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Research & Commentary: Tennessee Certificate-of-Need Reform

March 31, 2015

Tennessee is one of 36 states with certificate-of-need (CON) laws. CON laws are intended to slow the growth of health care prices, promote consolidation of health care providers, and limit the duplication of services.

stethoscope and insurance docs

Tennessee is one of 36 states with certificate-of-need (CON) laws. CON laws are intended to slow the growth of health care prices, promote consolidation of health care providers, and limit the duplication of services. Tennessee requires CON commission approval for a wide range of expenditures, including construction and modification of health care facilities, the purchase of major pieces of medical technology, and the offering of new inpatient care beds, services, and medical procedures. Unlike other licensing laws, CON laws generally are not based on quantifiable criteria such as experience or education. 

Recent studies have shown CON laws fail to achieve many of their stated goals and they actually increase costs for consumers by hindering competition and forcing providers to use older facilities and equipment. In a study published by the Mercatus Center at George Mason University, Thomas Stratmann and Christopher Koopman found states with CON programs regulate on average 14 different medical services, devices, and procedures, while Tennessee’s CON program regulates 20

Mercatus ranked Tennessee’s certificate of need program as the 7th most restrictive in the United States.  The authors found there may be 131 fewer beds per 100,000 people in Tennessee compared to the rest of United States. Tennessee may also offer fewer advanced health care services, including 32 fewer hospitals offering MRI services, and 45 fewer hospitals offering CT scans because of its CON law. The authors concluded this one set of regulations limits health care competition across the state and leaves fewer options for everyone, especially the poor. 

The results in Tennessee are similar to those found in other states using CON laws. 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. 

CON laws also give inappropriate influence to competitors during vetting processes. When a company applies to enter a new market, competitors often use the CON process to block potential competition. As a result, CON laws raise the cost of medical care by preventing new medical providers from competing with existing hospitals. 

The unintended consequences of CON laws have led many experts to call for repeal or at least reform of these policies. Tennessee lawmakers should consider reforming the state’s CON program again to end burdensome regulations that increase the cost of health care while limiting access and benefitting those with political connections. 

The following articles examine certificate-of-need laws from multiple perspectives.

Certificate of Need Laws: Implications for Tennessee
https://www.heartland.org/policy-documents/certificate-need-laws-implications-tennessee Examining certificate-of need-laws in Tennessee, 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. 

Do Certificate-of-Need Laws Increase Indigent Care?
http://heartland.org/policy-documents/do-certificate-need-laws-increase-indigent-care 
Thomas Stratmann and Jacob Russ of the Mercatus Center at George Mason University examine certificate-of-need laws and their effects on prices 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,” Stratmann and Russ write. 

The Great Healthcare CON
http://fee.org/the_freeman/detail/the-great-healthcare-con
Jordan Bruneau of the Foundation for Economic Education says CON laws powerfully distort the health care market. 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 prices, 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 various state CON laws and the positions of CON law proponents and critics. 

Ten Principles of Health Care Policy  
http://heartland.org/policy-documents/ten-principles-health-care-policy 
This pamphlet in The Heartland Institute’s Legislative Principles series describes the proper role of government in financing and delivering health care and provides reform suggestions to remedy current health care policy problems. 

CON Job: State “Certificate of Necessity” Laws Protect Firms, Not Consumers
http://heartland.org/policy-documents/con-job-state-certificate-necessity-laws-protect-firms-not-consumers 
Writing in Regulation magazine, Timothy Sandefur of the Pacific Legal Foundation argues certificate-of-need laws are not intended to protect the public but instead are designed to restrict competition and boost prices existing companies can charge. 

You Shouldn’t Have to Ask Your Competitors for Permission to Start a Business
http://www.cato.org/blog/you-shouldnt-have-ask-competitors-permission-start-business
Ilya Shapiro of the Cato Institute argues CON laws make it more difficult and expensive for companies to create new jobs and innovate. Even more troubling, Shapiro says, is the use of CON laws by existing businesses to bar newcomers from competing against them. 

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. 

The Failure of Government Central Planning: Washington’s Medical Certificate of Need Program
http://heartland.org/policy-documents/failure-government-central-planning-washingtons-medical-certificate-need-program
John Barnes of the Washington Policy Center describes the history of the certificate-of-need concept, summarizes how the Washington State CON law works, compares its stated goals with actual performance, and offers practical policy recommendations for improving access to affordable health care for the people of Washington. 

Certificate-of-Need Laws: It’s Time for Repeal
http://heartland.org/policy-documents/certificate-need-laws-its-time-repeal
Roy Cordato of the John Locke Foundation (JLF) examines certificate-of-need regulations in the first of a series of annual research papers from JLF devoted to explaining the principles of free markets and applying them to current controversies in North Carolina. 

Certificates of Need: A Bad Idea Whose Time Has Passed
http://heartland.org/policy-documents/certificates-need-bad-idea-whose-time-has-passed
In a policy analysis from the James Madison Institute, Peter Doherty argues federal marketplace interventions have proven disastrous and the government’s increased spending on programs has not been a boon. Doherty wrote, “In the past 20 years, many of us have battled to moderate or eliminate the most egregious of these programs and the artificial controls they place on free markets, but despite our successes, vestiges of the past remain.” 

Health Care in the States
http://heartland.org/policy-documents/colorado-balance-health-care-states
Michael Tanner compares health care reform among the states. Without a universal model to follow, states are creating their own reforms. Tanner examines how cost-effectiveness, insurability, and affordability vary between states.

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 at http://news.heartland.org/health, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database at www.policybot.org. 

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact John Nothdurft, Heartland’s director of government relations, at jnothdurft@heartland.org or 312/377-4000.

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Author
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.