Research & Commentary: North Carolina Needs to End Certificate of Need’s Obstruction of Health Care

Published May 2, 2018

North Carolina is one of 35 states that institute certificate of need (CON) laws, which limit health care providers’ ability to expand services. CON laws were first passed in the 1960s by states to curb increasing health care costs by limiting duplication of services and promoting health care consolidation. However, CON laws actually further increase health care costs by reducing competition and innovation and forcing providers to use older facilities and equipment. States with CON programs regulate on average 14 different medical services, devices, and procedures. North Carolina’s CON program regulates 25.

The most recent effort by the North Carolina legislature to repeal the state’s onerous CON laws came during the first half of the 2017–18 session. The bill, which did not pass, would have repealed the state’s CON laws and exempted most health care facilities from unnecessary regulation. Although the legislation failed, it remains a model the state should continue to pursue over the next year.  

CON laws are outdated and obtrusive regulations that stunt the growth and development of the state’s health care market. A state profile of North Carolina’s CON laws by the Mercatus Center at George Mason University estimates, using existing data on the costs of CON laws in other states, total health care spending in North Carolina could drop by $213 per person if CON laws were repealed.

In addition to lowering health care costs, eliminating North Carolina’s CON laws would improve the quality and access of health care for citizens of the Tar Heel State. North Carolina could have 55 more hospitals if it did not have CON laws in place, according to the Mercatus study. Furthermore, patients could have access to more imaging tests (MRIs and x-rays) outside the hospital setting – resulting in less travel and lower costs.

Mercatus ranked North Carolina’s CON program as the fourth-most restrictive in the United States. In North Carolina, there are 131 fewer beds per 100,000 people than in the rest of United States, which means there are 13,000 fewer beds for patients. North Carolinians also have reduced access to advanced health care services, including 49 fewer hospitals offering MRI services and 67 fewer hospitals offering CT scans, because of CON laws. Mercatus concludes CON regulations limit health care competition across the state and leave fewer options for everyone, especially the poor.

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 and the cost of health care. For instance, states with CON laws on 10 or more services averaged per-capita health care costs eight percent higher than the $6,837 average for states requiring certificates of need for fewer than 10 services.

The United States leads the world in health care quality and innovation. Yet states like North Carolina unnecessarily limit the expansion of health care providers because of outdated and unnecessary CON laws. North Carolina’s CON laws are a destructive form of crony capitalism and a shining example of the failures of government intervention. They increase the cost of health care and limit access and innovations. It’s time for North Carolina, as well as all states with CON laws, to end these burdensome regulations and embrace free-market, pro-liberty health care reforms.

The following articles examine CON laws from multiple perspectives.

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 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.

Certificate of Need: Does It Actually Control Healthcare Costs?
The Civitas Institute examines North Carolina’s CON law and whether it has reduced health care costs as its proponents claimed it would. “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.”

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

The Effect of Interest Group Pressure on Favorable Regulatory Decisions
In this study, Thomas Stratmann and Steven Monaghan develop a model to estimate the impact of political contributions on the approval of CON applications. Their findings indicate that political contributions do affect whether state regulators approve applications. “This situation is contrary to the intent of CON laws, which is that application approval or denial be based only on the criteria established by state law. Campaign contributions given by applicants should not influence the decision—that is, politics should not be a factor in medical care,” the authors write.

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.

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
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.

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