States Should Abandon CON Laws And Put Patients First

Published May 15, 2019

For decades, states have had certificate-of-need (CON) laws that require health care investors to get permission from an appointed board before they can expand, purchase a new device, or offer new medical technology. In Missouri, 18 services require CON approval while Tennessee has 23, according to the Mercatus Center. These laws include how many beds a facility can have, or how extensive services such as home health and hospice care can be. It’s the equivalent of having one restaurant and a fence keeping competitors out. Obviously, the restaurant doesn’t have to work very hard to win business.

CON, however, is more serious, dealing with services and technologies that can significantly impact lives. Let’s start with Missouri, where lawmakers recently missed the opportunity to eliminate CON all together with H.B. 433.

Missouri State Rep. Jason Chipman (R-Crawford) says hearings on the bill were dominated by opponents. However, he says, oddly, they made the case to get rid of the law, not keep it. For instance, a banker testified in states without CON laws, requests for financing health care projects are more heavily scrutinized. A hospital spokesperson told the panel CON helps negotiate lower prices from vendors because CON approval is not required for lower priced projects. Obviously, a system that distorts natural market forces can only bring trouble. Chipman notes entities win approval for projects nearly every time. Sometimes approved projects, such as requests for additional beds, never materialize. The “approval” can then be sold on a grey market. “Con has spawned a cottage industry of rent seekers,” says Chipman.

In Tennessee, CON is used to control the market, creating a system where consumers sometimes have to drive hours for care. In 2018, the state’s CON board turned down two separate requests to build a free-standing emergency department in Bradley County. There was no question of need. One of the applicants operated a facility in a neighboring county and was treating Bradley County’s overflow. When Bradley County’s existing hospital got wind of the possible competition, it put in its own request for a similar facility. Board members said they didn’t want to play favorites. In fact, one openly discussed his concern about “funneling patients” from the existing hospital.

Reasons don’t matter but the result does. Patients still wait hours in the emergency room for care or drive hours to an emergency room in another county.

CON laws emerged four decades ago in an attempt to control health care costs and assure providers would have ample markets to develop expertise. History and volumes of research by economists and policy experts show such laws have failed and patients suffer the consequences.

The Mercatus Center offers an excellent state-by-state analysis on how CON impacts health care spending, access, and quality. According to the report, Missouri and Tennessee could save $238 and $223 in per capita health care spending, respectively, if the states repealed their CON laws. Even better, health care quality and access would greatly improve. Mercatus estimates Missouri and Tennessee would each have 25 more hospitals in rural areas and post-surgery complications, mortality, and hospital readmission rates would all improve if the states abandoned their CON laws.

As of this writing, it appears only one of four reform bills will pass in Missouri—H.B. 1170— which takes on CON at an incremental level by addressing an occupancy issue. Chipman says he will push for CON repeal next session because he is not hopeful “baby steps” will have the impact consumers can experience.

Rep. Daniel Martin (R-Knoxville) and Rep. Cameron Sexton (R-Cumberland) of Tennessee are hopeful their CON reform bills will prevail during work sessions this summer and fall with members from the state senate. Their hope is to turn around the “sky will fall” narrative being driven by existing providers protecting their turf. To counter-act this claim, Martin offers to phase in repeal over a five-year period. Sexton’s bill would give economically distressed areas a CON “opt-out” if an area does not offer emergency care or a particular outpatient diagnostic service.

If lawmakers need any convincing, perhaps they should look no further than the 12 states with zero CON laws. All of them with the slight exception of Texas at 38, rank higher in “best health care systems” than Missouri and Tennessee, according to WalletHub. Missouri comes in at 37th on the list and Tennessee is languishing at 41. It’s time lawmakers put patients first, not health care monopolies.