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Research & Commentary: Backsliding on CON Laws Would Harm Hoosier Health Care

January 29, 2019

In this Research & Commentary, Matthew Glans examines a proposed bill in Indiana that would partially restore the states' certificate of need law, which would be a step in the wrong direction.

Indiana is one of 15 states that do not require hospitals to obtain a certificate of need (CON) to introduce new medical services or facilities. Indiana’s CON statutes were repealed in 1994. However, a proposal has been introduced that would restore the restrictive laws for large hospital expansion projects. The bill, Senate Bill 573, was introduced over a concern that too many hospital expansions were occurring in wealthy areas, a common argument made by CON law supporters. Under the bill, health care expansion projects of more than $10 million would be required to obtain a Certificate of Need from the Indiana State Department of Health. Currently, new projects are only required to meet health and safety checks to be certified as a hospital.

No other state without a CON law is currently considering a bill to impose such regulation. Furthermore, several states are considering rolling back parts or all their CON laws to reduce health care costs and increase competition. Several studies show CON laws fail to achieve many of their stated goals and in fact increase costs for consumers by hindering competition and forcing providers to use older facilities and equipment.

In a study published by the Mercatus Center at George Mason University, Thomas Stratmann and Jacob Russ assembled a comprehensive database on CON laws and found the laws increased the cost and undermined the quality of health care.

by preventing new medical providers from competing with existing hospitals. CON laws also reduce the availability of medical equipment and hospital beds; states with CON laws have 99 fewer hospital beds per 100,000 residents and a lower availability of MRI services, CT scanners, and optical and virtual colonoscopies.

In addition to being linked to poor hospital quality, ample research shows CON laws drive up health care costs. Data from the Kaiser Family Foundation demonstrates health care costs are 11 percent higher in CON states than in non-CON states. The study also found a positive correlation between the number of CON law restrictions and the cost of health care. States requiring CON on 10 or more services averaged per capita health care costs 8 percent higher than the $6,837 average for states requiring CON for fewer than 10 services. In a 2003 study, conducted by Christopher Conover and Frank Sloan of Duke University, the research found Michigan’s CON program demonstrated “little evidence that CON results in a reduction in costs and some evidence to suggest the opposite.”

A study by Thomas Stratmann and David Wille of the Mercatus Center analyzed the effect of CON laws on specific metrics for nine different quality indicators at 921 hospitals and found the health care quality measures were significantly lower in CON states compared to states without CON laws. One of the biggest discrepancies identified in the study is difference in the rate of mortality resulting from complications in hospitals. In CON states the mortality rate was about 5.5 percent higher than the average rate in non-CON states.

CON laws also give inappropriate influence to competitors during vetting processes. When a health care provider applies to enter a new market, competitors often use the CON process to block potential competition. As a result, CON laws raise the price of medical care by preventing new medical providers from competing with existing health care providers.

Brian Tabor, president of the Indiana Hospital Association, says CON laws do little to control and reduce costs and merely create a hostile environment between competitors. “What it [CON laws] does is create an environment where projects end up being litigated, drawn out and you enter into a realm of very subjective decision-making,” Tabor told The Fort Wayne Journal Gazette. Tabor also warned that many of the current projects that worry lawmakers are upgrades of existing facilities. In any event, the high threshold of these laws is likely to afford large providers the means to block new competitors in their markets.

A full repeal of burdensome and unnecessary regulations such as CON would benefit all health care providers and their patients. In an article in Antitrust, Maureen K. Ohlhausen, a commissioner at the Federal Trade Commission, argues CON laws are not the right mechanisms for encouraging a proper distribution of health care facilities. “States that still have CON laws on the books should repeal them,” Ohlhausen wrote. “States that deem indigent care mandates necessary should fund them directly and publicly, rather than through an opaque transfer of those costs onto the insured public. Good government demands both transparency and political accountability.”

The Indiana legislature should reject the effort to implement CON laws because doing so will increase the cost of health care and reduce access for Hoosiers.

The following documents provide additional information about certificate of need laws.
 

The Effect of Interest Group Pressure on Favorable Regulatory Decisions
https://www.mercatus.org/publications/interest-group-pressure-favorable-regulatory-decisions-certificate-of-need
In this study, Thomas Stratmann and Steven Monaghan develop a model to estimate the impact of political contributions on the approval of CON applications. Their findings indicate that political contributions do affect whether state regulators approve applications. “This situation is contrary to the intent of CON laws, which is that application approval or denial be based only on the criteria established by state law. Campaign contributions given by applicants should not influence the decision—that is, politics should not be a factor in medical care,” the authors write.

Certificate-of-Need Laws and Hospital Quality
https://www.heartland.org/publications-resources/publications/certificate-of-need-laws-and-hospital-quality
Thomas Stratmann and David Wille of the Mercatus Center at George Mason University challenge the claim CON laws improve hospital quality. “Using a broad dataset, the study finds no evidence that CON laws improve hospital quality. In fact, there are more deaths and serious postsurgery complications in hospitals in states with CON laws,” wrote Stratmann and Wille.

Entry Regulation and Rural Health Care: Certificate-of-Need Laws, Ambulatory Surgical Centers, and Community Hospitals
https://www.heartland.org/policy-documents/entry-regulation-and-rural-health-care-certificate-need-laws-ambulatory-surgical-ce
Thomas Stratmann and Christopher Koopman of the Mercatus Center at George Mason University evaluate the impact of CON
expressed goal of ensuring that rural populations have improved access to health care, CON states have fewer hospitals and ASCs on average—and fewer in rural areas—than states without CON regulations.

Certified: The Need to Repeal CON: Counter to Their Intent, Certificate of Need Laws Raise Health Care Costs
http://heartland.org/policy-documents/certified-need-repeal-con-counter-their-intent-certificate-need-laws-raise-health-c  
Jon Sanders of the John Locke Foundation says CON laws fail to lower health care costs and in many instances actually increase costs. Sanders says state leaders could best honor the intent behind CON programs – preventing unnecessary increases in health care costs – by repealing those laws.

Certificate of Need Laws: A Prescription for Higher Costs
https://www.heartland.org/publications-resources/publications/certificate-of-need-laws-a-prescription-for-higher-costs
In this article published in Antitrust Magazine, Maureen Ohlhausen examines CON laws and argues for their repeal. “Regardless of one’s perspective on the proper balance between state and federal power, there are some very good reasons to repeal state CON laws,” wrote Ohlhausen.

The Great Healthcare CON
http://fee.org/the_freeman/detail/the-great-healthcare-con
Jordan Bruneau of the Foundation for Economic Education finds CON laws raise health care prices and reduce availability. He advises, “Rather than pinning our hopes on grand plans to overhaul the system, we should first look at where we can make changes on the margin that would move us in the right direction. Abolishing CON laws – a barrier to entry that drives up price, restricts access, and is maintained by cronyism – would be a great place to start.”

Certificate of Need: State Health Laws and Programs
http://www.ncsl.org/research/health/con-certificate-of-need-state-laws.aspx
The National Conference of State Legislatures outlines the various state CON laws and the positions of CON law proponents and critics.

Certificates of Need: A Bad Idea Whose Time Has Passed
http://heartland.org/policy-documents/certificates-need-bad-idea-whose-time-has-passed
In a policy analysis from the James Madison Institute, Peter Doherty argues federal marketplace interventions have proven disastrous and the government’s increased spending on programs has not been a boon.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit The Heartland Institute’s website and PolicyBot, Heartland’s free online research database.

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Author
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance. In 2012, Glans was named senior policy analyst.
mglans@heartland.org @HeartlandGR