs and investors in the private sector who are putting their own capital at risk. The only outcome can be slower economic growth and fewer and lower quality services for consumers. In some areas this might not be so bad, but in health care, where free markets are needed the most, this is a tragedy.

For many of us there was some hope that, under the leadership of a new regime that has touted a belief in free markets and the value of private entrepreneurship, this might change. Unfortunately, this is a disease that infects politicians regardless of party. Nobel Laureate Frederick Hayek called this the "pretense of knowledge." It is the idea that politicians and central planners fool themselves into thinking that they can make better investment decisions than market participants by pretending to have information about consumer needs and investment possibilities that they cannot possibly have. The unfortunate thing is that, particularly in the area of healthcare, our market overseers in Raleigh are not just playing with other people’s money; they’re playing with other people’s lives.

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In June 2019 Roy Cordato retired from his full time position as Senior Economist and Resident Scholar at the John Locke Foundation and currently holds the position of Senior Economist Emeritus at the Foundation. From January 2001 to March 2017,… ...

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