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Research & Commentary: Florida Should Repeal its Certificate of Need Laws

April 2, 2019

In this Research & Commentary, Matthew Glans examines two new bills in Florida that would roll back the state's certificate of need laws for some or all of the state’s health care providers.

Florida is one of 35 states that limit the ability of health care providers to expand their services through an approval process known as certificate of need (CON). Florida’s CON program currently restricts 17 devices and services, including organ transplants, psychiatric services, and acute hospital beds, according to the James Madison Institute.

The stated goal of CON legislation is to manage health care costs, yet research shows it actually increases costs for consumers by hindering competition and forcing providers to use older facilities and equipment. Florida’s CON law covers more services than the national average (14), giving the state a ranking of 32 in the Mercatus Center’s study examining the restrictiveness of state CON laws.

Fortunately, Florida legislators recognize CON laws are hurting the state and are now proposing legislation in both houses that would roll back Florida’s CON laws for some or all of the state’s health care providers. One bill proposed to address this problem, House Bill 21, would end CON laws in Florida by eliminating the entire CON review program. Under H.B. 21, if an applicant were to meet the licensure statutes and regulations established by the Agency for Health Care Administration, it would be permitted to offer new or additional health care facilities or services to patients in the state without first obtaining a certificate of need. This is the ideal reform for Florida because it would end the unnecessary restrictions created by the CON process and avoid a situation in which bureaucrats pick and choose which providers to exempt.

A second bill, Senate Bill 1712, is far less expansive. Although it would end CON laws for new freestanding hospitals, it would also maintain the laws for other providers, such as nursing homes and hospice facilities, as well as preserve the program for existing hospitals that would like to provide “tertiary services, such as neonatal intensive care, comprehensive rehabilitation, and pediatric cardiac catheterization services.” Although SB 1712 is clearly an improvement over the status quo, it would leave far too many providers stuck under the current dysfunctional system.

For many years, CON laws have allowed existing 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 providers. 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 state profile of Florida’s CON laws by the Mercatus Center, which relied on existing data of 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 repealed. In addition to lowering health care costs, eliminating Florida’s CON laws would improve the quality and access of health care for citizens across the state. According to the Mercatus study, Florida could have 104 more health care facilities in the state, including nine additional rural hospitals, if it did not have CON laws. Patients could also have access to more imaging test centers, thus requiring 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 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.

Most CON regulations should be fully repealed. In an article in Antitrust, Maureen K. Ohlhausen, a commissioner at the Federal Trade Commission, argued CON laws are not the best mechanism for encouraging a proper distribution of health care facilities. Even worse, CON programs lack transparency and political accountability.

Rolling back Florida’s CON laws would be a strong step in the right direction. Ideally, Sunshine State lawmakers should repeal all CON laws.

The following articles provide information about certificate of need laws.
 

The Biggest Health Care CON: The Effects of Certificate of Need Laws in Florida
https://www.jamesmadison.org/library/docLib/PolicyBrief-CON-v03.pdf
Logan Elizabeth Padgett and Matthew Mitchell of The James Madison Institute examine Florida’s certificate of need laws and how they can be reformed. “If Florida is serious about expanding care and avoiding an impending crisis in the supply of health care practitioners, the most meaningful step lawmakers can take is to repeal certificate-of-need laws and open the market for greater entry, more competition, and ultimately more opportunities for those obtaining care,” wrote Padgett and Mitchell.

Certificate of Need Laws: Florida State Profile
https://www.mercatus.org/system/files/florida_state_profile.pdf
This state profile from the Mercatus Center examines Florida’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 Florida if the state were to eliminate its CON 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.

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.

 

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 Lindsey Stroud at lstroud@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