Certificate of Need Laws Raise Health Care Costs, Reduce Access
In ancient times, wealthy city-states built impregnable walls to ward off attacks from neighboring tribes and other enemies.
In ancient times, wealthy city-states built impregnable walls to ward off attacks from neighboring tribes and other enemies. Today we have a modern-day equivalent in North Carolina, where a few large hospital chains benefit from impenetrable defenses in the form of certificate of need (CON) regulations protecting their wealthy practices from the menace of competition in the form of smaller, more innovative providers that charge less.
CON regulations legally prevent health care providers from entering new markets or increasing existing capacity without first gaining approval from state regulators, such as North Carolina’s State Health Coordinating Council (SHCC). When a company applies to enter a new market, competitors can use the CON process to block them. Thus CON regulations allow a few large hospital chains to control the market and keep prices high.
North Carolina has restricted the supply of health care in this way since 1978. Some 25 devices and services, such as acute-care hospital beds, magnetic resonance imaging (MRI) scanners, and psychiatric services, require a certificate of need from the state before the device can be purchased or the service offered.
Entrenched special interests justify CON regulations by claiming they keep health care costs down by preventing overinvestment in facilities and equipment. States also justify CON programs as a way of cross-subsidizing health care for the poor.
These claims are dubious at best. A 2014 study by the Mercatus Center at George Mason University found no relationship between CON regulations and increased access to health care for the poor. While not doing what they are supposed to, CON laws do much harm, the Mercatus researchers found. In North Carolina alone, these programs average approximately 12,900 fewer hospital beds, 49 fewer hospitals offering MRI services, and 67 fewer hospitals offering computed tomography scans. In other words, CON laws limit access to needed treatments.
Meanwhile, CON regulations have helped hospitals in the Charlotte region become some of the wealthiest in the United States, with billions of dollars in investments, real estate holdings, and well-paid executives who earn millions of dollars per year.
CON regulations also prevent new providers from entering the outpatient market, also known as same-day surgery centers, where most procedures can be done at a cost of 40 percent to 60 percent less than in the hospital, which gives patients more options and lower health care costs, says Katherine Restrepo, Health and Human Services policy analyst at the John Locke Foundation.
In 1974, the federal government implemented CON nationwide, but in 1987, it abandoned the policy, concluding it had done little to nothing to control costs. Congressional testimony concluded the program was a failure.
Here’s just a small sampling of the research that has certificate of need legislation creates more harm than good.
A 1999 Washington State government study of its CON regulations found they had “not controlled overall health care spending or hospital costs.” A 2003 study found CON regulations were ineffective at controlling the costs of Medicaid long-term care expenditures. “States have little to fear in terms of increased Medicaid nursing home expenditures from CON repeal,” the researchers wrote.
A 2003 report of Michigan’s CON program found “little evidence that CON results in a reduction in costs and some evidence to suggest the opposite.” A 2007 study of Illinois’ certificate of need process by the Lewin Group said, “The evidence on cost containment is weak, but the evidence suggests that the CON process does affect spending patterns in a state. Expecting the CON process to reduce overall expenditures, however, is unrealistic.”
A 2011 report by the National Institute for Health Care Reform found even health care providers, usually major backers of CON regulations, did not find them particularly effective at controlling costs.
The research makes it clear the debate about the economic benefits of CONs is over and all that remains is the political one. In North Carolina, state Sen. Tom Apodaca (R-Henderson County), who chairs the Senate Rules Committee, has introduced a bill to repeal the state’s CON regulations. With CON repeal, Apodaca says, providers will compete and consumers will come out ahead because there will be more services available at lower costs.
For the sake of consumer empowerment, greater access, and lower prices, let’s hope he succeeds.