A new study indicates several states may soon be facing a hospital and healthcare shortage caused by Certificate of Need (CON) laws, a vestige of a federal incentive policy which attempted to drive down costs in the 1970s by granting state governments authority to approve or deny construction of any new hospitals or nursing homes.
Thirty-Six States Retain Laws
According to Amanda Griffin-Johnson, a public policy analyst for the Illinois Policy Institute who recently wrote a study of the impact of the Illinois CON program, these laws have profoundly negative effects. Approximately 36 states still have the laws in force even though the incentive has since been repealed.
“Certificate of Need laws increase the cost of health care by restricting the supply of health services and decreasing competition in that sector,” Griffin-Johnson said. “Competition is a driving force in keeping costs down, and health care facilities in states with CON laws are insulated from many of those competitive forces.”
Griffin-Johnson warns of possible future health facility shortages if states don’t take action to repeal these laws.
“CON laws create a time-consuming and expensive bureaucratic process, which can increase the price of the final health facility project. It is the consumers that end up bearing the burden of this extra cost,” Griffin-Johnson said. “The CON laws make the health care system less flexible to the needs of consumers. The expensive bureaucratic process discourages entrepreneurs from entering the field and can decrease patient access to new technology or specialized care.”
‘Bad Public Policy’
Linda Gorman, a senior fellow at the Independence Institute in Denver, Colorado, says CON laws are bad public policy.
“They rest on the unproven assumptions that there is excess capacity in health care, that their owners can simply pass their costs to purchasers, and that government can determine their value,” Gorman said. “Furthermore, they add another level of bureaucracy and create unnecessary barriers of entry into various markets, with the result that prices under the CON laws are higher than they would be otherwise. They also create an environment in which crony capitalism can flourish.”
Gorman explained how CON laws can lead to hospital shortages.
“They can lead to shortages if the bureaucracies applying them focus only on expenditure control. Worse, they prevent innovation—person A would not be allowed to set up a freestanding MRI center because the hospital, which already has an MRI, says that it has enough capacity to handle all patients,” Gorman said. “The problem is that the hospital charges X percent more and will keep doing so without competition from others.
“CON laws slow innovation that helps consumers. CON bureaucracies seldom take costs and benefits for consumers into account,” she added.
Positive Repeal Effects Shown
Gorman cites a 2009 National Bureau of Economic Research study showing CON repeal improved cardiac surgery in Pennsylvania.
“As new programs entered the market, volume shifted from incumbent programs to entrants and from lower- to higher-quality surgeons. The repeal of CON in Pennsylvania thus appears to have had a salutary effect on the market for cardiac surgery by directing more volume to better doctors and increasing access to treatment,” the study concluded.
Calls for Reform
Griffin-Johnson says Illinois should follow the recommendations of the U.S. Department of Justice, which announced support for repealing the laws in 2008.
“Many states that have removed their CON laws have experienced lower costs of hospital services per capita. States that still have CON laws should remove these barriers to entry and allow entrepreneurs to provide innovative solutions to today’s health care problems,” Griffin-Johnson explained.
As with many government policies, she says, CON laws have failed to live up to their billing.
“CON laws have not performed as advertised, and there is little evidence to support the idea that they help curb health care costs. Health care decisions should be left in the hands of consumers rather than bureaucrats,” said Griffin-Johnson.
Sarah McIntosh, Esq. ([email protected]) is a constitutional scholar writing from Lawrence, Kansas.
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