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Research & Commentary: Iowa Looks to End Certificate of Need Laws

January 25, 2018

In this Research & Commentary, Matthew Glans examines a proposed bill in Iowa that would repeal the state's certificate of need laws.

Iowa is one of 35 states that limit the ability of health care providers to expand their businesses through an approval process known as certificate of need (CON). Iowa’s certificate of need program currently restricts 17 devices and services, including organ transplants, psychiatric services, and acute hospital beds. Iowa’s CON law covers more services than the national average (14), giving the state a ranking of 32nd in the Mercatus Center’s study examining the restrictiveness of state CON laws.

For many years, Iowa’s 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. Iowa’s CON laws have one particularly glaring loophole that benefits established health care providers: Existing facilities do not require a certificate of need if the cost of the proposed expansion does not exceed $1.5 million.

The cost of applying for a CON is also a barrier to new providers. According to the Institute for Justice, the fee for applying for a CON with the Iowa Department of Public Health can be as high as $21,000. The Department is then required to inform all those affected by the CON, which typically includes competitors, who would then be able to testify at a mandatory public hearing held to debate the CON approval. 

A bill Sponsored by state Sen. Brad Zaun (R-Urbandale), would mandate Iowa to “eliminate the certificate of need (CON) process required prior to the offering or development of a new or changed institutional health service.” This major change would open up the state to new health care services and improve the quality of care while reducing costs and making the state a better target for increased health care investment.

Data from the Kaiser Family Foundation show health care costs are 11 percent higher in CON states than in non-CON states. The Kaiser data 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 that are 8 percent higher than the $6,837 average for states requiring certificates of need for fewer than 10 services.

A recent state profile of Iowa’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 Iowa could drop by $217 per person if CON laws were to be repealed. In addition to lowering health care costs, eliminating Iowa’s certificate of need laws would improve the quality and access of health care for citizens of the state. According to the Mercatus study, Iowa could have 55 more health care facilities in the state, including 38 additional rural hospitals, if it did not have CON laws. Patients could also have access to more imaging tests outside the hospital setting, 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.

A full repeal of burdensome and unnecessary regulations such as CON would benefit all health care providers and their patients. In an article in Antitrust, Maureen K. Ohlhausen, a commissioner at the Federal Trade Commission, argues CON laws are not the right mechanism for encouraging a proper distribution of health care facilities. “States that still have CON laws on the books should repeal them,” Ohlhausen wrote. “States that deem indigent care mandates necessary should fund them directly and publicly, rather than through an opaque transfer of those costs onto the insured public. Good government demands both transparency and political accountability.”

The Iowa General Assembly should consider rolling back these disruptive laws, thereby improving health care access for Iowans.

The following documents provide additional information about certificate of need laws.
 

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

Iowa Certificate of Need: Ending Iowa’s Laws that Limit Medical Options and Enrich Established Businesses
http://ij.org/case/iowa-certificate-need/
In this paper, Institute for Justice (IJ) researchers examine Iowa’s certificate of need laws and how they affect local providers. IJ argues the state’s CON laws should be repealed. “Iowa’s requirement has absolutely nothing to do with public health or safety. Separate state and federal laws govern who is allowed to practice medicine and what kind of medical procedures are permitted. Iowa’s CON program only regulates whether someone is allowed to open a new facility; it is explicitly designed to make sure new facilities are not allowed to take customers away from established healthcare facilities. It ensures that more money flows into the pockets of established businesses,” the authors wrote.

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 John Nothdurft, The Heartland Institute’s government relations director, at john@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