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Research & Commentary: North Carolina Should Reform or Repeal Its Crony Certificate of Need Laws

June 3, 2019

In this Research & Commentary, Matthew Glans examines a new proposal in North Carolina that would reform the state's certificate of need laws for health care providers.

North Carolina is one of 35 states that impose certificate of need (CON) laws, which limit health care providers’ ability to expand services. Although CON laws are intended to limit duplication and promote health care consolidation, they increase health care costs by reducing competition and innovation and forcing providers to use older facilities and equipment. States with CON programs regulate on average 14 different medical services, devices, and procedures. North Carolina’s CON program regulates 25.

In late May, North Carolina Senate leaders added new language to their latest budget proposal that would reform the state’s CON laws. Although it would not fully repeal the Tar Heel State’s CON laws, the proposal would exempt ambulatory surgery facilities, operating rooms, kidney treatment centers, psychiatric hospitals, and other mental health facilities from the state’s antiquated CON laws.

Much of the new language in the budget mirrors a bill that had been proposed during the current session, Senate Bill 646.

CON laws are outdated and obtrusive regulations that stunt the growth and development of the state’s health care market. A state profile of North Carolina’s CON laws by the Mercatus Center at George Mason University estimates, using existing data on the costs of CON laws in other states, total health care spending in North Carolina would drop by $213 per person if CON laws were repealed.

In addition to lowering health care costs, eliminating the Tar Heel State’s CON laws would improve health care quality and access for North Carolinians. Indeed, North Carolina could have 55 more hospitals if its CON laws were eliminated, 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.

CON laws also adversely impact the price of health care services. The Kaiser Family Foundation found a positive correlation between the number of CON law restrictions in a state and the cost of health care. For instance, states with CON laws on 10 or more services averaged per-capita health care costs 8 percent higher than the $6,837 average for states requiring CON for fewer than 10 services.

The United States leads the world in health care quality and innovation. However, states such as North Carolina unnecessarily limit the expansion of health care providers and services because of outdated and unnecessary CON laws. Most CON regulations should be fully repealed. 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.

Although the Senate budget reforms would not fully repeal North Carolina’s CON laws, they would be a strong first step towards ending crony capitalism and allowing the free market to determine when and where health care facilities and services are offered.

The following articles provide information about certificate of need 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  
In this paper, Jon Sanders of the John Locke Foundation argues 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/
In this article, the Civitas Institute examines North Carolina’s CON law and whether it has reduced health care costs as its proponents claimed it would.

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.

Certificate-of-Need Laws and Hospital Quality
https://www.heartland.org/publications-resources/publications/certificate-of-need-laws-and-hospital-quality
In this paper, Thomas Stratmann and David Wille of the Mercatus Center at George Mason University challenge the claim CON laws improve hospital quality.
 

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