SHETH: Requiring higher health care costs

Virginia’s certification-of-need rule interferes with medical marketplace

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Nearly 1 billion people worldwide now use Facebook, less than 10 years after its founding. But what if, before Mark Zuckerberg launched Facebook, he had been forced to obtain a government permission slip by proving to bureaucrats that there was a “need” for his service? Without such a permission slip, Mr. Zuckerberg and his partners could not even buy a high-capacity server or other equipment integral to providing their service. Now imagine that obtaining this special permission slip cost hundreds of thousands of dollars in attorney, consulting and application fees.

What if, as part of this process, the government invited the participation of Friendster and MySpace, the two companies that dominated the social networking scene? With their businesses threatened, Friendster and MySpace could argue that no “need” existed for Facebook. Never mind that Facebook promised a superior user experience and more reliable service. If the only question was whether the new service was “needed,” the government might well conclude that Facebook would only duplicate the social-network services of its established competitors. In the face of such government-imposed obstacles, could Mr. Zuckerberg ever have launched Facebook?

This seems like a fantastical story - but doctors in Virginia, 35 other states and the District of Columbia face exactly this process before they can offer medical care in a new location.

Meet another Mark: Dr. Mark Monteferrante, a board-certified radiologist with more than 19 years of experience. Dr. Monteferrante specializes in interpreting images of the brain and spine. He and his team of radiologists and staff offer services in nine offices in Maryland and one in the District.

Dr. Monteferrante wants to open an office in Northern Virginia to bring his team’s special expertise diagnosing bone and joint injuries to the area. He and his team are all licensed to practice in Virginia. They have a great client base and access to capital to buy an MRI scanner, which they need in order to open a new office.

The only problem is that Virginia makes it a crime to purchase an MRI scanner without first getting special permission from the government. Under Virginia’s “certificate-of-need” program, Dr. Monteferrante must first prove to the Department of Health that there is a “need” for his radiology services and a new MRI machine in Northern Virginia. To make matters worse, existing businesses are allowed to participate in the process to oppose Dr. Monteferrante’s application.

Under Virginia’s complicated scheme, Dr. Monteferrante must submit to a lengthy and costly application process which, on average, lasts eight months and costs $20,000, plus hundreds of thousands of dollars more in consulting and attorney fees. After all that time and money, approval is far from certain.

However, if Dr. Monteferrante and his team wanted to work for an established radiology clinic providing the same services, Virginia would not put him through the wringer. The Old Dominion only requires a certificate of need if they want to own their own practice that would compete with existing facilities. That is, Virginia’s certificate of need really amounts to a certificate of monopoly.

It should be no surprise, then, that study after study has concluded that certificate-of-need requirements increase health care costs. In a joint 2004 report, the Federal Trade Commission and the Department of Justice found that these requirements increase prices by restricting competition.

Certificate-of-need requirements like Virginia’s hurt real patients, and they do so for no better reason than to direct more money into the pockets of established businesses. That is not just wrong, it is unconstitutional.

That is why on Tuesday, Dr. Monteferrante and other doctors have teamed up with the Institute for Justice in a major federal lawsuit against the Virginia Department of Health. Dr. Monteferrante is standing up for the right to offer cost-effective, safe, quality medical services to all Virginians who want it, free from unreasonable and protectionist government regulations.

People may debate the necessity of Facebook, but we can all agree that when private citizens want to invest in innovative and effective medical services, the last thing the government should be doing is stopping them.

Darpana Sheth is a lawyer with the Institute for Justice, which filed a federal lawsuit seeking to strike down Virginia’s certificate-of-need program.

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