Topic: Regulatory Studies

Cost and Abuse Problems in Low-Income Housing

A new Government Accountability Office report on the Low Income Housing Tax Credit echoes some of the concerns expressed in this 2017 Cato report. Vanessa Brown Calder and I suggested that the $9 billion program was vulnerable to abuse and that the costs of projects may be inflated.

Under the program, the IRS hands out tax credits to state agencies, which in turn give them to favored developers. We argued that the program had little oversight and that developers and contractors may inflate their claimed costs.

The GAO found that “no federal agency monitors or assesses LIHTC development costs, which are key to evaluating the efficiency and effectiveness of the tax credit program.” At the state and local levels, “few agencies have requirements to help guard against misrepresentation of contractor costs (a known fraud risk).” Because the IRS and many state agencies do not require detailed cost certifications, “the vulnerability of the LIHTC program to this fraud risk is heightened.”

The GAO compared the costs of 1,849 projects in 12 jurisdictions. They found a wide variation, as shown in the chart below.

Whether it is taxes, gasoline, or housing, everything seems to cost much more in California than Texas. The cost of low-income housing units are two and half times higher in the Golden State than in the Lone Star State. GAO found that both the hard costs of construction and the soft costs (such as architect fees) were much higher in the former than the latter.

The median per-unit cost of the new construction LIHTC projects was $218,000, of which the land cost was just $9,400. I’m not an expert, but that seems high given that you can buy a really nice tiny house for $80,000 or so.

Vanessa and I call for repeal of the LIHTC program.

To tackle housing affordability, she has suggested a deregulatory approach, which was recently embraced by HUD secretary Ben Carson.

Affordable Housing: Hard Way and Easy Way

A new GAO study examines the Low-Income Housing Tax Credit, which is a complex government program aimed at increasing the supply of affordable housing.

How complex is it? Vanessa Brown Calder and I noted that one LIHTC guidebook is 1,400 pages long.  

The LIHTC is a classic government solution to a problem. It is complicated, raises costs, and is not very effective. Nonetheless, some people favor such approaches. Adam Smith called them “men of system.” 

An easier way to solve problems is to let markets work. This approach leans toward simplicity and low cost. Some efforts may not be effective at first, but through innovation and feedback entrepreneurs eventually nail it. Adam Smith called it the “obvious and simple system of natural liberty.”

Below, a diagram from the GAO study shows part of the LIHTC process. Little tax credit boxes float around and dollar signs flow to LIHTC investors, which are usually major banks. This is the hard way to increase affordable housing supply.

Below that, I’ve diagrammed the easy way, which is to deregulate, remove the subsidies, and let banks and developers compete in the marketplace.

Affordable Housing: The Hard Way

 

Affordable Housing: The Easy Way

Shrinking Medicare Expenditure

With public healthcare programs accounting for over a trillion dollars of federal spending, efforts to identify and remedy sources of waste are increasing. A new working paper finds: 

There is substantial waste in U.S. healthcare, but little consensus on how to identify or combat it. We identify one specific source of waste: long-term care hospitals (LTCHs). These post-acute care facilities began as a regulatory carve-out for a few dozen specialty hospitals, but have expanded into an industry with over 400 hospitals and $5.4 billion in annual Medicare spending in 2014. We use the entry of LTCHs into local hospital markets and an event study design to estimate LTCHs’ impact. We find that most LTCH patients would have counterfactually received care at Skilled Nursing Facilities (SNFs) – post-acute care facilities that provide medically similar care to LTCHs but are paid significantly less – and that substitution to LTCHs leaves patients unaffected or worse off on all measurable dimensions. Our results imply that Medicare could save about $4.6 billion per year – with no harm to patients – by not allowing for discharge to LTCHs.

The cost of healthcare in the United States remains a significant problem, but eliminating regulatory carve-outs such as LTCHs is one way to address this growing issue.

Research assistant Erin Partin contributed to this blog post.

 

More Futility in the War on Drugs

Despite $8.6 billion spent on the eradication of opium in Afghanistan over the past seventeen years, the US military has failed to stem the flow of Taliban revenue from  the illicit drug trade. Afghanistan produces the majority of the world’s opium, and recent U.S. military escalations have failed to alter the situation. According to a recent piece in the Wall Street Journal:

“Nine months of targeted airstrikes on opium production sites across Afghanistan have failed to put a significant dent in the illegal drug trade that provides the Taliban with hundreds of millions of dollars, according to figures provided by the U.S. military.”

