Research & Commentary: Alabama Should Repeal Unnecessary Certificate of Need Laws

Published July 6, 2021

Currently, 38 states enforce certificate of need (CON) laws, which raise health care costs, limit competition, and create barriers for new facilities and technologies to enter the medical marketplace. Decades after they were first introduced, CON laws have proven to be an epic failure. CON laws require any new facility or health care expansion to seek approval from the government. Proponents of these laws claim they lower costs. Yet, this couldn’t be further from the truth.

According to a Mercatus Center report, Alabama could reduce total health care costs by $203 per person if these outdated laws were repealed. In addition to increased costs when CON laws are enforced, barriers to competition also result in diminished health outcomes. And while $203 may not seem substantial, in many rural communities—like those in Alabama—these are real dollars that can and should be earmarked by families for other pressing needs.

There is no question that these policies do more harm than good. Similar to all industries, health care functions best when companies are able to compete in an open market, which in turn drives down costs for the consumer.

CON laws have negative effects on health care that range from inflated costs to lower quality of care. According to data from the Kaiser Family Foundation, health care costs are 11 percent higher in CON states than in non-CON states. 

If Alabama lawmakers were to repeal the state’s outdated CON laws, dollars and lives would be saved. As mentioned above, eliminating CON laws would also increase competition in the marketplace. A National Institute for Health Care Reform report found that the CON approval process can be highly subjective and tends to be influenced heavily by political relationships rather than policy objectives or good outcomes.

At present, far too many states continue to enforce these obsolete laws, creating barriers to entry for new health care startups. One example is the story of Dr. Nancy White’s attempt to open a 16-bed recovery facility for substance abuse patients in Arab, Alabama. There is a need for this facility in the area and regulators allow the company to provide outpatient services, but not residential drug and alcohol treatment. The worst part of this story is that the loudest opposition to development for a new mental health facility came from an established business that views the new facility as a threat to its bottom line.

Making matters worse, COVID-19 has brought about a trying time for all. Suicide, depression, and anxiety rates have risen substantially because of lockdowns and stress from the pandemic. In January 2021, 41 percent of adults reported symptoms of anxiety or depression. The need for a facility that addresses mental health and substance abuse couldn’t be more needed, yet CON law cronyism allows the government and industry leaders to block new startups out of fear of competition. The level of crony capitalism CON laws breed should be evidence enough to repeal this obsolete policy.

Alabama legislators would be wise to consider the negative implications of not repealing the state’s CON laws. Patients should be the highest priority when it comes to health care policy and CON laws create needless barriers to accessible and affordable health care for the most vulnerable in society. It is time for Alabama to put patients over profits and allow the market to decide what health care facilities are actually needed based on supply and demand, not the whims of industry leaders and lobbyists.

The following documents provide additional information about certificate-of-need laws.

Entry Regulation and Rural Health Care: Certificate-of-Need Laws, Ambulatory Surgical Centers, and Community Hospitals
Thomas Stratmann and Christopher Koopman of the Mercatus Center at George Mason University evaluate the impact of CON regulations related to ambulatory surgical centers (ASC) on the availability of rural health care. Their research shows despite the expressed goal of ensuring that rural populations have improved access to health care, CON states have fewer hospitals and ASCs on average—and fewer in rural areas—than states without CON regulations.

The Great Healthcare CON
Jordan Bruneau of the Foundation for Economic Education finds CON laws raise health care prices and reduce availability. 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.”

Are Certificate-of-Need Laws Barriers to Entry? How They Affect Access to MRI, CT, and PET Scans
A study published in January 2016 from the Mercatus Center at George Mason University examines how CON regulations affect the availability of imaging services provided by hospitals and other medical providers. The results show CON regulations adversely impact non-hospital providers; hospitals largely remain unaffected. The study also shows residents of CON states are more likely to travel out of state to obtain imaging services than residents of non-CON 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 The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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