The two mechanisms commonly used by states to limit health care competition are the approval process known as “certificate of need” (CON) and state-imposed caps limiting the construction of new health care facilities.
Since 1981, Wisconsin law has capped the number of nursing home beds in the state. This cap, along with a fee charged for each licensed bed in the state, has reduced the number of licensed beds in skilled nursing facilities in Wisconsin by 16 percent between 2003 and 2013.
The cap is also blocking construction of transitional care facilities (TCF) in Wisconsin, although such facilities are different than a traditional nursing home. A transitional care facility is a comprehensive health care facility, licensed as a skilled nursing facility, whose primary services involve short-term rehabilitation and therapy services. The average length of stay in TCFs is less than 28 days, and 75 percent of TCF patients return home after their states in the facility. TCFs provide an option for seniors who otherwise may not consider a traditional nursing home for their short-term needs.
A group proposing to build 26 new TCFs in Wisconsin estimates the new facilities could create approximately 5,070 permanent jobs and 9,360 construction jobs in the state. The $442 million project would represent a $16 million to $18 million investment in the local community for each individual project. The builders estimate the total economic impact could reach as high as $3.25 billion over a 10-year period.
Supporters of the construction moratorium argue Wisconsin already has too many empty beds in nursing homes. The state currently has an occupancy rate of roughly 81 percent for nursing home beds according to the CDC; the national average is 83 percent. Focusing solely on occupancy rates ignores the underlying reasons why the beds are unoccupied. The average nursing home nationwide is around 40 years old; many of these facilities are below capacity because they are older and are not offering the services consumers want or need. Health care companies invest in new facilities because they are in demand, and if the government allows the market to function without a cap, new facilities eventually replace the old and occupancy rates adjust naturally.
Traditional nursing homes have become increasingly unpopular. In a 2005 survey by AARP, 89 percent of people over 50 said they would prefer to remain in their homes as they age. Other national polls have found 81 percent of seniors have no desire to go to a traditional nursing home. TCFs offer an alternative that many seniors may support for post-acute and rehabilitation health care needs.
Like CON laws, limits on the construction of new health care facilities fail to achieve many of their stated goals and instead reduce the availability of health care services. Statutory limits on construction increase costs for consumers by hindering competition and forcing patients into older facilities. The market should be allowed to determine whether there is a demand for new health care facilities.
The following articles examine the regulations limiting the construction of new health care facilities and certificate of need laws from multiple perspectives.
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.
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 pricing 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,” they wrote.
Monopoly Is Not the Answer
http://heartland.org/policy-documents/monopoly-not-answer
Writing in Health Affairs, Clark C. Havighurst argues CON laws were created to correct a market failure that no longer exists and the cost burden on individual Americans should clinch the argument against tolerating, let alone fostering, health sector monopolies.
The Great Healthcare CON
http://fee.org/the_freeman/detail/the-great-healthcare-con
Jordan Bruneau of the Foundation for Economic Education examines the effects of CON laws on health care pricing and availability. He finds CON laws have a strong negative effect on 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 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.
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 the 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 or innovative businesses. Even more troubling, Shapiro argues, 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 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 – 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 examines certificate of need regulation, explaining the principles of free markets and applying them to a recent controversy 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 interventions into the health care market have proved disastrous, and the government’s increased spending on programs has not been a boon. He 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
Writing for The Independence Institute, Michael Tanner compares health care reform among the states. Tanner says that because there is no universal model available for the states to follow, they are undertaking the task of creating their own models of reform. Tanner examines how various states differ in cost effectiveness, insurability, and their successes and failures to provide affordable insurance for all citizens.
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.