Should state governments limit
the number of medical facilities
and services that are available in hopes
of controlling healthcare costs?
Development costs for a new hospital
could easily run tens, or even hundreds
of millions of dollars.
Building and maintaining a medical facility
requires complex supply chains,
and controlling costs is difficult.
Certificate of need – or CON – laws are an attempt
to control medical costs by limiting
the supply of services and facilities
to only what is needed, as determined
by a state board or agency.
Underlying these laws is an assumption
that competition in industries with high overhead
or infrastructure development costs creates
economic waste.
A state agency is better suited to decide
what is necessary to avoid unnecessary duplication,
which yields higher healthcare costs for consumers.
Over the past 50 years, most states, at the encouragement
of the federal government, enacted some form of CON laws.
Since the 1980s, it has become clear
that this cost control experiment
was a failure.
The U.S. Federal Trade Commission
and the Department of Justice, and several academic studies,
found that by eliminating competition,
CON laws actually drove up costs,
lowered quality, and limited the availability
of needed healthcare services.
As the American Medical Association,
originally a supporter of CON laws,
succinctly put it, CON laws represent
a failed public policy.
As Americans struggle with rising healthcare costs,
repealing CON laws might be a possible solution.
In 2020, 38 states still have CON laws on their books.
One reason may be that existing providers
benefit from these laws.
By empowering existing providers
to bar others from serving patients,
CON laws are inherently monopolistic.
In turn, these firms invest time
and resources in preserving the anti-competitive power
that these laws give them.
As a result, most efforts to repeal CON laws
in state legislatures have been
unsuccessful in recent years.
Proponents of CON laws argue that healthcare
cannot be considered a typical economic product.
Most healthcare services follow
a physician's diagnosis or treatment plan,
very often through an insurance network.
Patients don't purchase services
on an open market.
A greater number of low-volume facilities
could lead to lower-quality care for patients.
Arguments both for and against CON laws turn
on how we understand things like cost,
access, high-quality treatment, and provider accountability
and responsibility to patients.
Several state constitutions contain provisions
that prohibit the state from creating
or maintaining monopolies,
or restricting economic competition.
While few state courts have so far directly addressed
whether CON laws violate state anti-monopoly clauses,
several have noted that they
are inherently anti-competitive,
leaving the door open to constitutional challenges
to these laws in the future.
The question turns on: what role should state governments
play in regulating healthcare facilities?
Are certificate of need laws necessary
to help control healthcare costs because
of the high fixed cost associated with setting
up a new facility?
Should we instead give doctors and healthcare providers
the freedom to run their practices
in ways that best serve their communities?
Public health could hang in the balance.