Time to Tear down the Walls to Healthcare

Politicians looking for a way to break through the stale healthcare debate in Washington are missing something obvious: Republicans — many of whom still pine for the Reagan Revolution — need only to finish what their former standard-bearer started. Democrats need only to follow through on a current Obama administration policy. And these two policies are one and the same. 

As Salim Furth and Reece Brown have recently explained, nearly 30 years ago President Ronald Reagan convinced Congress to repeal its mandate that states in our union restrict the provisions of healthcare services through certificate-of-need (CON) programs. For the preceding decade, these little-known, yet hugely significant programs required providers to demonstrate that a community "needed" their services before they could open a practice, offer a new line of services, or invest in certain devices or technology.

Repealing the mandate made sense. As I've previously described, the process for granting permission is based on complex formulas, administrative hearings and a bureaucratic process that tends to look like high-stakes litigation. In most instances, current providers are notified of an application and invited to challenge would-be competitors' applications. This can end up taking years and costing hundreds of thousands of dollars before a provider is granted permission to make such straightforward purchases as an MRI machine.

While the programs were a burden on expanding the provision of healthcare in America, and present formidable barriers for new entrants to the provider market and those seeking care, the programs were justified as a way to control costs, increase charity care, protect rural hospitals and guarantee quality.

And, however well-intentioned the idea of CON laws were, they seem to prove one Reaganism to be true: "Government is not the solution to our problem; government is the problem." As my Mercatus Center colleagues and I have been detailing for several years, these programs have failed on all accounts.

Our most recent paper on this topic, by economist James Bailey, suggests that these laws have not only failed to control costs, but are actually increasing them. He finds that, contrary to their intended purpose, CON laws raise overall healthcare spending by as much as 5 percent for physician care. In addition, he finds that CON laws increase overall Medicare spending by 6.9 percent.

And what happens when states repeal these laws? They experience overall reductions in healthcare spending by 0.8 percent per year, leveling out to a 4 percent drop after year five.

This is what Reagan saw nearly three decades ago: Rigging the market does not lead to consumer benefits. The Obama administration agrees and has raised a number of concerns about CON laws across America.

There is only one problem: While the federal mandate was repealed, the laws had already been passed in nearly every state. And bad policy, especially one that creates the types of winners and losers that CON programs do, can be difficult to undo.

As of today, these barriers remain. Thirty-five states continue to implement these programs to the detriment of both new entrants as well as those seeking care. But what President Reagan started 30 years ago can be easily carried out by policymakers across the country today. If only they'd be willing to tear down these walls.