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Measuring Health Services

lar terms, especially in the case of regulations

Regulation Costs

intended to be market perfecting, estimates

are included here. As a practical matter, how-

ever, the lion's share of research on health ser-

Two approaches were used in determining

vices regulation has been on the cost side, just

the net impact of regulation. The first was a

as it has been in the previous work on regula-

"top-down" approach that relied on extrapo-

tion generally.11 But even in cases where solid

lations from other industries. The second

was a "bottom-up" approach that systemati-

benefits estimates do not exist, there is value,

for reasons detailed elsewhere,12 in attaining a

cally examined the available literature in

detail for evidence regarding the costs and

good understanding of the cost side of regula-

benefits of a broad variety of health services

tion: (1) to help educate citizens, businesses,

regulations.

and taxpayers about the macro costs of health

services regulation on the economy; (2) to per-

"Top-Down" Approach

mit comparisons with other estimates to bet-

The "top-down" approach looked at the

ter understand the relative burdens imposed

costs of regulation in other industries such as

by various types of regulation, thereby poten-

airlines, railroads, telecommunications, and

tially improving resource allocation; and (3) to

Health care is the

other sectors that have long been studied by

improve the evaluation of different approach-

most regulated

economists, and calculated the percent of

es to regulation in hopes of making the regu-

gross economic activity in those industries

latory process more efficient.

sector of the U.S.

that various studies have attributed to regula-

As a general matter, social regulation has

economy.

tory costs. For industries that have seen con-

expanded significantly over the past two

siderable deregulation since 1988, figures

decades, at the same time that economic regu-

may be somewhat dated. Nevertheless, unless

lation has been declining. The same general

one believes that the health industry has

pattern is visible in health care: regulations of

undergone a similar form of deregulation, the

the health industry that were motivated by the

figures represent plausible impacts for a "typ-

hope that regulation could stem rising health

ical" regulated industry. By applying these

costs generally have declined, as all but one

percentages to the health sector, we arrive at

state has shed hospital rate setting and a num-

very rough back-of-the-envelope estimates of

ber have dropped or weakened their certifi-

upper and lower bounds on the plausible

cate-of-need regulations. At the same time,

magnitude of the regulatory burden. As

however, there has been increasing concern

shown in Table 1, this so-called "top-down"

about using regulation to improve quality of

approach suggests that in 2002, health regu-

care or access to services. Hence it is difficult to

lation could have imposed an annual cost of

say, on balance, whether health services regu-

$256 billion, with a range from $28 billion to

lation is relatively more or less burdensome

$657 billion.

today than it was 20 or 30 years ago.

The large difference between the mini-

This study discusses how regulatory costs

mum and maximum cost estimate illustrates

in health care can be measured, and then pro-

neatly the limitations of this approach,

vides individual sections in which prelimi-

which inevitably leaves us with a great deal of

nary findings are provided on the costs and

uncertainty about where the truth lies. But a

benefits related to health facilities regulation,

further limitation is that it is easily possible

health professionals regulation, health insur-

that the regulatory burden in health care is

ance regulation, pharmaceutical and medical

even higher than a simple extrapolation from

device regulation, and the medical tort sys-

other industries might suggest. After all,

tem. At the end, summary estimates are

according to University of Rochester health

included for health services regulation in

economist Charles Phelps, "the U.S. health

general, and the opportunity costs of such

care system, while among the most `market

regulations are discussed.

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