Research & Commentary: Michigan Continues Work on Unnecessary Certificate of Need Laws

Published January 9, 2020

Michigan is one of 35 states that have certificate of need (CON) laws, which are intended to decrease duplication and promote health care consolidation. Unfortunately, CON laws increase health care costs by reducing competition and innovation and forcing providers to use older facilities and equipment.

CON laws have become a hot issue in Michigan, with state lawmakers recently blocking the state’s CON commission from restricting access to new immunotherapy cancer treatments. In the wake of this victory, Michigan lawmakers are considering further CON law reform to address the burdensome rules.

Four bills have been introduced by State Sen. Curtis VanderWall (R-Ludington) that would create exemptions to CON review as a first step toward wider reforms. The first bill, Senate Bill 669 would eliminate covered capital expenditures from the certificate of need process, making it easier for existing facilities to grow and expand.

The second bill, Senate Bill 670, exempts critical access hospitals over a certain distance from another hospital (35 miles) from having to be regulated by certificate of need. Senate Bills 672 and 673 would repeal the CON requirement for psychiatric beds and would require psychiatric hospitals to accept public patients and keep available 50 percent of their beds for public patients to maintain their state license.

“Since becoming chair of the Senate Health Policy and Human Services Committee, I’ve spent a great deal of time working to understand CON requirements in Michigan,” VanderWall told Health Care News. “I believe these are commonsense reforms that will eliminate unnecessary red tape, reduce costs, and provide more access to Michigan residents.”

CON laws are outdated and obtrusive regulations that retard health care innovations. According to a profile of Michigan’s CON laws by the Mercatus Center at George Mason University, total health care spending in Michigan would drop by $215 per person if CON laws were repealed.

In addition to lowering health care costs, eliminating the Great Lakes State’s CON laws would improve health care quality and access for all Michiganders. Indeed, Michigan could have 72 more hospitals if it would eliminate its CON laws, according to Mercatus. Furthermore, patients could have access to more imaging tests (MRIs and X-rays) outside the hospital setting, resulting in less travel, lower costs, and increased consumer choice

CON laws also adversely impact the price of health care services. The Kaiser Family Foundation found a positive correlation between the number of CON law restrictions in a state and the cost of health care. For instance, states with CON laws on 10 or more services averaged per-capita health care costs 8 percent higher than the $6,837 average for states requiring CON for fewer than 10 services.

In addition to the effect on health care outcomes and prices, CON laws also give undue influence to existing providers during vetting processes. When a health care company applies to enter a new market, existing providers often use CON laws to block potential competition. As a result, CON laws raise health care costs by preventing new medical providers from competing with existing hospitals.

Like all industries, when the U.S. health care system has improved, it’s been because of competition and innovations via the free market, not because of government regulation. If health care providers have the means to expand and innovate, they should be encouraged to do so. Unfortunately, far too many states unnecessarily limit the expansion of health care providers and services because of outdated and unnecessary CON laws, which lack transparency and political accountability.

Michigan policymakers should repeal these monopolistic, misguided laws. While full repeal should be the ultimate goal, Sen. VanderWall’s reforms are a positive first step.

The following articles provide information about certificate of need laws.

Certificate of Need Laws: Michigan State Profile
This state profile from the Mercatus Center examines Michigan’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 Michigan if the state were to eliminate its 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.

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. 

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.

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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