B. Health Care Regulation

VII. Key Issues: Regulation & Reform >> B. Health Care Regulation (last updated 10.13.16)

Overview

  • Field, Robert. A Taxonomy of American Health Care Regulation: Implications for Health Reform. 17 Temple Political and Civil Rights Law Review 605 2007-2008.
    • “Health care is one of America’s largest industries and is among the most highly regulated” (p. 605).
    • “The functions of regulatory bodies can be grouped into four broad categories
      • There are rulemaking activities through which they set standards. In health care,
        these determine, for example, the criteria for achieving professional or institutional
        licensure and for conducting ongoing practices and operations.
      • There are adjudications through which they resolve disputes. These may involve
        enforcement actions or license denials or restrictions.
      • There are administrative activities, such as the management of public hospitals.
      • Finally, there is the role of administering funding, as in the implementation of the Medicare and Medicaid programs” (p. 607).
    • “In its historical sweep, American health care regulation is a series of programs layered one on top of another over the course of the past 150 years” (p. 608).

Major Categories of Health Care Regulation

Health Facilities Regulation

Health Professionals Regulation


Health Insurance Regulation


Medical Tort System


Pharmaceutical Regulation

Medical Device Regulation

Antitrust in Health Care


Nonprofit Tax Exemption

Total Costs of Health Services Regulation

2016 Estimates. 

  • Duke University. The 2002 figure shown below is in the process of being formally updated. A back-of-the-envelope calculation shows that if total health services regulation costs had grown at the same rate as GDP, they would amount to $572 billion in 2016 ($281 billion federal); if they grew at the same rate as national health expenditures, they would amount to $663 billion ($326 billion federal). Neither estimate would account for the cost of new health services regulations, including the ACA.
  • Wayne Crews. Wayne Crews estimates the total cost of federal health services regulation to be $194.4 billion in 2016. This includes the Duke University figure of $166.7 billion (without any adjustment whatsoever for inflation) plus the costs of various DHHS rules adopted since then plus a $5 billion “placeholder” for the ACA (even though several estimates have placed the cost at tens of billions; this figure does not include, for example, the CBO estimate that the law will eventually shrink the total number of full-time-equivalent workers by at least 2 million each year).

2002 Estimate. A Duke University study found that in 2002, the total cost of health services regulations amounted to $339.2 billion, of which $166.7 billion was related to federal regulations and $172.6 billion was related to state and local regulations. This study included all the major domains of regulation listed above with the exception of antitrust and nonprofit tax exemption. A detailed breakdown by category of regulation is here. The same study estimated that after accounted for the benefits of such regulations, the net cost of health services regulations amounted to $169 billion.

