July 22, 2014

Show Me Better (Part 2): Certificate Of Need And Access To Care

One of the benefits of free markets is their ability to match buyers with sellers. Potential customers assess the supply of goods and services, the parties agree to the prices, and, generally speaking, purchases are efficient – delivering comparable value to both parties.

Unfortunately, Missouri’s certificate of need (CON) program may be erecting barriers to the market functioning efficiently when matching care providers and care consumers. A recent working paper by the National Bureau of Economic Research examined how hospital entry deregulation in Pennsylvania affected the market for cardiac revascularization. Because Pennsylvania eliminated its CON program in 1996, economists were able to compare clinical outcomes before and after the program’s repeal — the ideal conditions by which to conduct an experiment. The researchers found that “free-entry improves the match between underlying medical risk and treatment intensity” and “improved access to care.”

Another study conducted in the same state, on the same topic, found that the post-deregulatory market did a better job at matching the appropriate procedure to the appropriate risk level. After deregulation, better doctors also saw an influx in demand for their services.

Removing the CON program in Pennsylvania empowered patients to attain better care from better doctors. Certainly, a market uninhibited by cumbersome regulations does a better job at matching the right patient to the right procedure, performed by a better doctor, than a nine-member regulatory board. Missouri could follow Pennsylvania’s lead in doing away with the micromanagement and creating a system conducive to competition and innovation.

July 21, 2014

Show Me Better: Assessing Certificate Of Need In Missouri

One of the most obvious examples of a massive government burden on our health care system is the Affordable Care Act (Obamacare), but Obamacare does not have a monopoly on onerous government regulations in Missouri. In fact, some state-run regulatory programs, such as certificate of need (CON), may also play a role in increasing the cost of care and decreasing access to care for some of the state’s neediest patients.

A certificate of need is a legal document the state issues to allow a health care provider to expand, modify, or construct certain health care facilities. In Missouri, a nine-member committee reviews applications for certificates of need and administers them in accordance with its own rules. For example, last year, the Lafayette Health Center received a CON to construct a new $40 million hospital. Based on the committee’s rules, Lafayette likely paid the review committee a hefty $40,000 application fee.

One of the original purposes of the program was to guarantee health care access by limiting competition in a particular region. Proponents assert that, with less competition, the likelihood of a hospital going out of business will be reduced, hopefully ensuring a sufficient level of care for citizens near the health care provider. Yet, empirical evidence suggests that CON programs neither control costs nor improve health outcomes. Indeed, they may actually hamper access to care and patient choice, at least under some circumstances.

If the certificate of need law could be hurting the people it was intended to help, should it be reformed? Abandoned? These questions are central to why we, as Missourians, ought to take a serious look at the necessity and efficacy of the state’s CON program. In future posts, I will review how CON regulations impact health care costs, access to care, and clinical outcomes.

July 16, 2014

The Nanny State Of Nannies: Missouri’s New Day Care Regulations

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Being a working mom isn’t easy — I know this because I am one. If the dark circles under my eyes aren’t evidence enough, my bank statement certainly is — day care is expensive. According to one guide, the average working parent spends $600 a month on child care (in cities, that number is closer to $1,000, and in rural communities, it is $350).

The federal government provides financial assistance to eligible parents through the Missouri Child Care Assistance program, regardless of whether or not the day care facility of choice is licensed. According to the St. Louis Post-Dispatch, 4,000 unlicensed day cares receive $38 million in federal funding per year. In order to continue receiving federal subsidies, Missouri must comply with new standards that the U.S. Department of Health and Senior Services set.

To do so, Missouri Gov. Jay Nixon signed Missouri House Bill 1831. Unlicensed child care providers who receive federal or state funding will now be regulated. Some of these regulations are beneficial (tuberculosis testing), while others seem redundant, such as compliance with building codes. Though regulations aimed at keeping children safe are laudable (yes, if there are indeed fire code exemptions for some child care providers, that should be changed), they may have unintended cost consequences.

According to child care director Latonda Moody, new regulations will negatively affect urban communities, including increasing day care costs. The regulations, she says, will incentivize choosing unlicensed child care providers at lower costs with or without government subsidies.

“If day cares have to raise their rates, their kids will be with people who shouldn’t be watching kids — unlicensed homes, unlicensed churches — or they’ll flat out quit their jobs,” Moody said.

Licensing-averse David Stokes, Show-Me Institute’s director of local government policy, agrees with Latonda’s perspective on rising costs.

