Jun 27, 2019

Floridians Will Now Have More Access to Greater Quality, Lower Cost Health Care

Matthew D. Mitchell Senior Research Fellow , Anne Philpot Research Assistant

Last month, Florida legislators voted to overhaul the state’s certificate-of-need program, which artificially restricts the supply of health care. With Governor Ron DeSantis’s signature, the new statute will improve the patient experience by making Florida’s hospital market more competitive.

A certificate-of-need (CON) law requires a provider to seek state approval before opening certain medical practices, adding new technologies, or expanding to accommodate more patients. The certification process does not grant state funding or assess provider quality. Rather, it regulates whether a provider can spend her own money on her own practice. A CON law is designed to determine whether a community needs more healthcare services—something which, in other markets, is normally determined by an activity’s expected profitability.

The CON process can take years and cost providers tens or even hundreds of thousands of dollars. Remarkably, incumbent providers are allowed to come before regulators and protest new competitors—which explains why CON laws are sometimes called  “competitor’s vetoes.”

Thanks to the Florida legislation, new hospitals and specialty hospitals converting to general hospitals will no longer have to go through the CON process. The bill also eliminates the need for a CON to establish children’s, women’s, specialty medical, rehabilitation, psychiatric, and substance abuse hospitals. It also eliminates the need for a CON to establish intensive residential treatment facility services for children and it creates a glide-path for the elimination of CON on over a dozen other procedures.

Unfortunately, nursing homes and hospice providers will still be subject to the state’s certificate-of-need process. Even so, this is a giant leap in a more competitive direction.

Mercatus scholars have spent years studying the effects of CON laws on access, quality, and cost. Four years ago, for example, Mercatus scholars Christopher Koopman and Thomas Stratmann estimated that:

[F]or residents of Miami-Dade County (Florida’s most populous county), these [CON] programs result in approximately 3,428 fewer hospital beds, between 5 and 10 fewer hospitals offering magnetic resonance imaging (MRI) services, and 18 fewer hospitals offering computed tomography (CT) scans.

Where did CON come from? In 1974, the federal government enacted legislation withholding federal funds from states that failed to implement CON programs. The stated goals of the legislation were to reduce unnecessary investments (and therefore costs), to increase access to care, to increase the quality of care, and to encourage the use of hospital substitutes such as ambulatory surgery centers. CON failed on each of these metrics.

By the mid-1980s, this failure was evident to a bipartisan group of federal policymakers, who repealed the mandate. Even so, 35 states and DC continue to regulate the introduction of medical services through CON laws.

About 38 percent of Americans live in one of the 15 states that has completely repealed its CON law. These states are economically and demographically diverse with a mix of urban, rural, high-income, and low-income populations. Using econometric techniques that control for confounding factors, economists have spent decades assessing the effects of CON laws.

Their research suggests that CON states tend to have fewer total hospitals and fewer ambulatory surgery centers (ASCs) per capita. They also have fewer rural hospitals and rural ASCs per capita. Moreover, on a per capita basis, they have fewer hospital beds, fewer hospice care facilities, fewer dialysis clinics, and fewer providers with medical imaging equipment. This limited supply of care means that patients in CON states must drive longer distances to obtain care and they tend to experience greater racial disparity in access to care.

The CON process doesn’t just limit access to care, it also seems to drive up costs. Both per unit costs and per patient expenditures are higher in CON states relative to non-CON states.

Most alarming of all, the latest research suggests that CON regulations are associated with poorer health outcomes, including higher rates of mortality following hearth attack, heart failure, and pneumonia, as well as higher readmission rates following heart attack and heart failure, more post-surgery complications, and lower levels of patient satisfaction. 

Without subjecting hospitals to CON requirements, Florida could see a significant bump in the number of hospital beds, imaging services, and rural facilities available to patients. The increased competition will likely improve outcomes for both patients and medical professionals alike.

For patients, it means greater access to lower-cost, higher-quality care. And for providers, the elimination of red tape means less time and money spent on the CON process and more flexibility to adapt to patient needs.

Florida policymakers seized the opportunity to get rid of their state’s CON program for hospitals. In doing so, they opened the healthcare market to increased competition and lower costs. Other states would be wise to follow Florida’s lead in making health care more accessible for patients.

Photo Credit: Joe Raedle/Getty Images

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