August 30, 2015

Certificate of Need Laws No Longer Needed

Christopher Koopman

Director, Technology Policy Program
Summary

Health care in America isn’t a topic reserved only for the federal government. Debates over its future are playing out in statehouses across the country, including North Carolina’s. In Raleigh, it centers on decades-old laws requiring qualified doctors and medical providers to secure permission from the state in order to build or expand their own practices, by purchasing certain devices, offering particular services, or opening new facilities. These are known as “certificate-of-need” or “CON” laws, and North Carolina has the fourth-most restrictive program in the country.

Health care in America isn’t a topic reserved only for the federal government. Debates over its future are playing out in statehouses across the country, including North Carolina’s.

In Raleigh, it centers on decades-old laws requiring qualified doctors and medical providers to secure permission from the state in order to build or expand their own practices, by purchasing certain devices, offering particular services, or opening new facilities.

These are known as “certificate-of-need” or “CON” laws, and North Carolina has the fourth-most restrictive program in the country.

At some point over the past 50 years, every state had CON laws. Their aim was noble: to control costs and better distribute care to hard-to-reach areas and to the needy. But over the past few decades, many of them — and the federal government— realized that they do more harm than good.

CON programs force any medical provider interested in opening or expanding a practice to submit to an onerous, expensive and time-consuming approval process.

It is easier for large, established providers to navigate this process than it is for smaller providers.

CON laws also allow existing facilities to challenge potential competitors in a public hearing that can sometimes resemble full-blown litigation.

More important, what does this mean for those seeking care?

Recently, my colleagues Thomas Stratmann and Jacob Russ created the most comprehensive study yet of CON laws. They found that the real effect of CON laws is simple: They stifle the amount of care available for everyone.

Using these findings, Stratmann and I estimated that North Carolina’s CON program could mean approximately 12,900 fewer hospital beds, 49 fewer hospitals offering MRI services, and 67 fewer hospitals offering CT scans in the state.

Does this necessarily mean that the state needs all those beds? No. What it means is that the supply of health care services is being restricted by outmoded laws.

Most would agree that stifling the supply of health care is probably not a good thing.

And proponents readily admit that these laws do in fact limit the supply of health care.

Yet they argue that these restraints are worth it, and the programs are necessary, to control costs or increase the amount of charity care being provided.

However, 40 years of evidence demonstrate that these programs do not control costs. Moreover, Stratmann and Russ find zero relationship between the presence of CON laws and any increase in charity care.

Our findings shouldn’t be construed as encouragement to build an additional 13,000 hospital beds across North Carolina — unless providers think they need them based on the demand of their patients.

No researcher, myself included, knows exactly how many medical services a state with nearly 10 million people needs.

But neither do state administrators nor the proponents of CON laws. This is especially true now, as the provision of health care has become an increasingly innovative and rapidly evolving space.

As Federal Trade Commissioner Joshua Wright recently noted in his call for a repeal of CON laws, competition in health care means more innovation, higher quality, and lower prices for those seeking care.

Controlling costs and increasing charity care are certainly laudable goals, but they can be achieved through less intrusive and less costly measures.

More than 30 years ago, the federal government realized that restraining competition is a poor way to improve Americans’ health care. Since then, 14 states have also walked away from CON programs.

Next year, New Hampshire will join them when its repeal of CON takes effect in June 2016.

This situation presents a particularly rich opportunity for North Carolina to reverse course on nearly 40 years of regulatory blunder and finally provide more options for those seeking care throughout the state.