January 9, 2017

Do Certificate-of-Need Laws Reduce Spending?

Testimony before the Florida Health Innovation Subcommittee
Key materials

Chairman Magar, Vice Chairman Harrison, Ranking Member Cortes, and distinguished Members of the Health Innovation Subcommittee:

My name is Matthew Mitchell. I am a senior research fellow at the Mercatus Center at George Mason University, where I direct the Project for the Study of American Capitalism. In recent years, my colleagues and I have been studying certificate-of-need laws in health care. And I am grateful for the opportunity to discuss our findings with you.

More than four decades ago, Congress passed, and President Ford signed, the National Health Planning and Resources Development Act of 1974. The act withheld federal funds from states that failed to adopt certificate-of-need (CON) regulations in health care. CON laws require healthcare providers wishing to open or expand a healthcare facility to first prove to a regulatory body that the community needs the planned services. New York had enacted the first CON program in 1964, a full decade before the federal government began encouraging other states to follow suit, and by the early 1980s every state except Louisiana had implemented some version of a CON program. Policymakers hoped these programs would restrain healthcare costs, increase healthcare quality, and improve access to care for poor and underserved communities.

In 1986—as evidence mounted that CON laws were failing to achieve their stated goals—Congress repealed the federal act, eliminating federal incentives for states to maintain their CON programs. Since then, 15 states have done away with their CON regulations. A majority of states still maintain CON programs, however, and vestiges of the National Health Planning and Resources Development Act can be seen in the justifications that state legislatures offer in support of these regulations.

Unfortunately, by limiting supply and undermining competition, CON laws may undercut each of the laudable aims that policymakers desire to achieve with CON regulation. Research shows that CON laws fail to achieve the goals most often cited in enacting such laws. These goals include:

  1. Ensure an adequate supply of healthcare resources.
  2. Ensure access to health care for rural communities.
  3. Promote high-quality health care.
  4. Ensure charity care for those unable to pay or for otherwise underserved communities.
  5. Encourage appropriate levels of hospital substitutes and healthcare alternatives.
  6. Restrain the cost of healthcare services.

Table 1 below summarizes research that addresses each of the desired goals of CON laws.

Question

Answer

Research

Do CON programs ensure an adequate supply of healthcare resources?

No.

CON regulation explicitly limits the establishment and expansion of healthcare facilities and is associated with fewer hospitals, ambulatory surgical centers, dialysis clinics, and hospice care facilities. It is also associated with fewer hospital beds and decreased access to medical imaging technologies. Residents of CON states are more likely than residents of non-CON states to leave their states in search of medical services.

Ford and Kaserman (1993); Carlson et al. (2010); Stratmann and Russ (2014); Stratmann and Baker (2016); and Stratmann and Koopman (2016)

Do CON programs ensure access to health care for rural communities?

No.

CON programs are associated with fewer hospitals overall, but also with fewer rural hospitals, rural hospital substitutes, and rural hospice care. Residents of CON states must drive further to obtain care than residents of non-CON states.

Cutler, Huckman, and Kolstad (2010); Carlson et al. (2010); and Stratmann and Koopman (2016)

Do CON programs promote high-quality health care?

Most likely not.

While early research was mixed, more recent research suggests that deaths from treatable complications following surgery and mortality rates from heart failure, pneumonia, and heart attacks are all significantly higher among hospitals in CON states than non-CON states. Also, in states with especially comprehensive CON programs, patients are less likely to rate hospitals highly.

Stratmann and Wille (2016)

Do CON programs ensure charity care for those unable to pay or for otherwise underserved communities?

No.

There is no difference in the provision of charity care between states with CON programs and states without them, and CON regulation is associated with greater racial disparities in access to care.

DeLia et al. (2009) and Stratmann and Russ (2014)

Do CON programs encourage appropriate levels of hospital substitutes and healthcare alternatives?

No.

CON regulations have a disproportionate effect on nonhospital providers of medical imaging services and are associated with 14 percent fewer total ambulatory surgical centers.

Stratmann and Baker (2016) and Stratmann and Koopman (2016)

Do CON programs restrain the cost of healthcare services?

No. 

By limiting supply, CON regulations increase per-unit healthcare costs. Even though CON regulations might reduce overall healthcare spending by reducing the quantity of services that patients consume, the balance of evidence suggests that CON laws actually increase total healthcare spending. 

Mitchell (2016) and Bailey (2016)

Thank you again for the opportunity to share my research with you. I look forward to answering any questions you may have.