Research & Commentary: Certificate-of-Need Laws Hurt Alaska Health Care Market

Published May 11, 2017

A proposal in Alaska would repeal the state’s certificate-of-need (CON) laws, an approval process that limits the ability of health care providers to expand their businesses. In his testimony on the proposal, Thomas Stratmann of the Mercatus Center at George Mason University argued CON laws are especially disruptive to Alaska’s health care market, dueo the state’s relative isolation. “In the lower 48, patients can travel across state borders to access medical services not provided in their states,” Stratmann said. “For most Alaskans, such travel is cost prohibitive, and they have to live with harmful effects of CON.”

Alaska’s CON laws affect more services than other states. Stratmann notes that while states with CON programs regulate on average 14 different medical services, devices, and procedures, Alaska CON laws require medical providers to obtain government permission to compete for 20 medical services.

Critics of CON repeal argue the end of certificate-of-need regulations would lead to a shortage of health care services in rural areas. Available data and research show these arguments simply do not hold up to scrutiny. A February 2016 study by the Mercatus Center found states restricting entry and competition through a CON program actually had fewer total hospitals and fewer rural hospitals per capita. According to Stratmann, in 2011, Alaska had about 25 hospitals. A comparable state without CON laws would have 35 hospitals. Instead of increase access to care, CON reduces access to medical care.

The situation is similar for ambulatory surgery centers, Mercatus found Alaska would have 25 ASC centers – instead of the 17 it had in 2011 – if it did not have CON laws slowing health care expansion. Alaska may also offer fewer advanced health care services due to its CON laws. Stratmann found Alaska’s CON laws may have resulted in about 2,000 fewer MRI scans and 30 percent fewer CT scans than states without CON requirements.

A study by Thomas Stratmann and David Wille of the Mercatus Center analyzed the effect of CON laws on specific metrics for nine different quality indicators at 921 hospitals. The study reviewed data from 2011 to 2015 and found the health care quality measures were significantly lower in CON states compared to states without CON laws. One of the biggest discrepancies identified in the study is difference in the rate of mortality resulting from complications in hospitals. In CON states the mortality rate was about 5.5 percent higher than the average rate in non-CON states.

In addition to being linked to poor hospital quality, research shows CON laws drive up health care costs. Data from the Kaiser Family Foundation show health care costs are 11 percent higher in CON states than in non-CON states. The study also found a positive correlation between the number of CON law restrictions and the cost of health care. States requiring certificates of need on 10 or more services averaged per capita health care costs 8 percent higher than the $6,837 average for states requiring certificates of need for fewer than 10 services.

CON laws also give inappropriate influence to competitors during vetting processes. When a company applies to enter a new market, competitors often use the CON process to block potential competition. As a result, CON laws raise the price of medical care by preventing new medical providers from competing with existing hospitals.

CON laws increase the cost of health care while limiting access and benefitting those with political connections. The unintended consequences of CON laws have led many experts to call for the reform or repeal of these policies. The Federal Trade Commission and the Department of Justice’s Antitrust Division have even recommended that Alaska repeal its certificate-of-need laws. Eliminating certificate-of-need would move the state away from these outdated, ineffective policies and help to bring market principles back to the health care industry.

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

The Failure of Alaska’s Certificate-of-Need Laws
In this testimony before the Alaska Senate Labor and Commerce Committee, Thomas Stratmann argued Alaska should move to repeal its certificate-of-need laws. “The takeaway from these findings is that CON laws are bad for Alaska because they reduce the quality of medical care in Alaska, they reduce access for Alaskans, and they reduce opportunities to obtain medical services such as MRI and CT scans. Alaska would be better off if the Last Frontier would join the 15 states that do not have CON laws,” Stratmann said.

Certificate-of-Need Laws and Hospital Quality
Thomas Stratmann and David Wille of the Mercatus Center at George Mason University challenge the claim CON laws improve hospital quality. “Using a broad dataset, the study finds no evidence that CON laws improve hospital quality. In fact, there are more deaths and serious postsurgery complications in hospitals in states with CON laws,” wrote Stratmann and Wille.

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 (ASCs) 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.

Certificate of Need Laws: A Prescription for Higher Costs
In this article published in Antitrust Magazine, Maureen Ohlhausen examines CON laws and argues for their repeal. “Regardless of one’s perspective on the proper balance between state and federal power, there are some very good reasons to repeal state CON laws,” wrote Ohlhausen.

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.

Do Certificate of 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.”

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.”

Certificate of Need: State Health Laws and Programs
The National Conference of State Legislatures outlines the various state CON laws and the positions of CON law proponents and critics.

Ten Principles of 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.

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, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database. 

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