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Research & Commentary: Certificate of Need Laws Hurt Florida’s Heath Care Market

December 7, 2017

In this Research & Commentary, Matthew Glans examines a Florida plan to roll back a portion of its certificate of need laws for hospitals.

Florida is one of 35 states that limit the ability of health care providers to expand their businesses through an approval process known as certificate of need (CON). In 2018, Florida legislators will once again discuss passing a law that would roll back some of the state’s CON requirements by eliminating the process for hospitals.

For many years, the CON systems in many states have allowed hospitals to block the expansion of their competitors, skewing the system in their favor. As a result, CON laws raise medical care costs by keeping new medical providers from competing with existing hospitals. The proposed bill would limit this interference.

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. A study published by the Mercatus Center at George Mason University found states with CON programs regulate on average 14 different medical services, devices, and procedures. Florida’s CON program currently regulates 11, slightly below the national average.

A new state profile of Florida’s CON laws by the Mercatus Center at George Mason University using existing data on the costs of CON laws in other states, estimates total health care spending in Florida could drop by $235 per person if CON laws were to be repealed. In addition to lowering health care costs, eliminating Florida’s certificate of need laws would improve the quality and access of health care for citizens of the state. According to the Mercatus study, Florida could have 104 more health care facilities in the state, including 9 more rural hospitals, if it did not have CON laws. Patients could also have access to more imaging tests outside the hospital setting, thus requiring less travel to obtain care.

Research has shown CON laws drive up health care costs. 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.

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.

The Florida Legislature should consider rolling back these disruptive laws. Ideally, a full repeal of burdensome and unnecessary regulations such as CON laws should be applied across the board in Florida and in every other state, a move that would benefit all health care providers and their patients.

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

Certificate of Need Laws: Implications for Florida
https://www.heartland.org/policy-documents/certificate-need-laws-implications-florida
Examining certificate of need laws in Florida, Thomas Stratmann and Christopher Koopman of the Mercatus Center at George Mason University argue CON laws do not control costs and instead decrease the supply and availability of health care services by limiting entry and competition. They recommend legislators repeal these laws and open markets for greater entry, more competition, and ultimately more options for those seeking care.

Is Florida’s Certificate of Need (CON) Program Necessary?
http://hfsf.org/certificate_of_need.pdf
This Policy Brief from the Health Foundation of South Florida provides a summary description of Florida’s current CON program and the main arguments, both in opposition to CON regulations and in support of them, in the debate over whether to maintain the program in its present form.

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.

Certificate-of-Need Laws Lower Quality of Care, Study Finds
http://www.modernhealthcare.com/article/20160928/NEWS/160929875
Shelby Livingston of Modern Healthcare examines a new study from the Mercatus Center that argues certificate of need laws that govern the construction and development of health care facilities do not raise the quality of care at hospitals and may even lead to higher readmission rates.

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.

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.
 

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. 

If you have any questions about this issue or The Heartland Institute’s website, contact John Nothdurft, The Heartland Institute’s government relations director, at john@heartland.org or 312/377-4000.

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