Research & Commentary: Virginia Certificate of Public Need Reform Debate Reignites

Published January 30, 2017

Virginia is one of 36 states that limit the ability of health care providers to expand their businesses through an approval process known in Virginia as certificate of public need. 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.

CON programs require health care providers seeking to undergo certain types of expansion to receive state approval, generally from the state’s health care agency or a designated CON commission. Virginia requires a certificate of public need for a wide range of expenditures, including the construction and modification of health care facilities and the offering of new services, medical procedures, and inpatient care beds. Unlike other licensing laws, CON laws generally are not based on quantifiable criteria, such as experience or education.

Several bills reforming some aspect of CON are being considered. One would sunset Virginia’s CON process for a variety of medical services, including neonatal intensive care units, nursing homes, medical imaging centers, and operating rooms. This proposal would only apply to parts of the state with a population density exceeding 200 people per square mile, which would include most of the northern Virginia suburbs, the Tidewater region, and the Roanoke-Salem metropolitan area. The new law would keep existing CON rules in place for rural areas.

Preserving CON for rural areas of the states acts on a common misconception that such laws are needed to ensure rural areas are not ignored in favor of more lucrative urban areas. In a 2016 study, Thomas Stratmann and Christopher Koopman of the Mercatus Center at George Mason University found states restricting entry and competition through a CON program had fewer total hospitals and rural hospitals per capita. This is the opposite of the intended result.

Two other proposals would limit CON for a smaller portion of the health care sector: one would end CON licensing rules limiting the number of beds in psychiatric facilities, and the other would allow licensed physicians to purchase medical imaging equipment without CON permission.

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. This has been a growing issue in Virginia, where hospitals have used CON laws to block competitors from expanding in their markets. As an example, Reason Magazine highlighted a growing turf war between Carilion Clinic and LewisGale Medical Center. The two medical facilities are battling over the construction of a new NICU facility in the Roanoke area.

Recent studies have shown CON laws increase costs for consumers by hindering competition and forcing providers to use older facilities and equipment. In a study published by the Mercatus Center at George Mason University, Thomas Stratmann and Christopher Koopman found states with CON programs regulate on average 14 different medical services, devices, and procedures. Virginia’s CON program regulates 19.

Mercatus ranked Virginia’s CON program as the 11th most restrictive in the United States. The authors found there are 131 fewer beds per 100,000 people in Virginia than in the rest of the United States. Virginia offers fewer advanced health care services, including 41 fewer hospitals offering MRI services and 58 fewer hospitals offering CT scans, because of its CON regulations. The authors conclude CON rules in Virginia limit health care competition across the state and leave fewer options for everyone, especially the poor.

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. Virginia should consider reforming the state’s COPN program, thereby ending these burdensome regulations across the state for all medical facilities and services. Allowing CON laws to persist increases 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 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.

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.

Attempts to Roll Back CON Laws Underway in Virginia
Writing in the Consumer Power Report, Heartland Institute Editor Justin Haskins examines eight legislative reforms designed to scale back some of the state’s certificate of need (CON) laws. The reforms were proposed by three Virginia state delegates in the General Assembly. Haskins argues CON laws are disruptive regulations that cause real harm for patients and health care providers. He says states should move to eliminate these dangerous regulations.

Certificate of Need Laws: Implications for Virginia
Examining certificate of need (CON) laws in Virginia, 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 market 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.

CON Job: How A Virginia Law Enriches Established Businesses by Limiting Your Medical Options, and How IJ Is Going to Stop It
This Backgrounder published by the Institute for Justice discusses the political and legal history of Virginia’s certificate of need (CON) law and the effects it has had: “In short, Virginia’s CON program is nothing but a government permission slip to compete. It ensures that more money flows into the pockets of established, politically connected businesses, and it accomplishes this by trampling entrepreneurs’ economic liberty and reducing Virginians’ choices for medical care. But patients and doctors—not state officials—are in the best position to decide what healthcare services are needed.”

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 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
Jordan Bruneau of the Foundation for Economic Education says CON laws powerfully distort the health care market. “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,” said Bruneau.

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.

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 notes certificate of need (CON) laws fail to lower health care costs and in many instances actually increase costs. Sanders says state leaders would best fulfill the intent behind the creation of CON regulations—preventing unnecessary increases in health care costs—by repealing those laws.

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, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database. 

If you have any questions about this issue or The Heartland Institute’s website, contact John Nothdurft, The Heartland Institute’s government relations director, at [email protected] or 312/377-4000.