“Even if you believe that increased licensing would increase child safety — a belief that is unproven — the changes would have the unintended consequence of driving some marginal number of people toward other alternatives,” Stokes said.

Remember, “unlicensed” facilities in Missouri do have to meet some standards. If you increase costs, some providers will really start offering services in the background with no standards.

We all want safe day care facilities for our children. My child’s safety is at the forefront of any decision I make, but I also understand what it means to have a budget. If increased regulation and licensing cause parents to choose “off-the-grid” day care facilities, then this issue should be further examined.

July 14, 2014

‘Right To Try’ Law Gets Gov. Nixon’s Signature

Today is the last day for Missouri Gov. Jay Nixon to veto or sign legislation that the 2014 General Assembly passed. So, with the state’s “Right to Try” proposal still sitting on his desk, I started my workday with a smidgen of trepidation. “Right to Try,” you might remember, would empower patients with terminal illnesses to more freely seek experimental medications in hopes of finding something that could help them.

The concern: Would the governor veto “Right to Try” this year, much like he vetoed the Volunteer Health Services Act last year?

The answer: Nope. He just signed it.

The Governor signed two health-related bills, which will provide Missourians in specific situations with additional options for medical treatment of illness and disease. House Bill 1685 allows drug manufacturers to make available investigational drugs, biological products, or devices to certain eligible terminally ill patients. House Bill 2238 allows the use of hemp extract to treat some individuals with epilepsy and also allows the Department of Agriculture to issue licenses to grow industrial hemp strictly for research purposes. House Bill 2238 contains an emergency clause.

I talked about this bill a lot in the last few months. This was, to me, an obvious opportunity to empower people to make each other’s lives better. The government should open doors for people to care for one another, not erect and maintain barriers to helping each other. “Right to Try’s” enactment is not only a victory of reform-minded policy, but more importantly, it is a victory for Missourians in need.

Congratulations to the Missouri House and Senate for sending the bill to the governor, to the legislators who sponsored the bill and powered this important conversation, and to the governor for making the right decision by adding his support to the unanimous votes of the legislature. Well done.

June 18, 2014

Supply, Demand, And The Minimum Wage

Early last week, Lindenwood University Professor and Show-Me Institute Fellow Howard Wall debated the merits of raising the minimum wage on St. Louis Public Radio. It was an interesting discussion, but  one thing stuck out for me. In the debate, Chris Sommers, who co-owns Pi Pizza and is in favor of raising the minimum wage, stated that (at 5:37), “We raised the wage in order to also attract better people.” This was said in the context of Pi raising the wages its pays its employees.

This is interesting because Pi raised its wages voluntarily. It didn’t need the government to mandate a hike in pay, it chose to do it because it made sense from a business perspective. That is how it is supposed to be. In fact, that is what businesses do. They pay their workers a competitive rate commensurate with the value that these employees generate for the business. If they pay their employees too little, other businesses can offer these workers a higher rate and they will leave. Sommers mentioned his workers moving to another business because it offered a 25-cent increase in hourly wages (at 4:30). This is the market working.

Take what happened in North Dakota as an example. Because businesses were so desperate for workers, even fast food establishments had to significantly increase what they would pay their employees. For example, Taco John’s, a local area fast food restaurant, had to offer new employees $15 an hour salaries in order to get them to work there.

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I want to help the poor do better, but there are betters options available than raising the minimum wage, like the Earned Income Tax Credit. This would ensure the benefits would go to the people who really need them, the working poor.

June 16, 2014

Power Play In Southeast Missouri

Ameren is one of the state’s largest electrical utilities. Noranda is an aluminum company in Southeast Missouri that, due to the nature of making aluminum, uses an enormous amount of electricity. This is a tricky post to write because it is certainly complicated stuff and I don’t have a Ph.D. in electrical engineering like my father-in-law does. Noranda and Ameren have several cases before the Public Service Commission (PSC) that are being considered. In an effort to simplify things, it all basically comes down to two issues:

1) Claims that Ameren has been overcharging its customers from what the PSC allows it to receive in profits, and

2) Demands for mandated lower rates for Noranda itself, the state’s largest electricity consumer.

