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Market, Not Politics, Should Decide Indiana’s Nursing Home Choices

February 28, 2015

Most people instinctively understand when government shelters companies from competition it is ultimately the consumer who suffers from higher prices, lower quality, or both.

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Most people instinctively understand when government shelters companies from competition it is ultimately the consumer who suffers from higher prices, lower quality, or both. Unfortunately, this bit of common sense hasn’t made much difference in the minds of those arguing Indiana should impose a moratorium on new nursing home facilities and beds.

Indiana’s legislature is currently considering legislation from State Sen. Patricia Miller (R-Marion County) that would impose a three-year ban on the construction of new nursing home facilities and adding new beds to existing facilities.

The rationale offered for preventing new facilities and beds is Indiana already has more than enough nursing-home capacity, and increasing capacity would raise health care costs in the state.

Those who follow health care policy will recognize this rationale as identical to the arguments offered for certificate of need (CON) laws, which require health care facilities to prove to the government their services are needed before they can open or expand their capacity. CON laws didn’t help restrain health care spending in the past, and Indiana’s effort to prevent new nursing home facilities from being built won’t lead to any savings either.

The evidence against CON laws is clear. Duke University professors Chris Conover and Frank Sloan examined the issue carefully in their 2003 study of CON in Michigan and concluded, “[T]here is little evidence that CON results in a reduction in costs and some evidence to suggest the opposite.”

More recently, George Mason University’s Thomas Stratmann and Jacob Russ found such measures limit access to medical care and drive up costs by restricting competition.

Government studies have likewise found CON damages the health care system. A 2008 joint statement from the Federal Trade Commission and U.S. Department of Justice reiterated their longstanding view CON laws “undercut consumer choice, stifle innovation and weaken markets’ ability to contain health care costs.”

Advocates of imposing a moratorium on nursing homes in Indiana argue the state has too much capacity already, pointing to an occupancy rate of 76 percent compared to a national average of 83 percent, but this misses two important points.

First, Indiana’s population of senior citizens, the primary residents of nursing homes, is projected to climb significantly in coming years. The Indiana Business Research Center at Indiana University projects in the next 10 years, the number of senior citizens in the state will grow by around 329,000. Demand for nursing home care from this growth will probably exceed Indiana’s existing capacity.

Second, it shouldn’t be up to the government to decide whether someone can open their doors for business; it should be up to the investors and, ultimately, the customers. Assuming appropriate safety regulations are met, Indiana should welcome anyone who wants to create jobs by investing in the construction and operation of new facilities.

Miller suggests because Medicaid picks up a portion of nursing home care and payments are based on a formula that includes the cost of empty beds, Indiana taxpayers will be stuck picking up the tab for any additional empty beds.

That’s a good observation, but it’s not a reason to clamp down on competition. Instead, Miller ought to go to Gov. Mike Pence (R), who has remained silent so far on this issue, and work with him to see what needs to be done to change the Medicaid formula so taxpayers don’t have to pay for empty beds.

Indiana’s current and future retirees should be able to choose from as many nursing home options as the market can support, instead of only the few the state’s politicians are willing to allow.

Article Tags
Health Care
Author
Sean Parnell (sparnell@heartland.org) is a research fellow for health policy at The Heartland Institute.
sparnell@heartland.org @seandparnell