Certificate of need laws are finally being re-examined

Michael Miller  ·  Jul 26, 2019

Certificate of need laws governing approval of new or expanded medical facilities in local communities have always been a bad idea, but at least more states are working on weakening them or deleting them altogether.

CON laws go back to the 1940s, but they went universal in 1974. With Medicaid and Medicare expanding so rapidly, the federal government required every state to set up a review process to decide whether major health-care capital projects were necessary.

The general explanation was that too many medical facilities could result in empty beds, which would then force facility owners to increase prices to make up for the loss of income.

But IllinoisPolicy.org says that “since government had positioned itself as a vested interest in the health-care industry via Medicaid and Medicare, government control seemed necessary to prevent public funds from flowing to frivolous spending.”

The thinking was that, without regulation, medical providers would overinvest in facilities and equipment, which would raise the cost of health care and decrease access for people in poverty.

Letting the market make the decision wasn’t an option, apparently.

The federal mandate was repealed in 1987, but more than 30 states have held on to their CON laws. The Federal Trade Commission and U.S. Department of Justice slammed such laws in 2008 as having a negative impact on consumer choice, innovation, and health care cost containment. In addition, a 2015 study showed that states with CON laws typically have fewer hospital beds available, fewer MRI services, and fewer hospitals offering CT scans.

So, instead of affecting the cost of health care, CON laws have instead reduced its availability and possibly kept prices artificially high due to lack of competition—exactly the opposite effect it was supposed to have.

The laws also open the approval process to abuse and corruption, allowing larger medical providers to use pressure on regulators to box out smaller providers wanting to establish themselves in an area.

"CON laws are an outdated mechanism which far too often devolve into crony capitalism and indulge certain providers with special treatment over the good of the market."

Matthew Glans, Heartland Institute

“CON laws are an outdated mechanism which far too often devolve into crony capitalism and indulge certain providers with special treatment over the good of the market,” Matthew Glans, a Heartland Institute senior policy analyst, says in the June 2019 issue of Heartland’s Health Care News.

The American Legislative Exchange Council’s model resolution on CON laws says they “force health care firms to fulfill various over-burdensome requirements to obtain state permission to provide certain services” and “thwart access to quality care and healthy competition.”

One egregious example of how a certificate of need law overwhelms common sense and simple economic freedom happened in North Carolina recently. Dr. Gajendra Singh opened a low-cost medical imaging center in Winston-Salem in 2017 in an effort to bring inexpensive services with transparent prices to the area, but state regulators prohibited him from buying an MRI scanner.

“In Dr. Singh’s case, a board dominated by regulators and health care industry insiders has decided there is no ‘need’ for a scanner that would compete with the nearby hospital, so he cannot even apply for the permit, let alone purchase one,” the Institute for Justice reported.

Dr. Singh and the IJ are now suing the state, challenging the CON law’s constitutionality.

Some legislators continue to fight CON laws as well. The June Health Care News says efforts to repeal or rewrite such laws have taken place in four states this year.

  • Gov. Ron DeSantis has signed a bill that removes most CON laws for that state. Certificates will still be required for nursing homes, hospice programs, and such services as cancer care and orthopedic hospital, but are removed for new general hospitals and “tertiary services such as organ transplants.”
  • Four bills to reform CON laws were introduced in Tennessee during this year’s legislative session. One would eliminate the state’s CON laws except for nursing homes over a five-year period. Another “would address CON in distressed, rural areas.” The latter would allow “economically distressed counties” that may not have an emergency facility, surgical center, or specific type of diagnostic center to bypass the CON process. Both of these bills are “parked in committee” for reconsideration next year, one sponsor says.
  • Georgia Gov. Brian Kemp signed an act to reform the CON process in that state. One provision raises the threshold of expenditure needed for a health care facility or diagnostic equipment requiring CON, meaning smaller providers can get a break. It also shrinks the geographic boundaries of entities that can object to an application to a 35-mile radius and “allows private doctor groups to operate imaging facilities without CON as long as the application physician is present 75 percent of the time,” Health Care News says.
  • An effort in Missouri that tried to gut whole sections of the state’s CON statutes failed to reach the House floor, but its sponsor says he’ll try again next year.

The Missouri sponsor, Rep. Jason Chipman, says people just need to get used to the idea of eliminating CON laws. To listen to analyst Glans, that day can’t come too soon.

“One of the big problems with CON laws is the inappropriate influence given to competitors during the vetting process,” he says in Health Care News. “When a provider applies to enter a new market, competitors often use the CON process to protest potential competition, which is currently allowed in many states. Repealing CON laws ends a burdensome and unnecessary regulation that stifles state health care markets.”

See also "CON laws are utter nonsense; competition causes lower prices."