North Carolina is once again considering repealing its certificate of need (CON) laws. In June, the North Carolina Senate Health Care Committee heard a bill that would end the state’s certificate of need law in 2021. The bill has yet to receive a vote, but it has drawn strong reactions from both supporters and critics.
CON laws are intended to slow the growth of health care prices, promote consolidation of health care service providers, and limit the duplication of services. Recent studies have shown CON laws fail to achieve many of their stated goals and may increase costs for consumers by hindering competition and forcing providers to use older facilities and equipment.
Despite the wealth of evidence stacked up against CON laws, several major hospital groups have said they oppose the CON law repeal. They argue the end of certificate of need regulations would lead to the construction of more multi-specialty physician-led ambulatory surgical centers, which the hospital groups say would eat into their market share and allow providers to choose to serve patients with private coverage over those relying on government-supported plans. They also say many rural areas would be left without adequate access to health care services.
Available data and research show these arguments simply do not hold up to scrutiny.
A February 2016 study by the Mercatus Center at George Mason University found states restricting entry and competition through a CON program actually had fewer total hospitals and fewer rural hospitals per capita. This is the opposite of the intended result. Their study estimates, when controlling for certain demographics and year-specific effects, CON programs result in “30 percent fewer total hospitals per 100,000 state population and 30 percent fewer rural hospitals per 100,000 rural population,” wrote Stratmann and Koopman. “Moreover, we find 14 percent fewer total ASCs per 100,000 state population and 13 percent fewer rural ASCs per 100,000 rural population.”
Mercatus ranked North Carolina’s certificate of need program as the 4th most restrictive in the United States. The authors found there are 131 fewer beds per 100,000 people in North Carolina than in the rest of United States, or around 13,000 fewer beds in total. North Carolina may also offer fewer advanced health care services, including 49 fewer hospitals offering MRI services and 67 fewer hospitals offering CT scans, because of its CON law. Stratmann and Koopman conclude this one set of regulations limits health care competition across the state and leaves fewer options for everyone, especially the poor.
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. Eliminating certificate of need moves North Carolina away from these outdated policies and brings the market back into the health care industry.
The following articles examine certificate of need laws from multiple perspectives.
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.
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 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 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.
Entry Regulation and Rural Health Care: Certificate-of-Need Laws, Ambulatory Surgical Centers, and Community Hospitals
https://heartland.org/policy-documents/entry-regulation-and-rural-health-care-certificate-need-laws-ambulatory-surgical-ce
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
https://heartland.org/policy-documents/are-certificate-need-laws-barriers-entry-how-they-affect-access-mri-ct-and-pet-scan
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 Meeting Touches on New Type of Care Facility for Seniors
http://themissouritimes.com/22116/certificate-of-need-meeting-touches-on-new-type-of-care-facility-for-seniors/
Travis Zimpfer of the Missouri Times reports on a recent certificate of need (CON) meeting where members discussed a new health care development that could affect how senior citizens recover from surgical care and the future of transitional care facilities in the state.
Certificate of Need Laws: Implications for Missouri
https://heartland.org/policy-documents/certificate-need-laws-implications-missouri
Examining Missouri’s certificate of need laws, Thomas Stratmann, Christopher Koopman, and Mohamad Elbarasse 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.
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,” Stratmann and Russ write.
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 says, 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.
The Failure of Government Central Planning: Washington’s Medical Certificate of Need Program
http://heartland.org/policy-documents/failure-government-central-planning-washingtons-medical-certificate-need-program
John Barnes of the Washington Policy Center describes the history of the certificate of need concept, summarizes how the Washington State CON law works, compares its stated goals with actual performance, and offers practical policy recommendations for improving access to affordable health care for the people of Washington.
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 (JLF) 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.
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 notes certificate of need laws arose largely in response to federal incentives adopted in 1974 and have stifled competition, raised existing providers’ profits, and given “little or no benefit to consumers.” Doherty writes, “Despite all the good intentions and despite the federal government strengthening the role of state authorities in the late 1970s, it was clear by the early 1980s that the design was not working. Not only were costs failing to come down as a result of CON reviews by health care planning bureaucrats, but they were increasing.” He concludes CON programs should be abolished.
Health Care in the States
http://heartland.org/policy-documents/colorado-balance-health-care-states
Michael Tanner compares health care reform among the states. Without a universal model to follow, states are creating their own reforms. Tanner examines how cost-effectiveness, insurability, and affordability vary between states.
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.
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Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
