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Research & Commentary: Vermont’s Certificate of Need Laws Punish Success

November 16, 2017

In this Research & Commentary, Matthew Glans examines Vermont's certificate of need laws and how they hinder the growth of the state's health care market.

A successful Vermont hospital may be facing discipline from the state for violating its certificate of need (CON) agreement. While this sounds ominous, the hospital may in fact be punished for being too successful, providing more surgeries than expected in its highly successful orthopedic surgery center. In 2016, Copley Hospital received a certificate of need from the Green Mountain Care Board to expand its surgical center, with the expectation that the number of surgeries would not dramatically increase.

Over the past year, Copley has provided affordable surgical services to thousands of patients without increasing prices; they simply provided quality services that spurred increased demand. Vermont’s CON board argued the hospital’s doctors were performing complex surgeries that should be performed at a larger hospital and cut the price Copley is allowed to charge patients and insurance companies for services in fiscal year 2018 by 3.4 percent, a move that was completed to shrink the hospital’s increased revenue earned since the CON approval.

Thirty-five states have CON laws that limit the ability of health care providers to expand their businesses without government approval. CON laws were first passed in the 1960s by states to slow increasing health care prices by limiting the duplication of services and promoting health care consolidation. Vermont leads the nation in the number of disruptive CON laws. States with CON programs regulate on average 14 different medical services, devices, and procedures, but Vermont’s CON laws require medical providers to obtain government permission to compete for 30 medical services.

Rob Roper, president of the Ethan Allen Institute, argues this backwards system of regulations is unique to CON laws, and the efforts to prevent so-called “poaching” of affluent patients is, in reality, nothing more than healthy competition. “This is the case at Copley, where the orthopedic surgical center has earned an outstanding reputation, and patients want to get their care there,” wrote Roper. “Other examples of healthy competition include Vermont MRI, which had to get a CON to provide a cheaper alternative for medical imaging, and the new surgical center in Colchester that had to spend $250,000 and waste years going through the CON process.”

Roper also points to a recent study by the Kaiser Foundation that found between 1991 and 2014 hospital expenditures in Vermont increased faster than in any other state in the United States.

A new state profile of Vermont’s CON laws by the Mercatus Center at George Mason University, which relies on existing data examining the costs of CON laws in other states, estimates total health care spending in Vermont could drop by $228 per person if CON laws were to be repealed. In addition to lowering health care costs, eliminating Vermont’s certificate of need laws would improve the quality and access of health care for citizens of the state.

According to the Mercatus study, Vermont could have six more hospitals in the state if it did not have CON laws. Patients could also have access to more imaging tests outside the hospital setting, leading to less travel, on average, to obtain care.

A study by 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.

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, Vermont 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.

The health care market in the United States has grown as a result of the presence of free-market competition and innovation, not government regulation. All states still imposing CON laws should consider reforming or repealing these laws altogether, ending these burdensome regulations across the state for all medical facilities and services. Allowing CON laws to persist increases the cost of health care while limiting access and benefitting those with political connections.

The following articles examine CON laws from multiple perspectives.
 

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

Repeal Vermont’s Certificate of Needs Laws
http://ethanallen.org/commentary-repeal-vermonts-certificate-of-needs-laws/
Rob Roper, president of the Ethan Allen Institute, argues repealing Vermont’s certificate of need laws would be the most efficient path for lawmakers to take toward lowering the cost of health care in the state and helping the state’s budget deficit.

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  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