As to claim No. 1, if that is correct, then the PSC will take appropriate action. While rates themselves don’t directly compare to returns, in fairness to Ameren, the most recent annual electricity rate survey just showed Saint Louis as having the second-lowest residential electricity rates in the survey (which included much, but not all, of the country). The same survey showed Ameren having among the lowest commercial rates as well. So, while it may be possible to over-earn while charging comparatively very low rates, Ameren is hardly holding its customers (at least its Saint Louis customers) over the barrel.

As for Noranda’s demands for even lower rates, they already pay the lowest rates in the state. Furthermore, the Missouri General Assembly has already given Noranda the unique right to shop for electrical providers, unlike any other person or business in the state. I don’t begrudge Noranda any of this. As the largest user, I understand why their bulk discount is so high. Also, while I may want to give more customers the same right to shop that Noranda has, I certainly don’t want to take that option away from them.

That said, there has to be a limit on having the state solve Noranda’s electrical cost issues. If they can’t negotiate an even better deal from Ameren, Noranda does have the right to switch providers. Indeed, that is how they switched to Ameren in the first place. That is more than enough special treatment from the state.

Noranda’s efforts to curb its power costs goes back years. Noranda used to purchase electrical power from the rural cooperative by its smelter. But with the help of a law passed solely for its benefit by the Missouri General Assembly, Noranda was allowed to switch electricity providers. As of 2005, it has purchased electricity from Ameren at a cheaper rate than the cooperative had offered.

It is the role of the PSC to regulate private utilities, but it is not the role of the PSC to fix Noranda’s bottom line. We all want Noranda to successfully continue operating in Missouri, but it is not the role of state government to aggressively interfere in an attempt to guarantee that.

 

June 2, 2014

Kansas City’s War On The Future

With all the political rhetoric floating around Kansas City, one would think the city is embracing high technology and forward-looking, well, everything. A closer examination reveals just the opposite. The city is using 19th-century politics and policymaking, and hoping for 21st-century results. It is as anachronistic as those future-looking movies of the past.

width= What old-timey look at the past would be complete without a monorail light trail streetcar? Kansas City politicians are determined to employ 19th-century fixed rail transit, thinking wrongly that it will solve our problems. We’ve written extensively about why rail is bad for Kansas City. You can read about it here.

The most jaw-droppingly insipid claim is that such policies will draw the creative class. Never mind that there is no research to back up this claim — Kansas City already is rapidly becoming a fact-free city. In fact, a vocal proponent of streetcars who claimed to speak for millennials just announced that he is leaving Kansas City for the East Coast to seek greater opportunities. This supports the writings of my Show-Me Institute colleague: the so-called creative class goes where the jobs are, not to streetcars or airports.

Meanwhile, city officials view actual future-looking technologies such as those that Lyft and Uber provide with hostility because officials are mired in 19th-century protectionist cronyism. How are Kansas City officials going to react to the inevitable arrival of driver-less Google cars? Demand that cars undergo a background check? Require that each one contain a detailed street map? This is not forward-thinking; in fact, it’s not thinking.

Speaking of Google, Kansas City Mayor Sly James and others love to extol Google Fiber, as if Kansas City, Mo., won that national bidding war to bring them here a few years ago. We didn’t. We lost to Kansas City, Kan. We were just lucky enough to be next door. Kansas City, Kan., won because they demonstrated small and efficient government, not heavy-handed regulation and federal money.

In looking to create density downtown, city officials are falling over themselves to offer up any sort of taxpayer subsidy, handout, or corporate welfare package to bring density — sometimes just to move jobs two blocks. Yet they are unable or unwilling to deliver basic services to the rest of the city. This is not forward-thinking, it is urban cannibalism.

If Kansas City officials are serious about building a brighter future, they need to shed the city’s knee-jerk tax-and-regulate policies and start doing the few things a city can do well: maintain the streets and parks, fight crime, provide quality education, and do so while keeping taxes low. Then the city won’t need to pick winners — because the winners will come to the city on their own.

