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Research & Commentary: Tennessee Should Rollback or Repeal Certificate of Need Laws

February 14, 2019

In this Research & Commentary, Matthew Glans examines several new proposals in Tennessee that would roll back or fully repeal the state's certificate of need laws.

Tennessee is one of 35 states that institute certificate of need (CON) laws, which limit health care providers’ abilities to expand services. Two major proposals have been introduced in the Tennessee General Assembly that would either roll back parts of the state’s CON program or repeal it altogether. The stated goal of CON programs is to manage health care costs, yet research shows they actually increase costs for consumers by hindering competition and forcing providers to use older facilities and equipment.

The first proposal, HB 672, loosens the states CON laws for free-standing emergency facilities and home health agencies. Although falling far short of full repeal, this bill would be a decent first step towards rolling back Tennessee’s CON laws. Expanding the availability of free-standing emergency departments could improve health care access for many Tennesseans and improve competition and reduce health care prices.

The second proposal, HB 1085, is more expansive and fully repeals Tennessee’s CON laws. A full repeal would significantly reduce health care costs and improve health outcomes. This bill also avoids choosing a specific “winner” in the health care market.

Rolling back or eliminating Tennessee’s CON laws would improve health care quality and access. If Tennessee did not have CON requirements, the state would have 63 additional health care facilities, 26 additional ambulatory surgical centers and 25 rural hospitals, according to a profile on Tennessee’s CON laws by the Mercatus Center at George Mason University. Furthermore, states with CON laws have a mortality rate about 5.5 percent higher than the average rate in non-CON states, as reported by Thomas Stratmann and David Wille of the Mercatus Center. Even worse, CON laws do not protect access to health care in rural areas.

CON laws have not improved health care access, yet have increased health care costs for consumers by hindering competition and forcing providers to use older facilities and equipment. According to the Tennessee CON profile, which relied on existing data from other states, total health care spending could drop by $223 per person if CON laws were to be repealed. In an early study, conducted in 2003 by Christopher Conover and Frank Sloan of Duke University, their research found Michigan’s CON program demonstrated “little evidence that CON results in a reduction in costs and some evidence to suggest the opposite.”

In addition to being linked to poor hospital quality, copious research shows CON laws drive up health care costs. Data from the Kaiser Family Foundation demonstrates 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 CON 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.

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

Unnecessary CON regulations should be repealed in full. In an article in Antitrust, Maureen K. Ohlhausen, a commissioner at the Federal Trade Commission, argued CON laws lack transparency and political accountability and should be repealed.

The Tennessee General Assembly should, at the very least, roll back ineffective CON laws. Ideally, a full repeal of burdensome and unnecessary regulations such as CON laws should be applied across the board in Tennessee and in every other state, a move that would benefit all health care patients and providers.

The following articles provide information about certificate of need laws.
 

Beacon Explains: Certificate of Need Laws
https://www.beacontn.org/beacon-explains-certificate-of-need-laws/
Lindsay Boyd Killen writes for the Beacon Center about certificate of need laws in Tennessee and argues they should be reformed. “The time has come for Tennessee to join with states that have brought greater healthcare access to more people by repealing their CON laws. The only irrefutable achievement we can directly attribute to CON laws is their successful creation of a robust hospital cartel that restricts competition in the marketplace and decreases the supply of healthcare services. That’s not something to be proud of.”

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

CON Job: Certificate of Need Law Used to Delay, Deny Expansion of Mental Health Options
https://goldwaterinstitute.org/article/con-job-certificate-of-need-laws-used-to-delay-deny-expansion-of-mental-health-options/
In this article, Mark Flatten of the Goldwater Institute discusses how certificate of need laws hold back the expansion of needed mental health care facilities.

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.

Are Certificate-of-Need Laws Barriers to Entry? How They Affect Access to MRI, CT, and PET Scans
https://www.heartland.org/policy-documents/are-certificate-need-laws-barriers-entry-how-they-affect-access-mri-ct-and-pet-scan
A study published in January 2016 from the Mercatus Center at George Mason University examines how CON regulations affect the availability of imaging services provided by hospitals and other medical providers. The results show CON regulations adversely impact non-hospital providers; hospitals largely remain unaffected. The study also shows residents of CON states are more likely to travel out of state to obtain imaging services than residents of non-CON states.

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, Federal Trade Commissioner 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
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