Florida Legal Battle Reveals Danger of CON Programs

Justin Haskins Heartland Institute
Published October 21, 2015

Consumer Power Report #478

Few government policies are as destructive or as poorly understood as certificate of need (CON) laws. A CON law creates a state regulatory agency that requires medical facilities to get permission from the agency in order to purchase new equipment, offer medical services, or expand or build a medical facility. Thirty-six states currently have CON laws on the books, and each one has a unique set of requirements that drive up health care costs, reduce access to quality medical care, and create artificial market shortages.

In Florida, an ongoing legal battle between hospitals has brought the state’s CON laws into the spotlight and has helped illustrate why these onerous government mandates should be rejected in favor of reasonable, free-market reforms that encourage competition and reject corporate favoritism.

In a recent decision by the state’s 1st District Court of Appeals, Judges Scott Makar, Stephanie Ray, and Ronald Swanson ruled Ed Fraser Memorial Hospital, located in Baker County, should get another opportunity to fight against a ruling issued by a lower circuit court that previously dismissed its challenge against a decision made by Florida’s CON agency, the Agency for Health Care Administration (AHCA).

The controversy started when a medical group announced plans to build the West Jacksonville Medical Center (WJMC) in Jacksonville, Florida. St. Vincent’s Hospital, another medical center in Jacksonville, objected to WJMC and a legal battle between the two medical groups ensued. Lawsuits frequently accompany the building of new large health care facilities, as existing hospitals fight to keep competition out of their market.

WJMC and St. Vincent’s Hospital agreed to a settlement, and AHCA issued a certificate, using terms WJMC and St. Vincent’s agreed to, in 2010 that would not be effective until 2013 and would not allow licensure of WJMC until the end of 2016.

Ed Fraser Memorial sued, arguing AHCA overstepped its authority by delaying the validity period of the certificate of need. In other words, AHCA created powers for itself out of thin air because WJMC and St. Vincent’s Hospital agreed those were the terms they wanted. Rather than do what’s best for the people of Florida, AHCA did what was best for the two wealthy, powerful medical groups.

In the decision, written by Makar, the judges agreed, “[W]e find no principle of law allowing an agency, even one with the gravity of AHCA’s charge, to exceed its delegated statutory authority simply because private parties to a settlement agreement deem it mutually beneficial. This point is particularly important because agreements of competing health care companies raise antitrust concerns, making it important that a state’s regulatory actions – including issuance of certificates of need – are pursuant to clearly articulated and affirmatively expressed legislative directives.”

The legal battle still isn’t over – the case will go back to a circuit court for a final decision – but the case illustrates the tremendous power, as well as the potential abuse that comes with it, held by CON regulatory agencies such as AHCA.

CON laws are supposed to keep health care costs down by preventing the creation of superfluous services, facilities, and expenses related to unnecessarily large medical staffs. The idea a government agency would be better at managing the health care industry than the experts in the medical industry who are looking to increase profits is laughable and has been completely disproven.

Christopher Koopman and Thomas Stratmann, scholars at the Mercatus Center at George Mason University, released the results of their nationwide study of CON laws in 2015 and found the promises made by regulators “have failed to materialize” and CON regulations have actually created a number of artificial, government-created problems in the health care marketplace, including in Florida.

For instance, according to Koopman and Stratmann, a study of the effects of CON laws in Florida reveals in Miami-Dade County, the state’s most populous county, there are “approximately 3,428 fewer hospital beds, between 5 and 10 fewer hospitals offering magnetic resonance imaging (MRI) services, and 18 fewer hospitals offering computed tomography (CT) scans.”

Koopman and Stratmann conclude, “For those seeking quality health care throughout Florida, [the existence of CON laws] means less competition and fewer choices, without increased access to care for the poor.”

Although CON laws are supposed to control costs, some studies show CON programs increase costs by 5 percent, and virtually all studies show they reduce access to necessary services, including in nursing homes, which have often been prevented from expanding or improving facilities in states that use CON agencies to regulate them.

Only the largest medical facilities already in existence seem to benefit from CON laws, because they are able to take advantage of them as a tool to keep competition, which is necessary in a free market to drive innovation and reduce costs, out of a marketplace. Meanwhile, patients – many of whom have never even heard of CON laws – suffer from inadequate care.

Although CON laws are typically established by well-intentioned legislators, they are nothing more than ill-conceived, unwanted government controls that do nothing to help consumers while protecting existing multi-million-dollar medical facilities from healthy competition. Florida should dump CON laws and embrace free-market reforms that have helped make the United States the world’s most advanced health care provider.

— Justin Haskins



Many people who get their health insurance through companies with more than 100 full-time employees can expect rate increases of about 15 to 20 percent next year.

Rates vary from company to company with some receiving no increase, some seeing rates drop, and some receiving increases of more than 30 percent.

