Research & Commentary: Iowa Should Consider Certificate of Need Reform

Published March 10, 2016

Iowa Gov. Terry Branstad (R) and many state legislators are expressing their concerns about Iowa’s certificate of need (CON) laws after the state’s five-member Health Facilities Council (HFC) rejected an application for a proposed 72-bed mental health facility, which would have been built in Bettendorf in Scott County. Iowa is one of 36 states that currently use CON laws in an attempt to slow the growth of health care prices, promote consolidation of health care providers, increase charity care, and limit duplication of services.

The request to build the new facility, which was submitted by Strategic Behavioral Health, was opposed by local competitors Genesis Health System (GHS) and UnityPoint (UP), and it was eventually defeated by a 2–2 vote. In opposition to the claims made by GHS and UP, supporters of the new project argue Scott County is in need of additional mental health facilities.

Branstad told the Quad City Times expanding mental health services across Iowa is more important than protecting existing providers: “The certificate of need idea was created to prevent duplication and control the costs of health care. Unfortunately, it has become a way for certain [organizations] to keep out competition.”

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.

CON laws 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 cost of medical care by preventing new medical providers from competing with existing hospitals. As the Quad City Times correctly stated, Iowa’s CON process “opens the door to crony capitalism, plain and simple.”

Recent studies have shown CON laws fail to achieve many of their stated goals and they actually increase costs for consumers by hindering competition and forcing providers to use older facilities and equipment. In a study published by the Mercatus Center at George Mason University, Thomas Stratmann and Christopher Koopman found Iowa’s CON program regulates 11. 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.

Proponents argue the absence of a CON law will cause providers, especially in rural areas, to come into the market and “skim” the more profitable patients, leaving hospitals left to cover less-profitable cases. According to the Mercatus Center, “If the anti-cream-skimming justification for CON requirements is correct, then we expect to find a higher number of hospitals in states with a CON program versus those without. However, the data show that this is not the case. The regression results show that there are 30 percent fewer total hospitals per capita in states with a CON program when compared to those that do not have a CON program.”

The unintended consequences of CON laws have led many experts and the Federal Trade Commission to recommend the state governments repeal or reform these policies. Iowa lawmakers should consider reforming the state’s CON program again, which would end burdensome regulations that increase the cost of health care while limiting access and benefitting those with political connections.

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 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. 


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