General Regulation

Federal Rulemaking Process

  • Overview. For an overview of the federal rulemaking process, see CRS Report RL32240, The Federal Rulemaking Process: An Overview, coordinated by Maeve P. Carey.
  • Executive Order 12866. Agencies that are subject to cost-benefit analysis requirements are not required to conduct a cost-benefit analysis for every rule—only those rules that are deemed economically significant.
    • Economically Significant Rules. Economically significant rules are those that may “have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities [footnote 36]. These rules are referred to in the OMB reports as “major” rules. Although the definitions of “major” rules and “economically significant” rules contain slight differences, the two terms are often used interchangeably [footnote 38].
    • Significant Rules. Rules that are significant, but not economically significant, are subject to requirements for OIRA review and may have a less formal assessment of costs and benefits, but agencies are not generally required to conduct a complete cost-benefit assessment for those rules. For “significant” rules, agencies are asked to conduct an initial assessment of costs and benefits, but not a complete cost-benefit analysis [footnote 39].
  • RFA. The Regulatory Flexibility Act (RFA) requires regulatory impact analyses for proposed and final rules that will have a “significant economic impact on a substantial number of small entities.” The phrase “small entities” is considered in the RFA to include small businesses, local governments, and not-forprofit organizations. For more information about requirements of the Regulatory Flexibility Act, see CRS Report RL34355, The Regulatory Flexibility Act: Implementation Issues and Proposed Reforms, coordinated by Maeve P. Carey [footnote 16].
  • UMRA. Title II of the Unfunded Mandates Reform Act (UMRA) requires agencies to analyze and reduce costs associated with federal mandates upon state, local, and tribal governments and the private sector  2 U.S.C. §§1532-1538. For more information about UMRA, see CRS Report R40957, Unfunded Mandates Reform Act: History, Impact, and Issues, by Robert Jay Dilger and Richard S. Beth [footnote 17].
  • Independent Agencies. The cost-benefit analysis requirement does not apply to independent regulatory agencies, a class of agencies that were created by Congress to have various characteristics of independence from the President. These agencies are listed at 44 U.S.C. 3502(5) [footnote 32].
    • Curtis W. Copeland, Economic Analysis and Independent Regulatory Agencies, report prepared for the consideration of the Administrative Conference of the United States, April 30, 2013.
    • CRS Report R42821, Independent Regulatory Agencies, Cost-Benefit Analysis, and Presidential Review of Regulations, by Maeve P. Carey and Michelle D. Christensen.
  • Cost-Benefit Analysis.
    • Requirements. CRS Report R41974, Cost-Benefit and Other Analysis Requirements in the Rulemaking Process, coordinated by Maeve P. Carey.
    • Methodology.
      • In 2003, OMB issued Circular A-4 to provide guidance to agencies on how to conduct cost-benefit analysis. See Office of Management and Budget, Circular A-4, “Regulatory Analysis,” September 17, 2003 This guidance provides information such as what discount rates agencies should use, how to choose a time period for estimating future costs and benefits, etc. Since 2003, OMB has issued several additional guidance documents to provide instruction to agencies on complying with regulatory analysis requirements [footnote 15].
      • OMB’s 2011 guidance document, Regulatory Impact Analysis: A Primer, instructs agencies to quantify the costs and benefits in terms of units—for example, the number of premature deaths avoided each year or the number of prevented nonfatal illnesses—as well as monetizing the costs and benefits associated with each of these effects, to the extent possible [footnote  46].
  • Variations in Regulation Across Administrations. Art Fraas and Richard Morgenstern, Identifying the Analytical Implications of Alternative Regulatory Philosophies, Journal of Benefit Cost Analysis, vol. 5, no. 1 (2014), pp. 137-171. Provides a discussion of differences between the Obama, George W. Bush, and Clinton Administrations’ priorities for cost-benefit analysis and OIRA review [footnote  48].

Proposed Changes in Rulemaking Process

  • On 1.11.17, the GOP-controlled House passed:
    • Regulatory Accountability Act. Puts a ceiling on the regulatory costs coming out of Washington by instructing federal agencies to craft the “least expensive” rules they possibly can. 
    • Require Evaluation before Implementing Executive Wishlists (REVIEW) Act. Prevents federal agencies from issuing expensive regulations while they are facing court challenges. Once the legal battles are resolved, the rules could move forward.
    • Separation of Powers Restoration Act. Would prevent courts from deferring to the regulatory interpretations of federal agencies, which makes it difficult for those rules to be challenged. Goodlatte said the current law “rubber stamps” regulations.
    • All Economic Regulations are Transparent Act (ALERT) Act. Instructs federal agencies to publish costs estimates for rules they are working on while they are still in development.
    • Providing Accountability Through Transparency Act instructs federal agencies to publish “plain language” summaries of their rules online, so the “public can understand what the agencies are actually proposing to do.”
  • H.R. 4003, Regulatory Reporting Act of 2015. CBO Cost EstimateH.R. 4003 would direct all federal agencies, with the help of the Department of Justice, to prepare a report to the Congress that lists each agency rule that is enforced through a criminal penalty. The report also would weigh the use of a criminal penalty for enforcement against a number of criteria. CBO is unaware of any comprehensive source of information on criminal penalties used to enforce regulations. However, based on information from a few federal agencies, CBO expects that on average it would take large agencies a few months to compile the information. CBO estimates the report would cost about $1 million to prepare over the 2016-2017 period; such spending would be subject to the availability of appropriated funds.
  • Business Roundtable. Using Cost Benefit Analysis To Create Smart Regulation: A Primer and Key Considerations for Congress and Federal Agencies, December 2014.

Number of Regulations

  • See CRS Report R43056, Counting Regulations: An Overview of Rulemaking, Types of Federal Regulations, and Pages in the Federal Register, by Maeve P. Carey for a more detailed discussion of the nature and quantity of regulations issued each year.
  • CRS Report R41651, REINS Act: Number and Types of “Major Rules” in Recent Years, by Maeve P. Carey and Curtis W. Copeland.
  • OMB’s website, www.Reginfo.gov, provides data on the number of “significant” rules that OMB reviews each year (but not on the number of those rules that agencies issue each year). The data on OMB reviews show that the number of such rules reviewed each year is approximately in the range of 100-250; this is likely very similar to the number of such final rules issued each year [footnote 37].

