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Research & Commentary: North Carolina Needs to Repeal Certificate of Need Laws Now

July 6, 2021

In this Research & Commentary, Christina Herrin evaluates how North Carolina would benefit from Certificate of Need Law Reform.

North Carolina is one of 20 states that temporarily suspended certificate of need (CON) laws during the COVID-19 pandemic. CON laws hinder technological expansion in the health care marketplace, drive up costs by restricting competition, and create barriers to entry in the health care industry. Temporarily repealing these laws during the pandemic allowed the medical industry to react accordingly to the needs of patients. 

There was a recent effort by the North Carolina Legislature to repeal the state’s onerous CON laws during the first half of the 2021 session. The bill would exempt a majority of health care facilities from having to operate under the confines of CON laws.

CON laws are antiquated, limit health care access, and raise costs for patients. According to the Kaiser Family Foundation, health care costs are 11 percent higher in states operating with CON laws than those without. Furthermore, the negative impact of CON laws extends well beyond higher prices. CON laws are directly linked to reduced quality of care in hospitals and less health care access for rural communities. The stark truth is that states operating with CON laws have rates of mortality about 5.5 percent higher than states operating without CON laws, according to a report by the Mercatus Center.

North Carolina could unleash substantial cost savings if CON laws were repealed. According to a recent Merctaus state profile, North Carolina health care costs could drop by $213 per person if CON laws were repealed.

Not only do prices drop when CON laws are repealed, but quality and accessibility also improve when states repeal CON laws. For instance, North Carolina could have 55 more hospitals if it did not have CON laws on the books, 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.

In 2020,  North Carolina officials turned down a CON application for a 30-bed acute care hospital in North Mecklenburg. Unfortunately, the North Carolina Department of Health and Human Services didn’t approve the $147 million facility, which would have included two operating rooms and created hundreds of jobs.

Cronyism is embedded in CON laws, and patients living in states that enforce CON end up suffering through no fault of their own. In North Carolina, there are 131 fewer beds per 100,000 people than in the rest of United States, which means there are 13,000 fewer beds for patients in the Tar Heel State. North Carolinians also have reduced access to advanced health care services, including 49 fewer hospitals offering MRI services and 67 fewer hospitals offering CT scans, because of CON laws.

Currently, 35 states including North Carolina still enforce CON laws, which result in higher prices and reduced availability of medical services and in-patient beds. 

North Carolina lawmakers should fully repeal the state’s outdated CON laws to increase accessibility, improve quality, and lower health care costs. These burdensome regulations are the epitome of failed government central planning and should be repealed at all costs.

 

The following articles further examine 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.”

Certificate of Need Laws: North Carolina State Profile
https://www.mercatus.org/system/files/north_carolina_state_profile.pdf
This state profile from the Mercatus Center examines North Carolina’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 North Carolina 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 post surgery 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
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 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 the government relations team, at governmentrelations@heartland.org or 312/377-4000.

Author
Christina Herrin is a state government relations manager at The Heartland Institute.
cherrin@heartland.org @_Free2Choose