Do we need more hospitals?

In a rational free market system, the need for hospitals in a particular area would be determined by a combination of market forces and the willingness of entrepreneurs to invest in that kind of business. But, as was discussed in a front page story on the cover of the Albuquerque Journal the influence of market forces in determining hospital need is somewhat minimal — and New Mexico is not (thankfully) — a certificate of need state (in other words, government permission is not necessary).

So, what determines where hospitals are located in New Mexico? According to the article:

The University of New Mexico (one of the 2 hospitals in question) is looking for financing from Housing and Urban Development;

Presbyterian (the other hospital, a non-profit) is asking its employees to help finance the project to the tune of $3 million;

Both hospitals are looking for property tax revenue from Sandoval County to finance operation costs.

So, how will the hospitals make money? Well, one of the most interesting quotes in the article is that “Hospitals often complain Medicare reimbursement aren’t high enough, but at least Medicare pays reliably, and Medicare patients utilize 2.5 times as many inpatient services than the average patient.” So, again, subsidies play a major role.

While Congress looks to rid the American health care system of the last vestiges of free market, the debate over two new New Mexico hospitals is yet another example of how non-market forces predominate.