Total Cost of Regulations

  • Congressional Research Service. Maeve P. Carey. Methods of Estimating the Total Cost of Federal Regulations. January 21, 2016. Scholars and governmental entities estimating the total cost of regulation use one of two methods, which are referred to as the “bottom-up” and the “top-down” approach. The bottom-up approach aggregates individual cost and benefit estimates produced by agencies, arriving at a governmentwide total.
    • Bottom-Up Estimates. In 2014, the annual report to Congress from the Office of Management and Budget estimated the total cost of federal regulations to range between $68.5 and $101.8 billion and the total benefits to be between $261.7 billion and $1,042.1 billion (2014 dollars).
    • Top-Down Estimates. The top-down approach estimates the total cost of regulation by looking at the relationship of certain macroeconomic factors, including the size of a country’s economy and a proxy measure of how much regulation the country has. This method estimates the economic effect that a hypothetical change in the amount of regulation in the United States might have, considering that economic effect to represent the cost of regulation. One frequently cited study estimated the total cost of regulation in 2014 to be $2.028 trillion, $1.439 trillion of which was calculated using this top-down approach.
  • Office of Management and Budget (2014). 2014 Report to Congress on the Benefits and Costs of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities This is the latest complete report available; the draft report for 2015 was released 10.16.15. Note that annual OIRA reports on the benefits and costs of federal regulations going back to 1997 all can be retrieved from this page. The most widely-reported bottom-up estimate of federal regulatory costs, although it is limited by being restricted to major rules adopted within the past 10 years.
  • W. Mark Crain and Nicole V. Crain (2014). The Cost of Federal Regulation to the U.S. Economy, Manufacturing and Small Business, A Report for the National Association of Manufacturers, September 10, 2014.  One of the most prominent examples of the top-down approach, although it is not a purely top-down measure of the cost of regulations. It combines a top-down estimate—their estimate of the cost of economic regulation—with a bottom-up estimate of environmental, tax compliance, occupational safety, and homeland security regulation. However, the estimate of the cost of economic regulation resulting from their top-down methodology is almost 75% of the total estimate, totaling $1.439 trillion out of $2.028 trillion in the 2014 study [footnote 71].
  • John W. Dawson and John J. Seater. Federal Regulation and Aggregate Economic GrowthJournal of Economic Growth. January 2013″Regulation’s overall effect on output’s growth rate is negative and substantial. Federal regulations added over the past fifty years have reduced real output growth by about two percentage points on average over the period 1949-2005. That reduction in the growth rate has led to an accumulated reduction in GDP of about $38.8 trillion as of the end of 2011. That is, GDP at the end of 2011 would have been $53.9 trillion instead of $15.1 trillion if regulation had remained at its 1949 level. One channel through which regulation has reduced output is TFP. We find that federal regulation can explain much of the famous and famously puzzling productivity slowdown of the 1970s.”
  • W. Mark Crain and Thomas D. Hopkins (2001). The Impact of Regulatory Costs on Small Firms: A Report for the Office of Advocacy, U.S. Small Business Administration 2001.
  • Thomas D. Hopkins (1995). Profiles in Regulatory Costs: Report to the U.S. Small Business Administration. November 1995.

Monetizing Intangible Effects of Regulations

Monetizing Life and Health Impacts

  • Curtis W. Copeland. How Agencies Monetize “Statistical Lives” Expected to Be Saved By Regulations, CRS Report R41140.
  • Robinson, Lisa A. How US Government Agencies Value Mortality Risk Reductions (9.23.08).
  • Viscusi, W. Kip. Monetizing the Benefits of Risk and Environmental Regulation. Fordham Urban Law Journal, vol. 33, no. 4 (2005).
  • Viscusi, W. Kip.  What’s to Know? Puzzles in the Literature on the Value of a Statistical Life. Journal of Economic Surveys, vol. 26, no. 5 (2011).