May 20, 2014

Useless Taxi Regulation In Saint Louis

The recent conflict between Lyft and the St. Louis Metropolitan Taxicab Commission (MTC) adds even more credence to the argument that the MTC should not exist. Under the guise of protecting public safety, the MTC controls market entry for taxis in Saint Louis, sets prices, and needlessly regulates the for-hire vehicle market in favor of large taxi companies. There are many examples of these types of competition stifling regulations in the MTC’s For Hire Vehicle Code, including:

Regulations that restrict market entry:

  • Section 203: All For Hire Vehicle Owners require a Certificate of Convenience and Necessity (CCN) from the MTC. The MTC, staffed by taxi industry players, gets to decide if there is enough demand for more cabs. (The MTC has frozen CCN issuances for taxis until they finish a study on taxi demand, because apparently the job of the MTC should be to centrally plan taxi supply).
  • 202: Transfer or sale of a CCN must be accompanied by a $2,500 application fee.
  • 210: All CCNs must retain and maintain a non-residential office address with a business telephone number that is staffed 24 hours a day.
  • 301: All for-hire vehicles require a permit (airport taxi, premium sedan, etc.). Vehicles can only receive one type of permit.
  • 602: Taxis cannot be older than nine model years and premium sedans cannot be older than five model years. Taxis that are more than six model years cannot enter service and premium sedans more than two model years cannot enter service.
  • 604: All new premium sedan CCNs require at least three sedans at the time of permit issuance.

Regulations that restrict competition:

  • 501: Taxi meter rates are controlled.
  • 301: For-hire vehicles can only receive one type of permit; hence, airport cabs cannot compete with normal taxis which cannot become premium sedans.
  • 604: Premium sedans cannot be stationed within 2,500 feet of a hotel or business property.
  • 604: Premium sedans must contract for passengers at least 60 minutes before pickup.

Regulations that are needless or simply ridiculous:

  • 501: Taxis must have printed, in colors contrasting to that of the vehicle surface to which affixed, on the outside of one door, the name of the vehicle license holder in letters at least 2.5 inches high.
  • 504: Drivers are required to wear a uniform of black slacks and a solid, button-up shirt.
  • 701: All on-call taxicabs should arrive at a hotel with heat or air conditioning running, set between 65-75 degrees.
  • 304: Vehicles cannot have spinning wheels or covers.
  • 304: Bumper paint must match vehicle paint unless paint is not required, then it must be factory black.

You are free to believe these and many other MTC regulations have some tangential connection to keeping passengers safe. But the simplest explanation is that the purpose of these rules is the same as their result: to limit market entry and control competition. Equally simple is the method for improving taxi service in Saint Louis: shutting down the Metropolitan Taxicab Commission.

May 19, 2014

Useless Taxi Regulation In Kansas City

Kansas City’s attack on Lyft has been a reminder to many residents of the city’s excessively regulated for-hire vehicle market. City officials have long claimed that these regulations are all about safety. But any cursory inspection of Kansas City taxicab code reveals provisions that are clearly designed to limit competition and have nothing to do with passenger safety. Here are just some examples from the city’s taxicab code:

Ordinances that limit market entry:

  • Section 76-43 prohibits jitneys (private vehicles operating fixed routes within the city).
  • 76-73 (a). Caps taxi permits to 500.
  • 76-73 (b). All new applicants to operate taxicabs must permit at least 10 vehicles.
  • 76-75: Cab and livery vehicle owners must pay $300 per year for every permitted vehicle (in addition to a $50 application fee, driver’s fees, and inspections fees).
  • 76-191 Holder of taxicab permits have to provide on demand service 24 hours a day, seven days a week.
  • 76-191 (b). All taxicab companies must maintain a non-residential place of business that is staffed 24 hours a day.
  • 76-212 Taxis cannot be more than eight years old and must have a luggage capacity of 15 cubic feet or greater.

Ordinances that set prices and reduce competition:

  • 76-192 (a) requires all taxis to use a meter.
  • Section 76-43 prohibits jitneys (private vehicles operating fixed routes within the city).
  • 76-192 (b) sets fares for meters.
  • 76-236 Livery vehicles cannot solicit passengers on any public way or airport or cruise in search of patronage. They cannot park for any time longer than picking up passengers and cannot accept any fare that has not been previously arranged.

Ordinances that are ridiculous, needless, and/or outdated:

  • 76-203 Taxi drivers cannot sleep in their vehicles or play loud music.
  • 76-203 (1) Taxi drivers cannot wear jogging suits or shorts from October 1 to April 30.
  • 76-207 All taxis are required to have at all times detailed street map.
  • 76-210 Taxicabs must have a top light visible from all directions.
  • 76-210 Taxis must have the company name of vehicle written in letters not less than two inches or more than six inches in height.

These are just a few of the many questionable regulations that have nothing to do with customer safety and everything to do with controlling the market and reducing competition for large taxi companies. Needless to say, transportation options in Kansas City would greatly improve if these and other sections of the taxicab code were repealed.

