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Research & Commentary: Certificate-of-Need Laws Hurt West Virginia Health Care Market

February 23, 2017

In this Research & Commentary, Matthew Glans examines certificate of need reform and why West Virginia needs to roll back its disruptive CON laws.

West Virginia is one of 36 states that limits the ability of health care providers to expand their businesses through an approval process known as certificate of need (CON). CON laws were first passed in the 1960s by states in an attempt to slow increasing health care prices by limiting the duplication of services and promoting health care consolidation.

CON programs require health care providers seeking to undergo certain types of expansion to receive state approval, generally from the state’s health care agency or a designated CON commission. West Virginia requires a certificate of need for a wide range of expenditures, including the construction and modification of health care facilities and the offering of new services, medical procedures, and inpatient care beds.

Unlike other licensing laws, CON laws generally are not based on quantifiable criteria, such as experience or education. CON laws increase costs for consumers by hindering competition and forcing providers to use older facilities and equipment.

A recent audit of West Virginia’s CON program found the state’s certificate-of-need process is ineffective at controlling health care costs and creates an unnecessary regulatory barrier for new and expanding providers in the health care market. According to the Charleston Gazette-Mail, the audit found between 2011 and 2015, the Health Care Authority denied only four of 228 certificate-of-need applications. This low rejection rate means the process is essentially meaningless and only serves to impose a costly burden on health care providers. The audit also found West Virginia health care costs have increased faster than the national average over the same period, despite the state’s CON laws.

In a study published by the Mercatus Center at George Mason University, Thomas Stratmann, Christopher Koopman, and Mohamad Elbarasse found states with CON programs regulate on average 14 different medical services, devices, and procedures, while West Virginia’s CON program regulates 21. This makes West Virginia’s CON program the sixth-most restrictive in the United States.

Stratmann, Koopman, and Elbarasse found West Virginia’s CON laws could lead to the state having 2,424 fewer beds, between four and seven fewer hospitals offering MRI services, and between 13 and 16 fewer hospitals offering computed tomography (CT) scans. 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.

The most common criticism of CON law repeal is proponents say these regulations are needed to protect health care access in rural areas and avoid cherry-picking by providers, but this view operates under the common misconception. In a separate 2016 study, Stratmann and Koopman found states restricting entry and competition through a CON program had fewer total hospitals and fewer rural hospitals per capita, which is the opposite of the intended result.

West Virginia has taken some small steps toward limiting these laws. In 2016, the state ended its requirement forcing hospitals to undergo the CON process to increase the rates they charge patients. West Virginia should consider expanding its rollback of the state’s CON program. Allowing CON laws to persist increases the cost of health care while limiting access and benefitting those with political connections.

The following articles examine CON laws from multiple perspectives.

Certificate of Need Laws: Implications for West Virginia
Examining certificate-of-need (CON) laws in West Virginia, Thomas Stratmann, Christopher Koopman, and Mohamad Elbarasse 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 CON laws and open markets for to improve entry, provide more competition, and ultimately give more health care options to those seeking care.

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
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
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
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?
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
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
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
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.

Health Care in the States 
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, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database. 

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