Research & Commentary: Georgia Legislature Should Address CON Reform

Published February 26, 2019

Georgia is one of 35 states that institute certificate of need (CON) laws. First passed in the 1960s to deter increasing health care costs, CON laws were supposed to limit duplication and promote health care consolidation. In essence, CON programs require health care providers to receive state approval to increase facilities and services. However, CON laws can also restrict existing providers from expanding services or new providers from entering markets.

Since their inception, CON laws have had many negative effects in Georgia. Existing providers across the Peach State have circumvented the laws with exemptions for expansions while using CON laws to block competition. In an effort to roll back these restrictions, two companion bills—House Bill 198 and Senate Bill 74were introduced in the Georgia Legislature that would replace the state’s CON laws with a less stringent licensure program.

If passed, the bills would implement a substantial rollback. However, they would not fully repeal Georgia’s CON laws. The CON program would still be applied to skilled nursing facilities, home health agencies, personal care homes, intermediate care facilities, and continuing care retirement communities. Specifically, the bills would reduce restrictions on hospital bed additions, capital equipment expenditures, and surgery centers.

The bills would also require nonprofit hospitals to adhere to indigent and charity care requirements of around 7-plus percent of revenues; for-profit hospitals would face a 4-plus percent requirement. Reforms also include new financial transparency rules and financial information on salaries. Also, community benefit spending would be required and open to the public through the Georgia Open Records Act.

One curious aspect of the proposal is its regional approach for allowing competitors to contest new licenses. Under the new law, outside metro Atlanta, hospitals would be allowed to object to facilities proposed within 10 miles of their locations. However, within metro Atlanta, competitors would not be allowed to object to such projects. Rural hospitals are given a further boost with the expansion of an existing tax credit. Currently, rural hospitals can file for up to $60 million in tax credits. HB 198 would increase this limit to $100 million.

These efforts were likely made based on the belief that there is a need to protect access to health care in rural communities by shielding hospitals from increased competition. Despite the fear that hospital substitutes such as ambulatory surgery centers (ASCs) will accept only more-profitable and well-insured patients, leaving general hospitals with less-profitable and uninsured patients, the reality has been different. CON laws have not benefited rural hospitals. In fact, development or expansion of rural hospitals and health care facilities has been suppressed by these laws.

In a 2016 study, Thomas Stratmann and Christopher Koopman of the Mercatus Center at George Mason University found that after states implemented CON programs, they had fewer rural hospitals per capita. CON programs have resulted in “30 percent fewer rural hospitals per 100,000 rural population,” according to Stratmann and Koopman. Furthermore, the study found there are “14 percent fewer total ASCs per 100,000 state population and 13 percent fewer rural ASCs per 100,000 rural population.” According to the study, CON laws do not protect access to health care in rural areas.

CON laws have also increased costs for consumers by hindering competition and forcing providers to use older facilities and equipment. A state profile of Georgia’s CON laws conducted by the Mercatus Center, which relied on existing data from other states, estimates total health care spending could drop by $187 per person if CON laws were repealed. Additionally, the Peach State would have 74 additional health care facilities, 48 additional ASC’s, and 27 rural hospitals.

Data from the Kaiser Family Foundation found an inverse relationship between the number of CON law restrictions and the cost of health care. Indeed, states requiring CON on 10 or more services averaged per-capita health care costs 8 percent higher than states requiring CON on fewer than 10 services.

In short, most CON regulations should be fully repealed. In an article in Antitrust, Maureen K. Ohlhausen, a commissioner at the Federal Trade Commission, argued CON laws are not the best mechanism for encouraging a proper distribution of health care facilities, lack transparency, and political accountability.

The Georgia Legislature’s effort to roll back CON laws is a strong step in the right direction. Ideally, all CON laws should be fully repealed in Georgia.

The following articles provide information about certificate of need laws.

What Georgia Should Do About Certificate of Need
Writing for the Georgia Public Policy Foundation, Dr. Brenda Fitzgerald examines the effects of certificate of need laws in Georgia and suggests how the state should reform its CON laws: “Only when the majority of health coverage is consumer-driven, and there is transparency of cost and quality, will the market will be able to control cost.”

Certificate of Need Laws: Implications for Georgia  
Examining certificate of need laws in Georgia, Thomas Stratmann and Christopher Koopman of the Mercatus Center at George Mason University argue CON laws do not control costs but instead decrease the supply and availability of health care services by limiting entry and competition. They recommend legislators repeal these laws and open up markets for greater entry, more competition, and ultimately more options for those seeking care.

Certificate of Need Laws: Georgia State Profile
This state profile from the Mercatus Center examines Georgia’s CON laws and compares health care outcomes and costs in other states. The studies attempt to give some insight into what is likely to happen in Iowa if the state were to eliminate its CON laws.

Certificate of Need Laws: A Prescription for Higher Costs
In this an article from Antitrust, Maureen K. Ohlhausen, a commissioner at the Federal Trade Commission, outlines several reasons why states should repeal CON laws.

CON Job: Certificate of Need Law Used to Delay, Deny Expansion of Mental Health Options
In this article, Mark Flatten of the Goldwater Institute discusses how certificate of need laws hold back the expansion of needed mental health care facilities.

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.

Certificate-of-Need Laws Lower Quality of Care, Study Finds
Shelby Livingston of Modern Healthcare examines a new study from the Mercatus Center that argues certificate of need laws that govern the construction and development of health care facilities do not raise the quality of care at hospitals and may even lead to higher readmission rates.

Certificate of Need Laws: A Prescription for Higher Costs
In this article published in Antitrust Magazine, Federal Trade Commissioner 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.

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.

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.

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.

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state, or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Lennie Jarratt, a state government relations manager at The Heartland Institute, at [email protected] or 312/377-4000.