May 14, 2014

Lyft And Kansas City’s Stifling Taxicab Regulations

This week, Kansas City officials have been hard at work trying to keep ridesharing out of the city of fountains. First, the city rushed through an ordinance requiring permits for vehicles taking “donations” (as Lyft does) for travel. Then, the city pursued an injunction against Lyft for operating in Kansas City.

Some city officials, like Assistant City Manager Rick Usher, have argued that Lyft simply needs to apply for the proper permits. Why didn’t Lyft think of that? Its drivers go through background checks, have insurance, and get their vehicles inspected. Why not go one step further and get permits? The reason Lyft has not done so is that Kansas City’s Livery and Taxicab regulations prohibit Lyft’s business model.

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According to Kansas City ordinances, the definition of a livery vehicle is:

. . . a public six-passenger or less motor vehicle with driver included, for hire only by written agreement for exclusive use at a charge fixed in advance.

The livery classification was designed to encompass pre-arranged limo and premium sedan services. Lyft charges by both time and distance (not a fixed charge) and, of course, has no advance written agreements. In addition, the Kansas City taxicab code states that livery vehicles cannot:

. . . solicit passengers for transportation in a livery vehicle on any public way or at any public airport or operate a livery vehicle so as to cruise in search of patronage . . . no passenger shall be accepted for any trip in such vehicle without previous engagement for such trip at a fixed charge through the business office from which the vehicle is operated.

If Lyft’s drivers received livery permits, they could not drive around town for passengers, pick up passengers without existing agreements, or charge distance-based fares. Lyft’s business model would be impossible. Lyft’s drivers actually act more like taxis than livery vehicles, aside from the fact that they don’t use a taxi meter.

Unfortunately, taxicab regulations in Kansas City prohibit ridesharing companies’ drivers, such as Lyft’s, from obtaining taxi permits. These regulations include (but are not limited to):

  • Permits are only given to cab companies with a minimum of 10 cars, not individuals with one car.
  • The city has reached its 500 taxi permit limit, and will not issue more.
  • Taxis must use meters with prices that the city sets.

The bottom line is that if Lyft drivers receive livery permits, they cannot operate as Lyft drivers, and if they are to be considered taxis, they cannot get permits, period. Telling Lyft that it can operate if its drivers just apply for licenses is like telling someone he or she can join a football game as long as he or she doesn’t step on the field. I’ll leave it to the reader to decide whether the rules of the game are designed to protect public safety, or whether they are meant to keep newcomers out.

May 13, 2014

Op-ed: Excessive Regulation, Not Lyft, Needs To Stop Operating in Kansas City

Last Friday, my op-ed about Lyft and Kansas City’s absurd taxicab ordinances appeared in the Kansas City Business Journal. For many years, Kansas City’s livery and cab industry has been needlessly regulated for the benefit of large taxi companies at the expense of residents and entrepreneurs. As the op-ed pointed out:

City ordinances set fares, require potential cab owners to start with a fleet of 10 cabs, limit cabs to less than 600 city-wide, and require cab companies to provide 24-hour service.

Market controls such as these and others are not justified and Kansas City should lift these ordinances so that new business models can thrive in the city. Read the entire op-ed here.

May 12, 2014

Tesla, Car Dealers and Milton Friedman: The Problem of Protectionism and Cronyism

Last week at Forbes, I wrote about an attempt by Missouri car dealers to prevent electric car manufacturer Tesla from selling its cars directly to customers. Although the amendment in question quietly passed the state Senate, I do expect that free market advocates in the House will loudly reject this attempted protectionism and cronyism.

That said, it must be noted that although Tesla is being wronged by the proposed amendment, policymakers would do well not to proclaim the heavily-subsidized company to be some spirit animal of the free market. Indeed, many businesses are quick to proclaim their love of the market while simultaneously marshaling special protections and subsidies to themselves. Tesla fits that description to a T; hit up that last link for a list of examples.

The Tesla episode reminds me of an old video featuring famed economist Milton Friedman. Asked some decades ago about who can save the free market, Friedman framed his response this way:

You talk about preserving the free market system. Who has been destroying it? The business community must take a large share of the responsibility. … You must separate out being pro-free enterprise from being pro-business.

The short video, which I commend to all of our readers, is below:

There is a difference between being pro-business and being pro-market. Clearly the proposed legislation would be pro-dealers; it would not, however, be pro-Tesla or pro-consumer.

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