Thirty-six states currently use certificate of need (CON) laws to slow the growth of health care prices, promote consolidation of health care providers, increase charity care, and limit duplication of services. States require CON commission approval for a wide range of expenditures, including the construction of new hospitals, purchase of major pieces of medical technology, or offering of new medical procedures. Unlike other licensing laws, CON laws generally are not based on quantifiable criteria such as experience or education.
One of the most common arguments used in support of CON laws is the claim they help to protect access to health care in rural communities by shielding hospitals from increased competition. In order to protect patient access to health care in rural communities, several states have moved to enact restrictive regulations on what health care expert call “hospital substitutes,” such as ambulatory surgical centers (ASCs).
These laws limiting competition are designed to prevent what supporters call “cherry picking,” or “cream skimming,” a scenario whereby hospital substitutes such as ASCs will accept only the more-profitable and well-insured patients, leaving general hospitals with the less-profitable and uninsured patients. Supporters of current CON laws are concerned allowing open access to new markets to ASCs without regulatory barriers would increase cream-skimming, harming the financial health of rural hospitals and potentially limiting access to health care services. Currently, 26 states regulate the entry of hospital substitutes through their CON programs.
In a new study released in February 2016, Thomas Stratmann and Christopher Koopman of the Mercatus Center at George Mason University found states restricting entry and competition through a CON program had fewer total hospitals and fewer rural hospitals per capita. This is the opposite of the intended result. Their study estimates, when controlling for certain demographics and year-specific effects, CON programs result in “30 percent fewer total hospitals per 100,000 state population and 30 percent fewer rural hospitals per 100,000 rural population,” wrote Stratmann and Koopman. “Moreover, we find 14 percent fewer total ASCs per 100,000 state population and 13 percent fewer rural ASCs per 100,000 rural population.”
The Mercatus study would seem to suggest CON laws are not a silver bullet for protecting access to care in rural health care markets. These results are consistent with previous studies that have shown CON laws fail to achieve many of their stated goals and have instead reduced the availability of health care services.
According to data from the Kaiser Family Foundation, health care costs are 11 percent higher in CON states than in non-CON states. The study also found the greater the number of CON law restrictions, the higher 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.
The unintended consequences of CON laws have led many experts to call for the reform or repeal of these policies. The primary goals of CON programs are to manage health care costs and improve access, yet critics find they have actually increased costs for consumers by hindering competition and forcing providers to use older facilities and equipment. State lawmakers should roll back these regulations.
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 (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.
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.
CON Job: State ‘Certificate of Necessity’ Laws Protect Firms, Not Consumers
Writing in Regulation magazine, Timothy Sandefur of the Pacific Legal Foundation argues certificate of need laws are designed to restrict competition and boost prices existing companies can charge. Sandefur says despite the claims made by CON proponents, CON laws are not intended to protect the public.
You Shouldn’t Have to Ask Your Competitors for Permission to Start a Business
Ilya Shapiro of the Cato Institute argues CON laws make it more difficult and expensive for companies to create new jobs or innovative businesses. Even more troubling, Shapiro says CON laws are used by existing businesses to bar newcomers from competing against them.
Certified: The Need to Repeal CON: Counter to Their Intent, Certificate of Need Laws Raise Health Care Costs
Jon Sanders of the John Locke Foundation argues CON laws fail to lower health care costs and in many instances actually increase costs. Sanders says state leaders could best honor the intent behind CON – preventing unnecessary increases in health care costs – by repealing those laws.
Certificates of Need: A Bad Idea Whose Time Has Passed
Writing for the James Madison Institute, Peter Doherty argues federal interventions into the health care market have proven disastrous. Doherty says the government’s increased spending on programs has been anything but a boon. “In the past 20 years, many of us have battled to moderate or eliminate the most egregious of these programs and the artificial controls they place on free markets, but despite our successes, vestiges of the past remain,” wrote Doherty.
Health Care in the States
Cato Institute Fellow Michael Tanner compares health care reform among the states. Tanner says because there is no universal model available for states to follow, states create their own reform models. Tanner examines how these various efforts differ in cost-effectiveness and insurability, documenting states’ successes and failures.
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 at http://news.heartland.org/health, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.
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