COVID in CALIFORNIA: HOW GOVERNMENT REGULATIONS CREATED CRITICAL HEALTHCARE SHORTAGES— PERMANENT PATIENT-CENTERED REFORMS NEEDED by Lawrence J
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Independent Institute EXECUTIVE SUMMARY COVID IN CALIFORNIA: HOW GOVERNMENT REGULATIONS CREATED CRITICAL HEALTHCARE SHORTAGES— PERMANENT PATIENT-CENTERED REFORMS NEEDED By Lawrence J. McQuillan, Jonathan Hofer, and Douglas E. Koehler OVERVIEW heed this call to action. Perhaps even worse, reg- On January 19, 2020, the first documented US ulatory barriers prevented rapid and efficient case of the novel coronavirus (COVID-19) ap- private-sector responses, fueling the crisis and peared in the state of Washington. Easily transmit- harming healthcare consumers. In the end, the table, the virus found its way to California shortly public policy response played a high-stakes game thereafter in February—the same month that the of catchup as government-imposed regulatory first nontravel-related (“community spread”) case in the United States was confirmed in Solano County, California. On March 19, eight days after States and communities should have the World Health Organization officially declared credible pandemic preparedness plans the COVID-19 outbreak a pandemic, California to respond to an outbreak within their governor Gavin Newsom (D) signed Executive jurisdictions. The private sector should Order N-33-20, a statewide shelter-in-place order resulting in months of quarantine for tens of mil- play an integral role in preparedness lions of people. before a pandemic begins and should In the initial months of the COVID-19 re- be part of the national response. sponse, California, like many other states, was woe- fully unprepared and lacked the degree of flexibili- ty required to adequately respond to the pandemic. straitjackets created breaking points in California’s The labor market for medical personnel was con- healthcare system. strained, medical equipment suffered from under- For enacting or enforcing regulations that cre- supply, hospitals were under stress, testing was in- ated critical healthcare shortages and that pre- adequate, and potential treatments suffered from vented a fast, efficient response to COVID-19 by a suboptimal economic environment—despite public and private entities, the Independent Insti- many past warnings. A 2005 report published by tute awards its eleventh California Golden Fleece® the US Homeland Security Council, for example, Award to a host of federal and state officials and warned of the potential threat of a widespread viral regulatory agencies, including the California legis- pandemic, stating that, “States and communities lature; Governor Gavin Newsom; past California should have credible pandemic preparedness plans governors; the US Centers for Disease Control to respond to an outbreak within their jurisdic- and Prevention (CDC); the US Food and Drug tions. The private sector should play an integral Administration (FDA); US Centers for Medicare role in preparedness before a pandemic begins and and Medicaid Services; US Customs and Border should be part of the national response.” Protection (CBP); labor unions, professional as- Officials at all levels of government failed to sociations, and boards representing medical per- Copyright © 2021 by Independent Institute April 27, 2021 www.independent.org 2 | Independent Institute sonnel; and those representing the nation’s flawed importation of foreign-made products and the intellectual property laws. rapid manufacture by domestic producers. That political strategy proved to be destructive during POLITICAL FAILURE IN THE the COVID-19 pandemic. While regulations HEALTHCARE INDUSTRY benefited companies such as 3M over the years, COVID-19 exposed the ways in which regula- they were deadly obstacles to obtaining needed tions are used in California to benefit narrow in- supplies quickly after COVID struck. Public terest groups at the expense of consumers at large. safety was sacrificed to benefit politically con- In the healthcare sector, these interest groups nected interest groups. And although officials represent occupations (e.g., physicians, nurses, eventually adopted emergency liberalizations, by pharmacists), providers (e.g., hospitals, clinics, then much harm had already occurred to both urgent care centers, pharmacies), and suppliers patients and healthcare workers. (e.g., medical device manufacturers, drug devel- Personnel scarcity. Regardless of the adequacy opers). Each interest group typically has its own of medical supplies, if enough healthcare workers lobbying entity, such as the California Hospital are not available, patient care will suffer. And it’s Association. important to keep in mind that California suf- By supporting government regulations that raise fered from severe shortages of healthcare workers artificial barriers to