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Research & Commentary: Certificate of Need Laws Restrict Competition and Benefit Existing Health Care Providers

June 14, 2019

In this Research & Commentary, Matthew Glans examines a new effort in Delaware to reform or repeal the state's certificate of need laws for health care providers.

Delaware is one of 35 states that impose certificate of need (CON) laws, which limit health care providers’ ability to expand services. Although CON laws are intended to decrease duplication and promote health care consolidation, they increase health care costs by reducing competition and innovation and forcing providers to use older facilities and equipment.

CON laws are outdated and obtrusive regulations that stunt the growth and development of the health care market. A state profile of Delaware’s CON laws by the Mercatus Center at George Mason University estimates, using existing data on the costs of CON laws in other states, total health care spending in Delaware would drop by $270 per person if CON laws were repealed.

In addition to lowering health care costs, eliminating the First State’s CON laws would improve health care quality and access for Delawareans. Indeed, Delaware could have five more hospitals if it were to eliminate its CON laws, according to the Mercatus study. Furthermore, patients could have access to more imaging tests (MRIs and x-rays) outside the hospital setting, resulting in less travel and lower costs.

The Delaware-based Caesar Rodney Institute (CRI) promotes repealing or reforming Delaware’s CON laws, arguing the decisions of Delaware’s Health Resources Board need to be examined. CRI says Delaware’s CON laws have led to health care monopolies in New Castle and Kent Counties, which have increased costs and diminished access to care.

CON laws adversely impact the price of health care services. The Kaiser Family Foundation found a positive correlation between the number of CON law restrictions in a state and the cost of health care. For instance, states with CON laws 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 addition to the effect on health care outcomes and prices, CON laws also give undue influence to competitors during vetting processes. When a health care 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.

Even worse, the state’s CON laws create what is essentially a “competitor’s veto” of new market entrants. A 2011 report from the National Institute for Health Care Reform confirmed the same problem exists in Connecticut, Georgia, Illinois, Michigan, South Carolina, and Washington. According to the report, “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.”

The United States leads the world in health care quality and innovation. However, states such as Delaware unnecessarily limit the expansion of health care providers and services because of outdated and unnecessary CON laws, which lack transparency and political accountability. Delaware policymakers should repeal these monopolistic, misguided laws.

The following articles provide information about certificate of need laws.
 

Certificate of Need Laws: Delaware State Profile
https://www.mercatus.org/system/files/delaware_state_profile.pdf
This state profile from the Mercatus Center examines Delaware’s certificate of need (CON) laws and compares health care outcomes and costs in other states. The studies attempt to give some insight into what is likely to happen in Delaware if the state were to eliminate its CON laws.                    

Eliminate the Health Care CON in Delaware       
https://www.caesarrodney.org/CRI-news/Eliminate-the-Health-care-CON-in-Delaware.htm
John E. Stapleford of the Caesar Rodney Institute discusses Delaware’s certificate of need rules and why the state should seek to repeal the disruptive, anticompetitive laws.

Should Delaware Repeal Certificate of Need Laws? Caesar Rodney Institute Kicks off Debate
https://www.delawarebusinesstimes.com/repealing-certificate-of-need-laws/
Alex Vuocolo of the Delaware Business Times writes about a new effort by the Caesar Rodney Institute to examine and call for the repeal or reform of Delaware’s certificate of need laws.

Certificate-of-Need Laws and Hospital Quality
https://www.heartland.org/publications-resources/publications/certificate-of-need-laws-and-hospital-quality
In this paper, Thomas Stratmann and David Wille of the Mercatus Center at George Mason University challenge the claim certificate of need laws improve hospital quality.

CON Job: Certificate of Need Law Used to Delay, Deny Expansion of Mental Health Options
https://goldwaterinstitute.org/article/con-job-certificate-of-need-laws-used-to-delay-deny-expansion-of-mental-health-options/
In this article, Mark Flatten of the Goldwater Institute discusses how certificate of need laws hold back the expansion of needed mental health care facilities.


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