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Research & Commentary: Connecticut’s Health Care Market Lags Under CON Laws

September 21, 2017

In this Research & Commentary, Matthew Glans examines a new paper that studies the effects of CON laws on Connecticut's health care industry and how the market might develop without CON laws.

Thirty-five states and the District of Columbia currently limit 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.

A new state profile of Connecticut’s CON laws by the Mercatus Center at George Mason University examined the effect of CON laws on the state’s health care industry and how the market might develop without CON laws. Mercatus notes while states with CON programs regulate, on average, 14 different medical services, devices, and procedures, Connecticut’s CON laws require medical providers to obtain government permission to compete for 12 medical services.

Using existing data on the costs of CON laws in other states, Mercatus estimates total health care spending in Connecticut could drop by $283 per person if CON laws were to be repealed, but repealing Connecticut’s certificate of need laws would improve far more than just health care costs. It would also dramatically improve the quality and access of health care for citizens of the state. According to the Mercatus study, Connecticut could have seven more ambulatory surgery centers and 18 more hospitals in the state if they did not have CON laws. Patients could also have access to more imaging tests outside the hospital setting, leading to less travel to obtain care.

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. The study reviewed data from 2011 to 2015 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 the differences in mortality rates 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 new profile estimates without CON laws, Connecticut could have lower mortality rates from heart attacks, heart failure, and pneumonia; lower readmission rates for heart attack and heart failure patients; and fewer deaths from post-surgery complications.

In addition to being linked to poor hospital quality, research shows 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.

Despite all the problems created by CON laws, Connecticut lawmakers have consistently moved to strengthen them. In 2015, Gov. Dannel Malloy (D) signed the Act Concerning Hospitals, Insurers and Health Care Customers, which made certificate of need regulations more onerous for hospitals seeking to transfer ownership. According to the Connecticut-based Yankee Institute, the bill also gave the state CON board significantly more power in regulating hospitals.

Recent efforts in Connecticut’s legislature have not been much better. During a recent session, two bills were introduced that called for an expansion of CON regulations. The first bill would have required a certificate of need for a hospital to reduce services. The second would have strengthened the CON approval process even further. The Yankee Institute opposed both these bills, arguing they made a bad CON system even more restrictive for the health care industry.

The health care market in the United States has grown as a result of the presence of free-market competition and innovation, not government regulation. All states still imposing CON laws should consider reforming or repealing these laws altogether, ending these burdensome regulations across the state for all medical facilities and services. 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: Connecticut State Profile
https://www.mercatus.org/system/files/connecticut_state_profile.pdf
This state profile from the Mercatus Center examines Connecticut’s 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 Connecticut if the state were to eliminate its CON laws.

The Effect of Interest Group Pressure on Favorable Regulatory Decisions
https://www.mercatus.org/publications/interest-group-pressure-favorable-regulatory-decisions-certificate-of-need
In this study, Thomas Stratmann and Steven Monaghan develop a model to estimate the impact of political contributions on the approval of CON applications. Their findings indicate that political contributions do affect whether state regulators approve applications. “This situation is contrary to the intent of CON laws, which is that application approval or denial be based only on the criteria established by state law. Campaign contributions given by applicants should not influence the decision—that is, politics should not be a factor in medical care,” the authors write.

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.

Entry Regulation and Rural Health Care: Certificate-of-Need Laws, Ambulatory Surgical Centers, and Community Hospitals
https://www.heartland.org/policy-documents/entry-regulation-and-rural-health-care-certificate-need-laws-ambulatory-surgical-ce
Thomas Stratmann and Christopher Koopman of the Mercatus Center at George Mason University evaluate the impact of CON regulations related to ambulatory surgical centers (ASCs) on the availability of rural health care. Their research shows despite the expressed goal of ensuring that rural populations have improved access to health care, CON states have fewer hospitals and ASCs on average—and fewer in rural areas—than states without CON regulations.

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.

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. 

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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