entry, these interest groups are before the outbreak. The pandemic only exacer- able to increase their incomes, profits, and politi- bated these shortages, which became worse from cal influence. They have also learned that the sur- early 2020 through early 2021 although they were est means of blocking competition is to “capture” largely avoidable if not for the staggering number the regulatory machinery of governments and use of government rules that artificially restrict the it to create protected cartels that benefit privileged supply of qualified healthcare personnel and limit groups (their own members) while harming un- their optimal allocation. organized consumers. In addition to the resultant The stated justification for such strict govern- enforcement and administration costs, innovative ment controls has been ensuring patient safety, but lifesaving drugs and devices are delayed and com- the controls go beyond what is needed and do not petition among providers is short-circuited, thus allow market signals to determine where addition- increasing prices and reducing patient access to al workers are required and with what skill sets. higher-quality care. Once in place, the regulations prevent rapid ad- justment to changing circumstances. Healthcare EQUIPMENT AND LABOR workers who are qualified and available to work SHORTAGES are excluded from the market; thus, the supply of Despite multiple warnings years before the healthcare workers is artificially restricted, which COVID-19 outbreak, governments did not is especially harmful during a crisis. stockpile critical supplies adequately and main- For example, the California Board of Registered tained regulatory barriers that prevented fast and Nursing (CBRN), which operates much like a me- efficient market responses by private-sector entre- dieval guild, limits the number of students who preneurs wanting to alleviate emerging shortages. can attend nursing school. Any shortage of nurs- Governments also protected incumbent man- es, therefore, is never a case of individuals electing ufacturers of personal protective equipment not to enter the field—nor is it the case that not (PPE), ventilators, and other medical equipment enough people met the high standards that the from domestic and foreign competition, using field demands. To the contrary, according to the public safety as the justification. For example, the CBRN’s own reporting, more than twenty-one state of California erected barriers to the rapid thousand qualified nursing students were denied Copyright © 2021 by Independent Institute April 27, 2021 www.independent.org 3 | Independent Institute enrollment during 2016−2017, or 60 percent of During this time, the United States fell behind in all qualified applicants. its per-capita testing levels—with California be- Facing a statewide nursing shortage during a coming one of the nation’s most visible examples pandemic, the CBRN continued to keep enroll- of poor testing rollouts. ment caps in place, a morally reprehensible act. These professional cartels hampered training and VACCINES, TREATMENTS, AND prevented employment levels from adjusting to THERAPEUTIC ANTIVIRAL DRUG market demands based on price signals. DEVELOPMENT Eventually liberalizations were adopted: Quali- The most important success story to emerge from fied healthcare workers from out of state were al- the COVID-19 pandemic has been the fast de- lowed to work in California (albeit with approval velopment of several (hopefully widely effective) from the government after filing paperwork). Re- vaccines. It is important to note that this resulted tired workers were welcomed back. Scope-of-prac- from unleashing the innovative potential of non- tice restrictions and staffing ratios were relaxed, governmental research entities—most of them giving supervisors more flexibility. Licensing re- private pharmaceutical companies—while at the quirements were also eased to allow faster hiring of same time minimizing government interference healthcare personnel and more allocative flexibility. in the creative process. In fact, Pfizerexplicitly re- These were sweeping improvements that should jected US government research grants in order to be continued in perpetuity in order to help health- maintain its independence and “keep Pfizer out of care patients and medical personnel—pandemic politics.” or no pandemic. If it is the right thing to do now, Nevertheless, for a variety of reasons, includ- it is the right thing to do in the future. ing a confusing tiered prioritization system and a clunky software platform called PrepMod, Cali- BOTCHED COVID 19 TESTING fornia has struggled to get its allotted vaccines into Early in the COVID-19 outbreak, it became clear people’s arms. In fact, during the first four weeks that communities needed rapid, inexpensive, fre- of vaccine distribution, only Alabama, Georgia, quent testing.