Market competition in the health care industry improves services and provides consumers with additional and potentially life-saving options, yet the State of Virginia is hindering competition by imposing burdensome regulations. Virginia is one of 36 states that limits the ability of health care providers to expand their businesses through an approval process known in Virginia as certificate of public need (CON). CON laws were first passed in the 1960s by states in an attempt to slow increasing health care prices by limiting the duplication of services and promoting health care consolidation.
Three Virginia state legislators have introduced legislation that would reform Virginia’s CON law system and remove unnecessary government impediments to the expansion of health care services. Dels. John O’Bannon (R-Henrico), Kathy Byron (R-Bedford), and Christopher Peace (R-Hanover) each introduced proposals to cut back CON laws to varying degrees.
O’Bannon’s proposal would eliminate CON regulations for imaging services, ambulatory and outpatient surgery centers, and hospitals, phasing out regulations over a three-year period. Byron’s proposal, which is comparatively limited, would repeal CON ambulatory surgery center restrictions and end certain requirements on medical equipment. Peace has made two separate proposals: one to end CON requirements for critical medical equipment, such as CT scanners and MRI machines, and another that would immediately end many of Virginia’s current CON laws.
CON programs require health care providers seeking to undergo certain types of expansion to receive state approval, generally from the state’s health care agency or a designated CON commission. Virginia requires a certificate of public need for a wide range of expenditures, including the construction and modification of health care facilities and the offering of new services, medical procedures, and inpatient care beds. Unlike other licensing laws, CON laws generally are not based on quantifiable criteria, such as experience or education.
CON laws 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.
Recent studies have shown CON laws 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. Virginia’s CON program regulates 19.
Mercatus ranked Virginia’s CON program as the 11th most restrictive in the United States. The authors found there are 131 fewer beds per 100,000 people in Virginia than in the rest of the United States. Virginia offers fewer advanced health care services, including 41 fewer hospitals offering MRI services and 58 fewer hospitals offering CT scans, because of its CON regulations. The authors conclude CON rules in Virginia limit health care competition across the state and leave fewer options for everyone, especially the poor.
Justin Haskins of The Heartland Institute argues the proposed reforms would be a significant step in the right direction, but he says there is more to be done: “The proposals offered by O’Bannon and Peace would keep in place CON laws related to nursing homes and open-heart surgery centers. Byron’s plan would also protect the regulations governing nursing homes and would exempt CON regulations related to rural hospitals.”
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. Virginia 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 CON laws from multiple perspectives.
Attempts to Roll Back CON Laws Underway in Virginia
http://news.heartland.org/newspaper-article/2016/01/06/attempts-roll-back-con-laws-underway-virginia
Writing in the Consumer Power Report, Heartland Institute Editor Justin Haskins examines eight legislative reforms designed to scale back some of the state’s certificate of need (CON) laws. The reforms were proposed by three Virginia state delegates in the General Assembly. Haskins argues CON laws are disruptive regulations that cause real harm for patients and health care providers. He says states should move to eliminate these dangerous regulations.
Certificate of Need Laws: Implications for Virginia
https://heartland.org/policy-documents/certificate-need-laws-implications-virginia
Examining certificate of need (CON) laws in Virginia, 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 market 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.
CON Job: How A Virginia Law Enriches Established Businesses by Limiting Your Medical Options, and How IJ Is Going to Stop It
http://www.ij.org/virginia-certificate-of-need-backgrounder
This Backgrounder published by the Institute for Justice discusses the political and legal history of Virginia’s certificate of need (CON) law and the effects it has had: “In short, Virginia’s CON program is nothing but a government permission slip to compete. It ensures that more money flows into the pockets of established, politically connected businesses, and it accomplishes this by trampling entrepreneurs’ economic liberty and reducing Virginians’ choices for medical care. But patients and doctors—not state officials—are in the best position to decide what healthcare services are needed.”
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. “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,” said Bruneau.
Certificate of Need: State Health Laws and Programs
ttp://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 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 certificate of need (CON) laws make it more difficult and expensive for companies to create new jobs and innovate. Even more troubling is the use of CON laws by existing businesses to bar newcomers from competing against them, says Shapiro.
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 notes certificate of need (CON) laws fail to lower health care costs and in many instances actually increase costs. Sanders says state leaders would best fulfill the intent behind the creation of CON regulations—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 (CON) concept, summarizes how the State of Washington’s 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 State.
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 he says the government’s increased spending on programs has not been a boon. “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,” Doherty wrote.
Health Care in the States
http://heartland.org/policy-documents/colorado-balance-health-care-states
Michael Tanner compares health care reform efforts among the states, from New York to Hawaii. Tanner says 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 Nathan Makla, Heartland’s state government relations manager, at [email protected] or 312/377-4000.
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
