Removing State-Based Obstacles to Affordable Healthcare

As Americans continue to experience the painful consequences of Obamacare, look for mounting political pressure to replace it with reforms that make health care truly more affordable, enhance patient choice, and restore the patient-doctor relationship.  But not all the action has to take place in Washington; much needs to happen in the states.

And there is no reason why it can’t start now. States can begin by repealing “Certificate of Need” (CON) laws. These are outdated and counterproductive laws which encourage cronyism, increase costs, and detract from the quality of health care.

Certificate-of-need laws require anyone wanting to open or expand a healthcare facility to prove to a regulator that the community “needs” it. Once they prove such a need, the state grants them a certificate which lets them operate. In some states the micromanaging can extend down to the level of expanding offices or adding new equipment. In North Carolina, for example, the state Department of Health and Human Services must approve the addition of basic necessities such as hospital beds.

We don’t have to wait for our representatives in Washington to fix our health care mess.

My state of Arizona repealed its CON laws years ago, but these regulations are still present in 35 states and the District of Columbia. Legislators once thought they would tamp down health care costs by preventing unnecessary and duplicative expenditures. But instead, the certificate-granting process effectively grants monopoly privileges to existing hospitals and facilities—increasing costs in the process.

When a new provider petitions for a certificate, established providers are usually invited to testify against their would-be competitors. This means that some health care practices can openly challenge the right to exist of any practice that might hurt their bottom line. Indeed, hospital administrators openly admit that protection against competition thanks to CON laws has become an integral part of their business model.

Large hospitals and other medical incumbents have another advantage: They can afford the lengthy and expensive process while smaller, newer health care providers cannot. Getting state approval for a certificate of need can take years or even over a decade, including appeals and re-appeals. In a place like Washington state, the application fee alone can cost  tens of thousands of dollars. All of this discourages new entrants who lack the legal and financial resources to run the certificate-of-need obstacle course.

Always beware when the fox is pleased with the choice of guard for the henhouse. The American Hospital Association endorsed and lobbied for the widespread adoption of these laws. And yet after these laws were enacted, hospitals still found ways around them. According to one health care journal, “hospitals tend to view CON restrictions favorably when they serve to exclude [competing] facilities from entering a market, but may take steps to circumvent the CON application process where their own expansion is concerned.”

The negative effect of Certificate of Need laws on competition and the monopoly-like privileges they bestow have attracted the attention of the Justice Department and the FTC. These agencies strongly condemned certificate-of-need laws as recently as 2008, arguing that they ruin the market process while delivering the opposite of the benefits they were intended to promote.

Above all else, the preponderance of evidence is that certificate-of-need laws do not fulfill any of their intended purposes. According to studies from the Mercatus center at George Mason University, they decrease the availability of medical resources, do not make care more accessible for underserved communities, and increase the costs of care by 13.6 percent per-capita in the states where they exist. If there is any substantial benefit associated with these regulations, such a benefit has yet to present itself. The negatives, on the other hand, are unmistakable.

We don’t have to wait for our representatives in Washington to fix our health care mess. State legislators can start repealing their certificate-of-need laws and forcing providers to compete for customers. Let patients—not the providers or government bureaucrats—determine how each state’s health care system looks and works.

Jeffrey A. Singer practices general surgery in Phoenix, Arizona and is an adjunct scholar at the Cato Institute