Provider Regulation

Regulations control the conduct of people engaged in certain activities, such as the provision of healthcare. Although regulators often have good intentions, regulations are always problematic because they tend to violate rights, not protect them, and limit opportunity and access to goods and services.

Some regulations, such as safety regulations, attempt to prevent rights violations from occurring in the first place. Even these regulations can be problematic, however. By their nature, they serve as rules that come between the voluntary arrangements of employers and employees, or providers and patients, to override the judgments of the people concerned. Safety regulations can also shift the focus of the people involved from actual safety to mere compliance with the law, which does not guarantee safety. Other regulations represent more of an attempt to engineer or “fine-tune” society or the economy to steer it toward a particular outcome. These types of regulations can protect certain industry actors from competitors, protect consumers from industry in general, or reduce the public’s spending in some area such as health care. Such interventions invariably have unintended consequences, however, which are often used as justification for further interventions.

The HOAP index’s Provider Regulation Subindex evaluates state-level performance in three areas: (1) certificate-of-need (CON) laws, (2) regulation of compounding pharmacies, and (3) prescription monitoring mandates.

The first indicator examines certificate-of-need laws: laws that require healthcare providers to prove to their state government that certain new or expanded services and investments are economically necessary and that they will not lead to greater healthcare spending. Observing that greater capacity in the healthcare system (e.g., hospitals, beds, magnetic resonance imaging scanners) could lead to greater utilization and potential duplication of services, many states adopted CON laws to limit the healthcare infrastructure in their regions and align the industry with “public need.” It is arguable, however, whether CON laws have achieved their practical goal. Some studies suggest CON laws have resulted in modest cost containment, while other studies have found that CON laws have in fact raised total healthcare spending by causing prices to rise. Moreover, the laws interfere with healthcare providers’ ability to invest in the equipment and services that they wish to offer. The greater the number of CON laws a state has, the lower its score for this indicator.

The second indicator considers laws controlling the practices of sterile drug compounding pharmacies. According to the FDA, compounding pharmacies are facilities in which a pharmacist “combines, mixes, or alters ingredients of a drug to create a medication tailored to the needs of an individual patient.” The U.S. Pharmacopeial Convention (USP) has developed a set of standards for compounding practices (referred to as Chapter 797), which many pharmacies use. Rather than allowing pharmacies to adopt, modify, or deviate based on their own judgment, however, some states have mandated full or partial compliance with this code. States that allow discretion scored higher for this indicator.

The third and final indicator concerns state programs that electronically track prescriptions for controlled substances. The intent of these programs is to help state agencies curb substance abuse by locating “pill mill” clinics or providers prescribing in an unethical fashion. Many states now require prescribers to query a prescription drug monitoring program before writing prescriptions for controlled substances. However, mandates can introduce hassle into the lives of patients and providers, and failure to participate can result in substantial punitive actions against the medical provider, including imprisonment and loss of a professional license. This has a potentially chilling effect on drug access for pain management. For this indicator, the more voluntary a state’s prescription drug monitoring program, the higher the state scored.