This foreign war on drugs has been no more successful than its domestic counterpart. If U.S. military might cannot suppress the underground market, local police forces have no hope.  Supply side repression does not seem to work, and its costs and unintended consequences are large.

 Research assistant Erin Partin contributed to this blog post.

Doctors as Data Entry Clerks for the Government Health Surveillance System

As a practicing physician I have long been frustrated with the Electronic Health Record (EHR) system the federal government required health care practitioners to adopt by 2014 or face economic sanctions. This manifestation of central planning compelled many doctors to scrap electronic record systems already in place because the planners determined they were not used “meaningfully.” They were forced to buy a government-approved electronic health system and conform their decision-making and practice techniques to algorithms the central planners deem “meaningful.”  Other professions and businesses make use of technology to enhance productivity and quality. This happens organically. Electronic programs are designed to fit around the unique needs and goals of the particular enterprise. But in this instance, it works the other way around: health care practitioners need to conform to the needs and goals of the EHR. This disrupts the thinking process, slows productivity, interrupts the patient-doctor relationship, and increases the risk of error. As Twila Brase, RN, PHN ably details in “Big Brother in the Exam Room,” things go downhill from there.

With painstaking, almost overwhelming detail that makes the reader feel the enormous complexity of the administrative state, Ms. Brase, who is president and co-founder of Citizens’ Council for Health Freedom (CCHF), traces the origins and motives that led to Congress passing the Health Information Technology for Economic and Clinical Health (HITECH) Act in 2009. The goal from the outset was for the health care regulatory bureaucracy to collect the private health data of the entire population and use it to create a one-size-fits-all standardization of the way medicine is practiced. This standardization is based upon population models, not individual patients. It uses the EHR design to nudge practitioners into surrendering their judgment to the algorithms and guidelines adopted by the regulators. Along the way, the meaningfully used EHR makes practitioners spend the bulk of their time entering data into forms and clicking boxes, providing the regulators with the data needed to generate further standardization.

Brase provides wide-ranging documentation of the way this “meaningful use” of the EHR has led to medical errors and the replication of false information in patients’ health records. She shows how the planners intend to morph the Electronic Health Record into a Comprehensive Health Record (CHR), through the continual addition of new data categories, delving into the details of lifestyle choices that may arguably relate indirectly to health: from sexual proclivities, to recreational behaviors, to gun ownership, to dietary choices. In effect, a meaningfully used Electronic Health Record is nothing more than a government health surveillance system.  As the old saying goes, “He who pays the piper calls the tune.” If the third party—especially a third party with the monopoly police power of the state—is paying for health care it may demand adherence to lifestyle choices that keep costs down.

All of this data collection and use is made possible by the Orwellian-named Health Insurance Portability and Accountability Act (HIPAA) of 1996.  Most patients think of HIPAA as a guarantee that their health records will remain private and confidential. They think all those “HIPAA Privacy” forms they are signing at their doctor’s office is to insure confidentiality. But, as Brase points out very clearly, HIPAA gives numerous exemptions to confidentiality requirements for the purposes of collecting data and enforcing laws. As Brase puts it, 

 It contains the word privacy, leaving most to believe it is what it says, rather than reading it to see what it really is. A more honest title would be “Notice of Federally Authorized Disclosures for Which Patient Consent Is Not Required.”

New FDA Initiative Implies CDC Opioid Guidelines Are Not Evidence-Based

On August 22, Food and Drug Commissioner Scott Gottlieb issued a press release announcing the FDA plans to contract with the National Academies of Sciences, Engineering, and Medicine (NASEM) to develop evidence-based guidelines for the appropriate prescribing of opioids for acute and post-surgical pain. The press release stated:

The primary scope of this work is to understand what evidence is needed to ensure that all current and future clinical practice guidelines for opioid analgesic prescribing are sufficient, and what research is needed to generate that evidence in a practical and feasible manner.

The FDA will ask NASEM to consult a “broad range of stakeholders” to contribute expert knowledge and opinions regarding existing guidelines and point out emerging evidence and public policy concerns related to the prescribing of opioids, utilizing the expertise within the various medical specialties. 

Recognizing the work of the Centers for Disease Control and Prevention for having “taken an initial step in developing federal guidelines,” Commissioner Gottlieb diplomatically stated the FDA initiative intends to “build on that work by generating evidence-based guidelines where needed” that would differ from the CDC’s endeavor because it would be “indication-specific” and based on “prospectively gathered evidence drawn from evaluations of clinical practice and the treatment of pain.”

