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Research & Commentary: Maryland Should Consider Repealing Certificate of Need Laws

May 30, 2018

In this Research & Commentary, Matthew Glans examines Maryland's efforts to reexamine its certificate of need laws and the need for reform.

Maryland is one of 35 states that institute certificate of need (CON) laws, which limit health care providers’ ability to expand services. CON laws were first passed in the 1960s by states to curb increasing health care costs by limiting duplication of services and promoting health care consolidation. However, CON laws actually increase health care costs by reducing competition and innovation and forcing providers to use older facilities and equipment. As of now, states with CON laws regulate on average 14 different medical services, devices, and procedures. CON program regulates 17.

Fortunately, Maryland is reexamining its CON laws and possibly implementing much-needed and long-overdue reforms. In January 2018 the Maryland Health Care Commission created a taskforce to analyze the certificate of need process. The task force’s mission is to determine if CON regulation contributes to or detract from the state’s three goals: enhancing the patient care experience; improving health and wellness outcomes; and reducing health care costs per capita.

As the taskforce will almost certainly conclude, Maryland’s CON laws fall well short in each of the three aims and in some cases actually exacerbate the problem. In short, CON laws are outdated and obtrusive regulations that thwart the state’s health care market growth and operation. Furthermore, as the Mercatus Center at George Mason University estimates, using existing data on the costs of CON laws in other states, if Maryland repealed its CON laws total health care spending could drop by $243 per person.

Despite ample evidence that CON laws increase health care service costs, far too many states continue to have these laws on the books. The Kaiser Family Foundation found a positive correlation between the number of CON law restrictions and the cost of health care. For instance, states with CON laws on 10 or more services averaged per-capita health care costs eight percent higher than the $6,837 average for states requiring CON for fewer than 10 services.

In addition to lowering health care costs, eliminating CON laws would improve Marylander’s health care quality and access. Absent CON laws, Maryland could have an estimated 25 more hospitals 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.

Multiple studies confirm the breadth of negative consequences CON laws impose in states across the nation. 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. Data from the Kaiser Family Foundation 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.

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, Maryland 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.

Currently, the United States leads the world in health care quality and innovation. Yet states like Maryland needlessly limit health care expansion because of outdated and counterproductive CON laws. Maryland’s CON laws embody crony capitalism and are another sad example of the failures of government intervention. They increase health care costs and limit access and innovations. It’s time for Maryland, as well as all states with CON laws, to end these burdensome regulations and embrace free market health care reforms.

The following articles examine CON laws from multiple perspectives.


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

Certified: The Need to Repeal CON: Counter to Their Intent, Certificate of Need Laws Raise Health Care Costs
http://heartland.org/policy-documents/certified-need-repeal-con-counter-their-intent-certificate-need-laws-raise-health-c  
Jon Sanders of the John Locke Foundation says 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 programs – preventing unnecessary increases in health care costs – by repealing those laws.

Certificate of Need: Does It Actually Control Healthcare Costs?
http://www.nccivitas.org/2011/certificate-of-need-does-it-actually-control-healthcare-costs/
The Civitas Institute examines North Carolina’s CON law and whether it has reduced health care costs as its proponents claimed it would. “The CON process is a faulty answer to an outdated question.  The program has failed to implement its “fundamental premise” of controlling healthcare costs. North Carolina lawmakers should seriously consider limiting the scope of the process, or eliminating it altogether for most circumstances.”

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.

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 Health Care News, 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