Some employees may also pay more for out-of-pocket expenses in the form of higher deductibles, copays and coinsurance. …

Sharp premium increases rippled through the health insurance market for small businesses and individual plans in Kansas earlier this year. The state approved rate hikes as high as 25 percent for those groups.

Much of the reason small and individual plans went up for 2016 came from Affordable Care Act restrictions.

Under the Affordable Care Act, insurance companies could only use a person’s age, location and tobacco use to set premiums. That’s a big change from how individual and small business insurance worked before Obamacare.

SOURCE: By Gabriella Dunn, The Wichita Eagle


The math is harsh: The federal penalty for having no health insurance is set to jump to $695, and the Obama administration is being urged to highlight that cold fact to help drive its new pitch for health law sign-ups.

That means the 2016 sign-up season starting Nov. 1 could see penalties become a bigger focus to motivate millions of people who have remained eligible for coverage, but uninsured. They’re said to be more skeptical about the value of health insurance.

Until now, health overhaul supporters have stressed the benefits of getting covered: taxpayer subsidies that pay roughly 70 percent of the monthly premium, financial protection against sudden illness or an accident, and access to regular preventive and follow-up medical care.

But in 2016, the penalty for being uninsured will rise to the greater of either – $695 or 2.5 percent of taxable income – for someone who goes without coverage for a full 12 months. This year the comparable numbers are $325 or 2 percent of income. While the increase isn’t good news, it does create a marketing opportunity.

The numbers are pretty clear. With subsidized customers now putting in an average of about $100 a month of their own money, a consumer would be able to get six months or more of coverage for $695, instead of owing that amount to the IRS as a tax penalty. Backers of the law are urging the administration to hammer that home.

SOURCE: By Associated Press


The health care law’s historic gains in coverage may be leveling off: The Obama administration announced Thursday it expects only a slight overall increase in enrollment next year.

With the 2016 sign-up season two weeks away, Health and Human Services Secretary Sylvia M. Burwell set a target of 10 million people enrolled and paying their premiums by the end of next year. That’s about as many as are covered now through the law’s online markets for subsidized private health insurance.

Burwell said it’s getting harder to sign up the remaining uninsured. They tend to be young, managing very tight household budgets, and often unaware they can qualify for taxpayer-financed assistance with their premiums.

The administration’s new target is well below an estimate from congressional budget analysts of about 20 million covered in 2016. The huge difference quickly raised questions about whether advances in health insurance coverage under President Obama’s law may sputter or stall, leaving millions still uninsured.

SOURCE: By Ricardo Alonso-Zaldivar, Associated Press


Alaska’s high cost of health care may extend deeper into employer’s pocketbooks once the Affordable Care Act’s looming “Cadillac tax” kicks in in 2018, if no legislative changes are made to the tax on high-priced health insurance plans.

Compared to the rest of the nation, there’s “no doubt that we’re clearly more vulnerable,” said Mouhcine Guettabi, assistant professor of economics with the Institute of Social and Economic Research at the University of Alaska Anchorage. …

Nationwide, 28 percent of employers may be affected when the tax rolls out in 2018, according to the Kaiser Family Foundation. In Alaska, though, the numbers are shaking out differently.

Premera Blue Cross is the largest provider of group health care plans in Alaska, covering more than 1,000 employers. Roughly 60 percent of these plans will be hit with the excise tax in 2018, according to Blue Cross spokesperson Melanie Coon, if employers don’t change their plans.

In 2013, the average cost of an employer plan in Alaska was already hovering at the Cadillac tax threshold, according to the Institute of Social and Economic Research.

Jennifer Bundy-Cobb, vice president of consulting firm The Wilson Agency, said that of about 300 employer clients surveyed, between 80 and 90 percent of Alaska employers were headed toward the threshold. For clients in Washington state, that number dipped to between 30 and 40 percent.

SOURCE: By Alaska Dispatch News


The Department of Veterans Affairs administrator in charge of reducing the huge backlog of veterans benefits, who was a frequent target of critics, resigned on Friday despite a vast reduction in pending claims.

The administrator, Allison A. Hickey, became under secretary for benefits in 2011, overseeing 20,000 employees and benefits for more than 12 million veterans and their families. During her tenure, she emphasized a changeover from paper to digital claims, and the backlog in pending benefits claims declined from 611,000 in March 2013 to about 75,000 cases this week. …

Ms. Hickey, a former Air Force brigadier general, had long been a contentious figure. The department’s own inspector general’s office questioned the reliability of reports of a shrinking backlog, and veterans groups had called for her removal. She was facing a new congressional inquiry this month into accusations that executives in her office used their positions to create plush jobs for themselves and bilk the government of thousands of dollars in moving expenses.

SOURCE: By Dave Philipps, The New York Times