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Research & Commentary: Certificate of Need Laws Holding Health Care Back in Illinois

August 17, 2016

In this Research & Commentary, Matthew Glans examines Illinois' certificate of need laws and argues for their reform or repeal.

In August, Centegra Hospitals opened a new hospital in Huntley, Illinois. The new Centegra facility is only the third new hospital to open in Illinois in the past 35 years. Currently, Illinois is one of 36 states limiting the ability of health care providers to expand its businesses through an approval process known as certificate of need (CON).

The stated goal of CON programs is to manage health care costs, yet research shows they actually 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 Christopher Koopman found states with CON programs regulate on average 14 different medical services, devices, and procedures. Illinois’ CON program currently regulates 14, right at the national average.

CON laws give inappropriate influence to competitors during vetting processes. When a company applies to enter a new market, competitors often use the CON process to block potential competition. As a result, CON laws raise the cost of medical care, by preventing new medical providers from competing with existing hospitals. CON laws increase the cost of health care while limiting access and benefitting those with political connections.

Research has shown per capita health care costs are lower on average in non-CON states. As an example, Chris Andriesen of the Illinois Policy Institute (IPI) says data collected in 2002 by the American Hospital Association found the average per capita cost of hospital services in Texas, which does not have CON laws, were 16 percent less than in Illinois.

When company 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 hospitals. A 2011 report from the National Institute for Health Care Reform confirmed this problem after interviewing stakeholders in the CON process in Illinois, Connecticut, Georgia, Michigan, South Carolina and Washington, stating: “In five of the six states studied – all except Michigan – the CON approval process can be highly subjective and tends to be influenced heavily by political relationships rather than policy objectives.”

Amanda Griffin-Johnson, a public policy analyst for IPI, argues in an article published by The Insider CON laws increase costs and create health care shortages. “CON laws create a time-consuming and expensive bureaucratic process, which can increase the price of the final health facility project. It is the consumers that end up bearing the burden of this extra cost,” Griffin-Johnson wrote. “The CON laws make the health care system less flexible to the needs of consumers. The expensive bureaucratic process discourages entrepreneurs from entering the field and can decrease patient access to new technology or specialized care.”

The results in Illinois are similar to those found in other states using CON laws. Data from the Kaiser Family Foundation show 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 certificates of need on 10 or more services averaged per capita health care costs 8 percent higher than the $6,837 average for states requiring certificates of need for fewer than 10 services.

CON laws increase the cost of health care while limiting access and benefitting those with political connections. The unintended consequences of CON laws have led many experts to call for reform or repeal of these policies. Eliminating certificate of need would move Illinois away from these outdated, ineffective policies and help to bring  market principles back to the health care industry.

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

In Illinois and Elsewhere, Do State Rules Drive Suicide Rates?
http://www.chicagotribune.com/news/opinion/commentary/ct-suicide-mental-health-illinois-con-laws-perspec-0503-jm-20160502-story.html
In this Chicago Tribune op-ed, Justin Haskins and Jacquelyn Corley discuss the nation’s growing problem with increasing suicide rates and how CON laws may play a role in limiting the mental health services that could serve these individuals. “But one of the most cost-effective, sustainable solutions to this growing problem would be to reform or repeal Illinois' burdensome certificate-of-need regulations, a decision that could ultimately save thousands of lives and improve Illinois' health care system,” wrote Corley and Haskins.

Spotlight on Spending #10: When You Need a Hospital, Will It Be There?
https://www.illinoispolicy.org/reports/spotlight-on-spending-10-when-you-need-a-hospital-will-it-be-there/
Chris Andriesen of the Illinois Policy Institute examines Illinois’ certificate of need program and argues it restricts care for millions of Illinoisans. “The bureaucratic processes in the CON program are often time-consuming and expensive, and in states that got rid of their hospital planning boards, per capita health care costs are lower on average than in states like Illinois, which still have planning boards,” wrote Andriesen.

Study: Illinois CON Law Stifles Health Care Access
https://www.heartland.org/news-opinion/news/study-illinois-con-law-stifles-health-care-access?source=policybot
Sarah McIntosh writes in Health Care News about a new study that found several states “may soon be facing a hospital and healthcare shortage caused by Certificate of Need (CON) laws, a vestige of a federal incentive policy which attempted to drive down costs in the 1970s by granting state governments.”

Can Health Spending Be Reined in through Supply Constraints?
http://mercatus.org/publication/health-spending-reined-in-CON-laws
James Bailey of the Mercatus Center at George Mason University examines data from the National Health Expenditure Accounts program to determine the effect CON laws have on spending. Bailey finds CON laws “do not increase spending any major payer or for any major type of provider and that they increase spending on some types of health care.”

Are Certificate-of-Need Laws Barriers to Entry? How They Affect Access to MRI, CT, and PET Scans
https://www.heartland.org/publications-resources/publications/are-certificate-of-need-laws-barriers-to-entry-how-they-affect-access-to-mri-ct-and-pet-scans?source=policybot
A study published in January 2016 from the Mercatus Center at George Mason University examines how CON regulations affect the availability of imaging services provided by hospitals and other medical providers. The results show CON regulations adversely impact non-hospital providers; hospitals largely remain unaffected. The study also shows residents of CON states are more likely to travel out of state to obtain imaging services than residents of non-CON states.

Do Certificate of Need Laws Increase Indigent Care?
https://www.heartland.org/publications-resources/publications/do-certificate-of-need-laws-increase-indigent-care?source=policybot
Thomas Stratmann and Jacob Russ of the Mercatus Center at George Mason University examine certificate of need laws and their effects on pricing and health care access. “While certificate of need laws significantly reduce available health care services for everyone, they do not lead to an increase in care for the needy.”

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.

Ten Principles of Health Care Policy 
https://www.heartland.org/publications-resources/publications/ten-principles-of-health-care-policy?source=policybot
This pamphlet in The Heartland Institute’s Legislative Principles series describes the proper role of government in financing and delivering health care and provides reform suggestions to remedy current health care policy problems.

Certified: The Need to Repeal CON: Counter to Their Intent, Certificate of Need Laws Raise Health Care Costs
https://www.heartland.org/publications-resources/publications/certified-the-need-to-repeal-con-counter-to-their-intent-certificate-of-need-laws-raise-health-care-costs?source=policybot
Jon Sanders of the John Locke Foundation argues 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 – preventing unnecessary increases in health care costs – by repealing those laws.

Health Care in the States
https://www.heartland.org/publications-resources/publications/health-care-in-the-states?source=policybot  
Cato Institute Fellow Michael Tanner compares health care reform among the states. Tanner says because there is no universal model available for states to follow, states create their own reform models. Tanner examines how these various efforts differ in cost-effectiveness and insurability, documenting states’ successes and failures.

 

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 Health Care News at https://www.heartland.org/publications-resources/newsletters/health-care-news, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database at www.policybot.org.

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Author
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.