Thirty-five states still have on their books certificate of need (CON) laws, which limit the ability of health care providers to expand their businesses without government approval. CON laws were first passed in the 1960s by states to slow increasing health care prices by limiting the duplication of services and promoting health care consolidation. Vermont leads the nation in the number of disruptive CON laws. States with CON programs regulate on average 14 different medical services, devices, and procedures, Vermont’s CON laws require medical providers to obtain government permission to compete for 30 medical services.
Rob Roper, president of the Ethan Allen Institute, argues this backwards regulatory system is unique, and he claims the efforts to prevent the so-called “poaching” of affluent patients under Vermont’s CON law is, in reality, nothing more than healthy market competition. Roper points to a recent study by the Kaiser Foundation that found between 1991 and 2014, hospital expenditures in Vermont increased faster than any other state, and Roper says this is largely because of Vermont’s CON laws.
Two major proposals have been proposed that would change the state’s certificate of need laws. The first would fully repeal the state’s CON laws, a reform that would benefit all health care providers and their patients. In an article in Antitrust, Maureen K. Ohlhausen, a commissioner at the Federal Trade Commission, argues CON laws are not the right mechanism for encouraging a proper distribution of health care facilities. “States that still have CON laws on the books should repeal them,” Ohlhausen wrote. “States that deem indigent care mandates necessary should fund them directly and publicly, rather than through an opaque transfer of those costs onto the insured public. Good government demands both transparency and political accountability.”
The second proposal would increase the threshold to trigger the Green Mountain Care Board’s review under the certificate of need program for a health care project, from $3 million to $5 million. It would also exclude the repair, renovation, and replacement of facility infrastructure and routine replacements of nonmedical equipment and fixtures from the CON process. An expedited review of the routine replacement of medical equipment would also be mandated.
A new state profile of Vermont’s CON laws by the Mercatus Center at George Mason University, using existing data on the costs of CON laws in other states, estimates total health care spending in Vermont could drop by $228 per person if CON laws were to be repealed. In addition to lowering health care costs, eliminating Vermont’s certificate of need laws would improve the quality and access of health care for citizens of the state. According to the Mercatus study, Vermont could have six more hospitals if it did not have CON laws in place. Patients could also have access to more imaging tests outside the hospital setting, leading to less travel to obtain care.
A study by Thomas Stratmann and David Wille of the Mercatus Center analyzed the effect 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. Data from the Kaiser Family Foundation 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 that are 8 percent higher than the $6,837 average for states requiring certificates of need for fewer than 10 services.
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. Allowing Vermont’s CON laws to persist would increase the cost of health care while limiting access and benefitting those with political connections.
The following articles examine CON laws from multiple perspectives.
Certificate of Need Laws: Vermont State Profile
This state profile from the Mercatus Center examines Vermont’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 Vermont if the state were to eliminate its CON laws.
Repeal Vermont’s Certificate of Needs Laws
Rob Roper, president of the Ethan Allen Institute argues repealing Vermont’s Certificate of Need laws would be the most efficient path towards lowering the cost of health care in the state and helping the state’s budget deficit.
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 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.
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.
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 about this issue or The Heartland Institute’s website, contact Charlie Katebi, The Heartland Institute’s government relations manager, at [email protected] or 312/377-4000.