North Carolina is one of 36 states that have certificate of need (CON) laws. CON laws are intended to slow the growth of health care prices, promote consolidation of health care providers, and limit the duplication of services. Recent studies have shown CON laws fail to achieve many of their stated goals and that they actually increase costs for consumers by hindering competition and forcing providers to use older facilities and equipment. Unlike other licensing laws, CON laws generally are not based on quantifiable criteria such as experience or education.
North Carolina legislators are considering a bill, proposed by state Rep. Marilyn Avila (R-Wake Forest), to relieve diagnostic centers, ambulatory surgical centers, gastrointestinal endoscopy rooms and psychiatric hospitals from needing certificate of need review. According to the Winston-Salem Journal, many independent doctors say the current rules favor existing hospitals while killing competition primarily support the new law and increasing costs. Opponents include the major hospitals; the N.C. Hospital Association argues CON laws prevent new companies from cherry picking lucrative medical procedures used to fund charity care.
A study from the Mercatus Center at George Mason University, written by Thomas Stratmann and Jacob Russ found certificate of need laws significantly reduce available health care services for everyone and did not lead to an increase in care for the needy.
Mercatus ranked North Carolina’s certificate of need program as the fourth most restrictive in the United States. Stratmann and Koopman found states with CON programs regulate on average 14 different medical services, devices, and procedures, while North Carolina’s CON program regulates 25. Avila’s bill would decrease the number of devices and services regulated under the state’s CON laws to 22.
The Mercatus study found that there are 131 fewer beds per 100,000 people in North Carolina compared to the rest of United States. North Carolina also offers fewer advanced health care services, including 49 fewer hospitals offering MRI services and 67 fewer hospitals offering CT scans, because of its CON law. The authors of the study conclude that this one set of regulations limits health care competition across the state and leaves fewer options for everyone, especially the impoverished.
Results in North Carolina are similar to those found in other states using CON laws. 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 repeal or at least reform of these policies. Representative Avila’s legislation is a step in the right direction, but legislators should take the next step and end CON laws altogether.
The following articles examine certificate of need laws from multiple perspectives.
Certificate-of-Need Laws: Implications for North Carolina
https://heartland.org/policy-documents/certificate-need-laws-implications-north-carolina
Examining certificate-of need-laws in North Carolina, Thomas Stratmann and Christopher Koopman of the Mercatus Center at George Mason University argue CON laws do not control costs and instead decrease the supply and availability of health care services by limiting entry and competition. They recommend legislators repeal these laws and open markets for greater entry, more competition, and ultimately more options for those seeking care.
Certificate of Need Under Fire in North Carolina
http://news.heartland.org/newspaper-article/2014/12/16/certificate-need-under-fire-north-carolina
This Heartlander article examines the opposition to North Carolina’s CON laws. “Opponents of the state’s certificate of need (CON) laws point to their history of driving up costs by limiting competition and otherwise restricting access to care, and they say reforming or eliminating CON will add more providers of needed care.”
Certificate of Need Laws: It’s Time for Repeal
http://heartland.org/policy-documents/certificate-need-laws-its-time-repeal
Roy Cordato of the John Locke Foundation examines certificate of need regulations in the first of a series of annual research papers from JLF devoted to explaining the principles of free markets and applying them to current controversies in North Carolina.
Certificate of Need: Does It Actually Control Healthcare Costs?
http://www.nccivitas.org/2011/certificate-of-need-does-it-actually-control-healthcare-costs/
The Civitas Institute examines North Carolina’s CON law and whether it has saved on health care costs like its proponents claim. “The CON process is a faulty answer to an outdated question. The program has failed to implement its “fundamental premise” of controlling healthcare costs. North Carolina lawmakers should seriously consider limiting the scope of the process, or eliminating it altogether for most circumstances.”
Do Certificate of Need Laws Increase Indigent Care?
http://heartland.org/policy-documents/do-certificate-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 prices 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
http://fee.org/the_freeman/detail/the-great-healthcare-con
Jordan Bruneau of the Foundation for Economic Education says CON laws powerfully distort the health care market. 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 prices, restricts access, and is maintained by cronyism – would be a great place to start.”
Certificate of Need: State Health Laws and Programs
http://www.ncsl.org/research/health/con-certificate-of-need-state-laws.aspx
The National Conference of State Legislatures outlines various state CON laws and the positions of CON law proponents and critics.
Ten Principles of Health Care Policy
http://heartland.org/policy-documents/ten-principles-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
http://heartland.org/policy-documents/con-job-state-certificate-necessity-laws-protect-firms-not-consumers
Writing in Regulation magazine, Timothy Sandefur of the Pacific Legal Foundation argues certificate of need laws are not intended to protect the public but instead are designed to restrict competition and boost prices existing companies can charge.
You Shouldn’t Have to Ask Your Competitors for Permission to Start a Business
http://www.cato.org/blog/you-shouldnt-have-ask-competitors-permission-start-business
Ilya Shapiro of the Cato Institute argues CON laws make it more difficult and expensive for companies to create new jobs and innovate. Even more troubling, Shapiro argues, is the use of CON laws 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
http://heartland.org/policy-documents/certified-need-repeal-con-counter-their-intent-certificate-need-laws-raise-health-c
Jon Sanders of the John Locke Foundation says 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 programs – preventing unnecessary increases in health care costs – by repealing those laws.
Certificates of Need: A Bad Idea Whose Time Has Passed
http://heartland.org/policy-documents/certificates-need-bad-idea-whose-time-has-passed
In a policy analysis from the James Madison Institute, Peter Doherty argues federal marketplace interventions have proven disastrous, and the government’s increased spending on programs has not been a boon. Doherty wrote, “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.”
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 https://heartland.org/topics/health-care/index.html, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database at www.policybot.org.
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 Nathan Makla, Heartland’s state government relations manager, at [email protected] or 312/377-4000.
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