Accuracy of Regulatory Impact Assessments

  • Winston Harrington, Richard D. Morganstern, and Peter Nelson. On the Accuracy of Regulatory Cost Estimates. Journal of Policy Analysis and Management, vol. 19, no. 2 (Spring 2000), pp. 297-322. Authors compared ex ante studies to ex post studies and found that agencies frequently overestimated both costs and benefits of regulations [footnote 58].
  • Winston Harrington, Richard D. Morganstern, and Peter Nelson. “How Accurate Are Regulatory Cost Estimates?” Resources for the Future, March 5, 2010.  This is a similar ex post study of several cost-benefit estimates that had been produced by agencies subsequent to the foregoing 2000 study. Again, they concluded that regulatory agencies tended to overestimate the total costs of regulations, explaining that “a variety of factors contribute to initial government agency cost estimates that may differ from the realized results, although in some cases this is coincident with differences in benefits produced by regulations” [footnote 59].
  • Office of Management and Budget. Validating Regulatory Analysis: 2005 Report to Congress on the Benefits and Costs of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities. In a chapter on “validation” of cost estimates, OMB examined a number of ex ante cost-benefit estimates and compared them with ex post estimates, when they were available. OMB’s conclusions were that the costs of regulations were more often overestimated by the agency, but that the benefits were sometimes overestimated as well [footnote 60].
  • Winston Harrington, Grading Estimates of the Benefits and Costs of Federal Regulation: A Review of Reviews. Resources for the Future Discussion Paper, September 2006.

Impact of Regulations

  • Bailey, James and Diana ThomasRegulating Away Competition: The Effect of Regulation on Entrepreneurship and Employment.  Mercatus Center (9.9.15). Using novel data on the extent of US federal regulations for 215 industries (as classified by their North American Industrial Classification System codes) from the Mercatus Center’s RegData database and data on firm births and employment from the Statistics of US Businesses, the study confirms the hypothesis that regulation inhibits business growth and job creation while protecting larger, existing businesses:

    • Firm births. A 10% increase in the intensity of regulation leads to a statistically significant 0.5% decrease in overall firm births. There is a statistically significant decrease among births of small firms but no statistically significant effect on births of large firms, confirming the hypothesis that incumbent firms benefit from regulation because it deters new entrants.
    • Firm deaths. Regulation had no statistically significant effect on firm deaths. Regulation drives away new entrants, but does not put existing firms out of business. In fact, there is some evidence that firm deaths may decrease with increased regulation as businesses benefit from less competition.
    • New hires. A 10% increase in regulation is associated with a statistically significant 0.9% decrease in hiring among all firms and a 0.5% decrease specifically among small firms.
  • Chambers, Dustin and Courtney A. Collins. How Do Federal Regulations Affect Consumer Prices? An Analysis of the Regressive Effects of Regulation.  Mercatus Center (2.23.16). When the federal government introduces new regulations for an industry, there are numerous potential consequences for both producers and consumers. Often, complying with regulations is costly for firms, and these higher costs may in turn drive up prices for consumers. Higher prices caused by regulatory growth are unlikely to affect all consumers equally. High-income and low-income households tend to have different spending patterns, and regulations may have a larger impact on one group than on another. This study examines the relationship between regulatory expansion and higher prices and finds that price increases caused by regulation have a disproportionately negative effect on low-income households. The poorest households tend to spend a larger proportion of their income on goods that are heavily regulated and subject to both high and volatile prices. This cost should be recognized in policymakers’ efforts to consider the costs and benefits of new and existing regulations.
  • Patrick McLaughlin, Laura Stanley. Regulation and Income Inequality: The Regressive Effects of Entry Regulations. Mercatus Center, Jan 20, 2016. This study for the Mercatus Center at George Mason University examines the relationship between income inequality and the number of regulatory steps necessary to start a business. Looking at 175 countries and multiple variables, the study finds that there is a positive relationship between entry regulations and income inequality.

Resources

  • Legal/Regulatory Issues (Health Affairs topic page)
  • RegData is the first database to count the actual number of restrictions in the Code of Federal Regulations, as opposed to the former method of simply counting total pages. The interactive tool enables a far more focused view of the regulatory burden by measuring the growth of regulation by industry. While previous methods provided an idea of the growth of overall regulation, they told nothing about how those regulations affected specific sectors in the economy. 3-digit industry codes related to health care include 621-Ambulatory Health Services; 622-Hospitals; and 623-Nursing and Residential Care Facilities.  From 1997 to 2010, federal regulations increased by 170.5%  in ambulatory health services, 53.8% in hospitals and 36.2% in nursing homes according to this index.

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