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No one

Introduction

victimized by "fly-by-night" operators) gener-

ally are viewed as providing negligible benefits.

before has even

The chief exceptions relate to regulation of

There is a significant amount of literature

attempted to

natural monopolies and antitrust, where, in

on the benefits and costs of regulation in the

compile a

theory, regulation may enhance efficiency

U.S. economy, with the first efforts to estimate

rather than reduce it.5 In contrast, social regu-

the overall impact dating back to the mid-

comprehensive

1970s.1 From this work it is known that regu-

lations designed to control the harmful or

estimate of the

unintended consequences of market transac-

lations impose a considerable burden on U.S.

tions (such as air pollution, occupationally

businesses and consumers: the impact of reg-

overall benefits

induced illness, or automobile accidents) gen-

ulation on the overall economy will approach

and costs of

$1 trillion in 2004.2 In contrast, however, no

erally are viewed as having the potential to

health services

confer sizable benefits in addition to whatever

one before has even attempted to compile a

costs they impose. Whether such regulations

comprehensive estimate of the overall benefits

regulation.

result in a net benefit depends on their success

and costs of health services regulation. With

in addressing various types of market failures,

health expenditures projected to absorb one-

sixth of the economy in less than a decade,3 it

including externalities in both production and

consumption. Given that various markets in

makes sense to focus on this void in our

health services fall short of conditions re-

understanding of the impact of regulation.

quired for perfect competition, the possibility

Therefore, researchers at Duke University have

that health regulation may produce benefits

spent two years developing a preliminary syn-

in excess of costs cannot be rejected a priori.6

thesis of the literature on the benefits and

costs of health services regulations, and are

There are disparate views on the merits of

continuing today to refine those early esti-

measuring regulatory costs without taking

mates as well as fill in the gaps in what is now

into account the benefits of regulation.

known.4

Although there is not complete agreement

on how to measure regulatory costs, benefits

My colleagues and I have had as our cen-

estimation "is as much an art as a science due

tral goal to develop a tentative estimate of the

to imperfect methodology and insufficient

net cost of health services regulation in 2002

data."7 Despite these limitations, some argue

and to compare that to important bench-

marks such as overall personal health care

that "while estimating the benefits of envi-

expenditures (PHCE) and gross domestic

ronmental, health, and safety regulation is

product (GDP). More specifically, we address

not straightforward, it is not informative to

the following central questions: What is the

exclude them from a discussion of regulatory

costs and benefits."8 Similarly, the Office of

net burden of health services regulation in

the United States? What fraction of U.S.

Management and Budget itself has stated,

GDP and health spending is attributable to

"presenting costs without benefits is not very

informative and potentially misleading."9

regulation? Ideally, we would want to know

whether the benefits of such regulations

Others, however, take the position that while

exceed their costs. Likewise, it would help

the benefits corresponding to federal budget

policymakers understand the opportunity

expenditures are recognized by policymakers,

cost of regulation in terms of alternative uses

"an overall understanding of expenditures or

to which these same resources might be put

budgetary costs is essential for reasoned deci-

or in terms of the number of lives that could

sionmaking" and "there are considerable

be saved each year by trimming "excess" reg-

gains from understanding the cost side

alone."10 Despite some of the foregoing limi-

ulations that fail a cost-benefit test.

Economic regulations such as restrictions

tations in measuring them, we opted to

on business entry, pricing, or output (ostensi-

include health benefits in this study.

bly to protect consumers from high prices

To the extent that researchers have tried to

charged by natural monopolies or from being

quantify the benefits side of regulation in dol-

2