Research & Commentary: Political Donations May Allow Health Care Providers to Game Certificate of Need Laws

Published September 21, 2017

Thirty-five states and the District of Columbia currently limit the ability of health care providers to expand their businesses through an approval process known as certificate of need (CON). CON laws were first passed in the 1960s by states in an attempt to slow increasing health care prices by limiting the duplication of services and promoting health care consolidation.

Certificate of need 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 price of medical care by preventing new medical providers from competing with existing hospitals. The influence of competitors extends beyond the CON process.

According to a new study from the Mercatus Center at George Mason University, health care providers can influence the CON process through targeted donations to the elected officials responsible for assembling the CON boards making the decisions on new health care facilities and services.

Stratmann and Monaghan designed a model to estimate the impact of political contributions on the approval of CON applications and used it in three states where the governor and state senate are involved in the CON board appointment process: Georgia, Michigan, and Virginia. Their model relied on data from the National Institute on Money in State Politics to estimate the effect political campaign contributions had on CON application approvals between 1996 and 2015. Differences in the application environment, approval rate changes over time, and the range of services offered were taken into account when producing the study.

The study’s findings revealed political contributions do affect whether state regulators approve applications. In Georgia, which has a low CON approval rate (57 percent), a 1 percent increase in campaign contributions to Georgia state senators or the governor was associated with a 6.7 percent increase in the chance of approval, the highest increase of the three states. In Virginia, a state with an even lower approval rate (51 percent), half the applicant health care firms made contributions, and a 1 percent increase in campaign contributions was associated with a 3.6 percent increase in the likelihood of application approval. In Michigan, a state with a higher rate of approval (77 percent), the effect of political donations was comparatively less; a 1 percent increase in contributions was associated with a 1.8 percent increase in approvals.

The Mercatus study findings show an inherent flaw in the CON law process is that it has become politicized and is not based solely on specific legal criteria, as it should be. Allowing health care providers to manipulate the CON system for their own benefit instead of the public’s is both immoral and undemocratic.

These issues are only the tip of the iceberg, however. Many other flaws have been shown to exist in or as a result of the CON system. For instance, CON laws have been proven to affect health care outcomes and costs. A study by Thomas Stratmann and David Wille at the Mercatus Center analyzed the impact of CON laws on specific metrics for nine different quality indicators at 921 hospitals. The study reviewed data from 2011 to 2015 and found the health care quality measures were significantly lower in CON states compared to states without CON laws.

The health care market in the United States has grown as a result of the presence of free-market competition and innovation, not government regulation. All states still imposing CON laws should consider reforming or repealing them, thereby ending these burdensome regulations across the country. Allowing CON laws to continue to exist increases the cost of health care, limits access, benefits those with political connections.

The following articles examine CON laws from multiple perspectives.

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 political contributions 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,” Stratmann and Monaghan wrote.

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 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.

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.

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.

Government Regulations Reduce Access to Mental Health Services
In this edition of the Consumer Power Report, Justin Haskins, executive editor of The Heartland Institute, discusses President Barack Obama’s announced  proposal to spend $500 million on improving access to mental health care and to provide better mental health information for firearms background checks. Haskins argues repealing CON laws would go a long way to helping Americans find care. “This means by eliminating certificate of need, the lives of countless people suffering with mental health problems will be improved, making the United States a healthier and safer nation for everyone,” wrote Haskins.


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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