Gov. Sarah Palin

It shouldn’t be surprising that Alaska Governor Sarah Palin, Senator John McCain’s pick to be his running mate, has built her reputation more on natural resource issues than health care. She’s from Alaska, after all.

But Gov. Palin hasn’t been completely silent on health policy either. In February, she wrote an interesting opinion piece for the Anchorage Daily News in which she advocated repeal of the state’s Certificate of Need (CON) law.

CON laws were put in place in the 1970s in a desperate attempt to control rapidly rising health care costs. Medicare and Medicaid were passed in 1965, unleashing much new demand for health services, which, in turn, prompted a building boom of hospitals and nursing homes.

In response, the federal government and the states tried to slow down the rapid increases in use of inpatient services by imposing CON requirements, which essentially forced would-be hospital owners and administrators to prove the need for any new inpatient beds.

The problem, of course, was that these laws put politics in the middle of service supply decisions. CON laws were used and manipulated by incumbents to limit competition and protect their market share.

CON advocates point to studies here and there showing modest cost savings, but it is nearly impossible to determine for sure what would have happened in some markets without such laws.

But the overall picture is quite clear: costs have been rising rapidly for three decades, and CON laws did nothing really to alter that picture. It is telling that no serious analyst believes aggressive CON enforcement would do much to solve our cost problem today.

There are really only two choices when it comes to health care cost escalation: governmentally-enforced budgets, which use price controls to limit the supply of services (and therefore ration care) or a more effective marketplace, in which consumers are able to use their purchasing power to reward efficiency and patient-centered care.

In this crucial debate over costs, Gov. Palin has shown the right instincts. Repealing CON laws will not solve the whole problem, but repeal is a necessary step in fostering more effective competition among suppliers of services. Price and quality transparency, and strong financial incentives for cost-conscious consumption, are also crucial.


September 3, 2008