The CDC guidelines for prescribing opioids, released in early 2016 and updated in 2017, have been criticized by addiction and pain medicine specialists for not being evidence-based. Unfortunately, these guidelines have been used as the basis for many new prescribing regulations instituted at the state-level and proposed on the federal level. The American Medical Association and other medical specialty organizations have spoken out against proposed federal prescription limits that are based upon an inaccurate interpretation of the flawed CDC guidelines. 

In May, Commissioner Gottlieb, in a blog post, mentioned he was aware of criticisms as well as complaints by patient and patient-advocacy groups and was interested in developing more “evidence-based information” on the matter of opioids and pain management. 

Now it appears he is taking the next step. While the press release language was diplomatic and avoided any notion of disrespect for the CDC’s efforts, it is difficult not to infer that the Commissioner agrees with many who have been criticizing the CDC guidelines over the past couple of years.

 

The Warren Plan and the History of Corporate Chartering

Sen. Elizabeth Warren’s proposal for drastic changes to corporate governance, which I wrote about in this space last week, continues to draw thoughtful responses from commentators. Colleague Ryan Bourne notes that one study “found that German firms were 27 percent less valuable to their shareholders” because of the workers-on-boards co-determination laws Warren would have us emulate. Moreover, the value given up was not merely transferred to the firms’ workforces but was in part dissipated through inefficiency. At National Review, Samuel Hammond discusses how co-determination undermines the overall dynamism of a national economy (for example, by discouraging the transfer of capital to risky, high-value new enterprises) and also notes some of the problems with making “stakeholder” value a subject of fiduciary duty for investors.  

Now NYU lawprof and Cato adjunct scholar Richard A. Epstein, a leading libertarian voice on law, tackles the Warren plan in a piece for the Hoover Institution’s Defining Ideas series. Epstein’s piece is worth reading in its entirety for his analysis of (among other topics) the “stakeholder” mystique, the efficiency-friendly role of share buybacks and executive incentive stock, and the constitutional infirmities of the overall Warren scheme (citing the unconstitutional-conditions doctrine), as well as his warning that large-scale capital flight from the U.S. could ensue if investors mistrust the whims of a new federal charter regulator.

In the passage I want to highlight, however, Epstein makes a point often overlooked in other critiques. Writing on the popular and populist Left these days often romanticizes the idea that business charters should be revocable by some central authority for misconduct (“corporate death penalty”), although it is often not spelled out whether the assets of a giant bank or oil or pharmaceutical company hit by scandal should be taken into the public sector by some sort of confiscatory state authority, allowed to revert to shareholders, or perhaps transferred to a successor entity that would maintain the same brands and facilities and headquarters as before (leaving the question of what exactly is being accomplished by charter revocation). Epstein takes the broad historical view: 

…Warren wholly misunderstands the historical role and constitutional position of corporate charters. The last thing that any country needs for economic growth is a situation in which government officials decide which firms receive charters subject to what conditions. Does she really think that some public bureaucrat should have the power to refuse to issue Apple a corporate charter unless it puts community members or union members on its board, makes gifts to the Sierra Club, or adopts minimum minority hiring set-asides? And what should be done when thousands of firms balk at these conditions? Can they go to court, or does the federal board run the corporation directly?

Lest anyone forget, the great 19th-century corporate reform was the passage of general incorporation laws that allowed any group of individuals to form a corporation, with its attendant benefit of limited liability, so long as they met certain minimum conditions relating to their capital contributions, their ability to sue and be sued, and their board structures. The new legal regime ushered in sustained economic expansion by knocking out the political favoritism that had previously given some businesses corporate charters that gave them a huge edge over direct competitors denied similar authorization. It would be unsurpassed folly to re-open the doors to these abuses today.

Indeed, a key point about general incorporation laws was that they were egalitarian: you could launch an incorporated venture even if you were obscure, new in town, or out of favor with political influentials. Supporters of plans like Warren’s should be asked whether they really want some combination of political actors – very possibly appointees of Donald Trump or another President like him – to gain power to revoke Google’s or Amazon’s or Facebook’s charter to continue doing business unless the management agrees to cut a deal, perhaps involving private understandings with officialdom, to stave off such a penalty. 

Pages