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Research & Commentary: Certificate of Need Reform

November 13, 2014

Thirty-six states currently use certificate of need (CON) laws to slow the growth of health care prices, promote consolidation of health care providers, and limit duplication of services.

stethoscope and insurance docs

Thirty-six states currently use certificate of need (CON) laws to slow the growth of health care prices, promote consolidation of health care providers, and limit duplication of services. States require CON commission approval for a wide range of expenditures, including the construction of new hospitals, purchase of major pieces of medical technology, or offering of new medical procedures. Unlike other licensing laws, CON laws generally are not based on quantifiable criteria such as experience or education.

CON laws give inappropriate influence to competitors during the vetting process. When a company seeks to enter a new market, competitors often use the CON process to block the potential competition. Recent studies have shown CON laws fail to achieve many of their stated goals and have instead reduced the availability of health care services.

In a new study published by the Mercatus Center at George Mason University, Thomas Stratmann and Jacob Russ assembled a comprehensive database on CON regulations and examined their effects on health care pricing and services. In many instances, CON laws raised the cost and undermined the quality of health care, they found.

Russ and Stratmann found CON laws raise the price of medical care by preventing new medical providers from competing with existing hospitals. CON laws also reduced the availability of medical equipment and hospital beds; states with CON laws had 99 fewer hospital beds per 100,000 residents and lower availability of MRI services, CT scanners, and optical and virtual colonoscopies. Russ and Stratmann conclude more evidence of benefits of CON laws is needed before the government is justified in restricting competition among health care providers. 

Jordan Bruneau of the Foundation for Economic Education notes the data on health care costs demonstrate the ineffectiveness of CON laws. According to data from the Kaiser Family Foundation, health care costs are 11 percent higher in CON states than in non-CON states. The study also found the greater the number of CON law restrictions, the higher 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 effects of these laws have led many experts to call for their repeal. The primary goal of CON programs is to manage health care costs, yet critics find they have actually increased costs for consumers by hindering competition and forcing providers to use older facilities and equipment. State lawmakers should roll back these regulations. 

The following articles examine certificate of need laws from multiple perspectives.

Do Certificate-of-Need Laws Increase Indigent Care?
https://www.heartland.org/publications-resources/publications/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,” they write.

The Great Healthcare CON
http://fee.org/the_freeman/detail/the-great-healthcare-con
Jordan Bruneau of the Foundation for Economic Education examines the effect of CON laws on health care pricing and availability. He finds CON laws have a strong negative effect on the health care market. 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
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.

CON Job: State “Certificate of Necessity” Laws Protect Firms, Not Consumers
https://www.heartland.org/publications-resources/publications/con-job-state-certificate-of-necessity-laws-protect-firms-not-consumers
Writing in Regulation magazine, Timothy Sandefur of the Pacific Legal Foundation argues certificate of necessity (need) laws are not intended to protect the public but instead are designed to restrict competition and boost the prices existing companies can charge. 

You Shouldn’t Have to Ask Your Competitors for Permission to Start a Business
http://www.cato.org/blog/you-shouldnt-have-ask-competitors-permission-start-business
Ilya Shapiro of the Cato Institute argues CON laws make it more difficult and expensive for companies to create new jobs or innovative businesses. Even more troubling, Shapiro argues, is the use of CON laws by existing businesses to bar newcomers from competing against them.

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
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. 

The Failure of Government Central Planning: Washington’s Medical Certificate of Need Program
https://www.heartland.org/publications-resources/publications/the-failure-of-government-central-planning-washingtons-medical-certificate-of-need-program
John Barnes of the Washington Policy Center describes the history of the certificate of need concept, summarizes how the Washington state CON law works, compares its stated goals with actual performance, and offers practical policy recommendations for improving access to affordable health care for the people of Washington. 

Certificate of Need Pits Government Against Private Sector in North Carolina
https://www.heartland.org/news-opinion/news/certificate-of-need-pits-government-against-private-sector-in-north-carolina
Sara Burrows of Carolina Journal examines a problem with CON laws in North Carolina, discussing a new taxpayer-funded cardiac care center that has sparked a fight between public- and private-sector actors over the provision of medical services in the state’s largest county. 

Certificate-of-Need Law Hampers North Carolina Breast Cancer Hospital
https://www.heartland.org/news-opinion/news/certificate-of-need-law-hampers-north-carolina-breast-cancer-hospital
Sara Burrows of the Carolina Journal reports on a women’s breast cancer hospital in Asheville, North Carolina that has had to resort to “begging” for a magnetic resonance imaging scanner because of CON laws. “The certificate-of-need (CON) law makes it impossible for medical providers to build new facilities, expand existing facilities, buy new major medical equipment, or offer new services without first obtaining a ‘determination of need’ from the state Department of Health and Human Services,” she writes. 

Certificate-of-Need Laws: It’s Time for Repeal
https://www.heartland.org/publications-resources/publications/certificate-of-need-laws-its-time-for-repeal
Roy Cordato of the John Locke Foundation examines certificate of need regulation. This is the first in a series of annual research papers from JLF devoted to explaining the principles of free markets and applying them to current controversies in North Carolina. 

Certificates Of Need: A Bad Idea Whose Time Has Passed
https://www.heartland.org/publications-resources/publications/certificates-of-need-a-bad-idea-whose-time-has-passed
In a policy analysis from the James Madison Institute, Peter Doherty argues federal interventions into the market have proved disastrous, and the government’s increased spending on programs has not been a boon. He writes, “in the past 20 years, many of us have battled to moderate or eliminate the most egregious of these programs and the artificial controls they place on free markets, but despite our successes, vestiges of the past remain.”

Health Care in the States
https://www.heartland.org/publications-resources/publications/health-care-in-the-states?source=policybot
Michael Tanner compares health care reform among the states, from New York to Hawaii. There being no universal model available for the states to follow, they are undertaking the task of creating their own models of reform. Tanner examines how these various states differ in cost effectiveness, insurability, and their successes and failures to provide affordable insurance for all citizens.

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/topics/health-care/index.html, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database at www.policybot.org

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Logan Pike, Heartland’s state government relations manager, at lpike@heartland.org or 312/377-4000.

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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