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facility services accordingly). Based on the

includes state laws as well as a raft of federal

most authoritative calculations of efficiency

restrictions such as the False Claims Act of

losses associated with the lower output attrib-

1863, Medicare and Medicaid antifraud

utable to output taxes31--also known as the

statutes, the Civil Monetary Penalties Law, fed-

eral self-referral prohibitions (also known as

marginal excess burden (MEB) of output

Stark I and II), and fraud and abuse provisions

taxes--these compliance costs are multiplied

included in the Health Insurance Portability

by 20.9 percent to estimate the hidden social

and Accountability Act of 1996 and the 1997

welfare losses they impose. So again, even if

Balanced Budget Act. Also included is medical

enforcement penalties are treated as a raw

records regulation (including the recently

transfer, the result is that costs exceed bene-

issued HIPAA privacy regulations as these

fits for an activity that is widely viewed as self-

relate to health facilities as well as parallel pri-

financing.

vacy policies adopted by states). The catego-

Aside from hospital rate setting, certificate

rization of the privacy regulations as cost relat-

of need (CON) regulation is perhaps the single

ed may seem arbitrary but is justified on

most widely studied area of health services reg-

grounds that these regulations seek to mini-

ulation in terms of the sheer number of empir-

mize the tangible and intangible costs associat-

ical estimates available from which to derive a

composite impact assessment.32 CON regula-

ed with privacy violations. Pharmaceutical

price regulation (which in turn includes feder-

tions require facilities to obtain state approval

al average wholesale price restrictions for

(i.e., a certificate of need) prior to constructing

Medicaid and state pharmaceutical regula-

new hospitals, nursing homes, or other health

tions), organ transplant regulation, certificate

facilities. The scope of CON regulation varies

of need (CON) regulations, and hospital rate

by state, but many states now regulate the

setting are also included. Finally, other cost-

introduction of new equipment and services

related health facilities regulations include the

such as magnetic resonance imaging units,

Patient Self-Determination Act of 199030 and

"air ambulances" (typically helicopters), or

other expensive equipment. This research pro-

hospital discharge data systems, the principal

vides very mixed results. In the best case, CON

use of which relates to better informing the

regulations save money and lives by regional-

public about costs, but which also have an

izing facilities and conferring upon the "win-

important quality purpose. As a group, these

ners" higher surgical volumes, which tradi-

cost-related facilities regulations cost Ameri-

tionally are associated with lower mortality

cans $14.1 billion, and provide benefits of

rates. In the worst case, they increase costs and

$14.8 billion. Health care fraud and abuse (net

lead to worse health outcomes. The most

cost $1.1 billion) and CON regulations (net

Even if

recent studies that use the most credible sta-

cost $110 million) provide the greatest net cost,

enforcement

tistical methods and most recent data find no

while pharmaceutical price regulations provide

impact of CON regulation on health spending

the greatest surplus of benefits over costs ($2.0

penalties are

(and concomitantly no increase in health

billion; see below).

treated as a raw

spending among states that have elected to

Even though the government collects $2.1

drop CON regulation), so zero was used as the

billion in enforcement penalties (treated here

transfer, the

expected value. In light of mixed evidence

as a transfer), the gross cost of health care

result is that costs

regarding CON regulation's effect on health

fraud and abuse regulation is estimated to be

exceed benefits

outcomes, no effect was an expected value,

$3.2 billion, inclusive of government regula-

with sizable increases in mortality in the worst

tory costs, industry compliance costs, and

for an activity

case and more modest decreases in mortality

efficiency losses from tax collection and regu-

that is widely

in the best case.

latory costs. All industry compliance costs

Pharmaceutical price regulation is a good

(including enforcement penalties) are treated

viewed as

example of why caution must be applied to

as roughly equivalent to an excise tax (i.e., rais-

self-financing.

these findings. Since 1990 drug manufactur-

ing prices and reducing demand/output for

8