As an architect of the urban “enterprise zone” idea more than 30 years ago, a recent proposal in Maryland to set up Health Enterprise Zones (HEZ) understandably caught my eye. The original enterprise zone was designed to spur economic activity in depressed neighborhoods through reduced local taxes and regulation, together with federal and state tax incentives to encourage investment. The aim was to grow innovation and reduce obstacles to both local and outside entrepreneurs. Several states have created these zones, and a federal version was enacted under President Bill Clinton.
The Maryland HEZ proposal is similar in its approach. The bill — which was unveiled by state Lt. Gov. Anthony Brown and based on recommendations from an expert panel — works to expand health services in the state’s underserved areas. If enacted, available properties would become inexpensive, and medical providers would receive property and income tax breaks to set up shop in these zones. Plus, the health zones could receive additional, targeted funding. And, dovetailing with the health enterprise zones, the state would create a Maryland Health Innovation Prize.
I’m struck by the similarities in the strategies these two forms of enterprise zones enlist, which is why Maryland’s HEZ is an important initiative. By definition, depressed or underserved areas lack adequate resources for their population. And medical providers — who are often burdened with high student loans and their own needs — are reluctant to practice there. But the right tax incentives, along with easier access to inexpensive medical facilities and lower start-up costs, can make the venture more worthwhile for providers. The early enterprise zones focused on the zoning, building codes and the removal of tax liens on available property for the same reason: to encourage new ventures and business investments.
Steering contracts, such as for electronic medical records, as well as new money for the HEZ program into these medically underserved areas is probably needed. But the experience in urban economic development — from the Model Cities program of the 1960s to today’s generous corporate infrastructure and other city-offered benefits — suggests some caution. When local or state governments are distributing funds, the type of development often ends up benefiting well-connected interests rather than addressing the needs of local residents in the most effective ways. Indeed, enterprise zones, with their emphasis on deregulation and tax reductions rather than direct funding, were in many ways the mirror image of the heavily funded Model Cities projects, which often resulted in expensive buildings but little impact on local poverty.
To avoid this pitfall, the health enterprise zones should keep a strong focus on how to reduce expensive barriers to the availability and creative use of private health resources. To be successful, Maryland’s program should include steps to pare back regulations. For instance, it would make sense to suspend the Certificate of Need requirements in a health enterprise zone, or at least simplify them. These certificates are required before medical facilities can be built or acquired in states like Maryland, and obtaining these certificates can be a long and costly process.
Similarly, there must be a focus on zoning and other land-use rules, such as regulations affecting public housing. Often, incorporating health services in depressed and underserved areas requires the ability to transform vacant public housing units into walk-in clinics. Land-use red tape typically slows down the process.
An effective health enterprise zone also would need to modify state rules for government health programs like Medicaid, so that health providers are rewarded for innovative services. For example, Denver Health in Colorado operates a highly effective nurse-run, 24-hour call center for families that can address their needs quickly and send prescriptions to close-by pharmacies. This has reduced emergency room costs and handled residents’ health concerns quickly in areas that do not have any nearby medical facilities. But Medicaid’s payment rules usually do not reward such initiatives.
Maryland’s health enterprise zone program should consider establishing a zoning board of medical and local neighborhood leaders who can continuously identify regulations and program rules that get in the way of providing services quickly and creatively in poor and underserved neighborhoods. The state also should agree, in advance, to streamline the process by which such regulations could be changed or eliminated. My experience from urban enterprise zones suggests that there will be no shortage of recommendations.
Stuart Butler is the director of the Center for Policy Innovation at The Heritage Foundation, and the author of “Enterprise Zones: Greenlining the Inner Cities” (Universe Books).