Free Market Central Interview: How Little-Known "CON" Laws Are Bad For Your Health [Watch]

Politicians often insist government is the only way to increase access to health care. In fact, the opposite is true:  For years,“certificate of need” laws at the state level have prevented much-needed medical facilities from being built across the country. 

Free Market Central talked with Matt Mitchell, Director of the Project for the Study of American Capitalism at the Mercatus Center of George Mason University. He explained how these little-known "CON" laws are impacting the quality and availabilty of medical care.

Most people know little or nothing about certificate-of-need laws in health care. What are they?

A certificate-of-need law is a permission slip to compete. Without it, qualified, licensed healthcare professionals cannot offer services. They cannot open or expand a health care facility, add a new bed, offer a new service, or even buy a new piece of equipment

Currently, 35 states and the District of Columbia impose these restrictions. But they vary from state to state. They cover hospitals in most of these locations. But they typically cover much more: hospital beds, CT/MRI/PET scanners, ambulatory surgery centers, and hospice care facilities. They even cover neo-natal intensive care units, drug addiction treatment centers, and psychiatric care facilities. 

But isn’t the goal supposed to be to increase access to affordable health care? Don’t these laws make health care less available and affordable?

If you look at the rationales offered for CON laws, they usually say something about ensuring adequate access to care and they almost always say something about restraining the cost of care. 

When has limiting competition ever lowered prices? Isn’t that pretty basic?

Basically never. The bulk of economic theory and experience suggests that competition lowers prices (and increases quality). This is true in all markets, including health care markets.. 

Let’s talk a bit about the impact of these laws.  What do studies show?  

15 states have done away with these laws at different times. This allows researchers to compare outcomes in CON and non-CON states.  Studies have found that CON laws are associated with:

·         Fewer hospitals

·         Fewer rural hospitals

·         Fewer hospital beds

·         Fewer ambulatory surgery centers

·         Fewer rural ambulatory surgery centers

·         Fewer dialysis clinics

·         Fewer hospice care facilities

·         Decreased access to medical imaging technologies

·         More patients seeking out-of-county care

·         Patients driving longer distances to get care

What are some especially egregious examples of needed facilities that have been turned down or restricted by CON bureaucrats?

In July 2010, LewisGale, a hospital in Southwest Virginia, asked permission to build a neo-natal intensive care unit (NICU). Their application was turned down. Two years later, a mother showed up at LewisGale in premature labor. The baby was born and had complications.

Without a NICU, LewisGale couldn’t treat the baby. They called the nearest hospital with a NICU. They sent an ambulance but the baby died before it reached LewisGale.

Later, LewisGale applied for another CON (called COPN in Virginia). They recounted the story and they were denied again.

That’s unbelievable. Can you cite some other examples of the impact of these laws?

There is a safe, effective, and widely-used procedure called a “virtual colonoscopy” that uses a CT scanner to allow people an alternative to the dreaded colonoscopy.

A few years ago, Dr. Mark Baumel wanted to purchase some CT scanners to offer this service in northern Virginia. He was denied because other hospitals in northern Virginia already have CT scanners.  [See video interview below.] Never mind that they weren’t being used for virtual colonoscopies. There was no “need” for this according to the state’s COPN officials. 

If government took the same approach to consumer technology, bureaucrats would have banned iPhones because people already had cell phones.

Yes; it is really pretty remarkable. Unfortunately, as my colleague Adam Thierer has documented, in many important areas of law, we no longer have a presumption in favor of “permissionless innovation.”

Why has there not been more public indignation over these laws?  Why has it been so hard to get them repealed?

Few people know they exist. Those who are harmed by CON laws—patients, taxpayers, and would-be providers—are numerous, widely dispersed, and not politically organized.

In contrast, those who benefit from these laws—mostly major hospitals—are few in number, highly concentrated, and among the most politically savvy and well-organized groups in the country. They are able to apply an enormous amount of pressure on legislatures to maintain these anticompetitive protections. 

Regulators are depriving patients of needed access to care so big players can protect their profits? Isn’t that cronyism?

Yes. And that is really what got me interested in studying this. It is basically a textbook example of what I would call government favoritism: the hospital gets a blatantly anticompetitive protection from competition. Hospitals are invited to comment on their would-be competitors’ plans. They go before CON authorities and argue against the entry of any competition.

In 2016, the Obama DOJ and the FTC jointly called for states to roll back CON laws. Do you think this signals the beginning of a change in attitudes, and that more states will repeal these laws?

Well actually the DOJ and the FTC have for decades taken the position that CON laws are anticompetitive. Whenever they are asked by state legislators, they will offer this opinion. My hope is that states are starting to listen. We have more data now than ever to suggest that these laws are not achieving their stated aims. Proposals to repeal or limit CON laws have recently advanced in about a dozen states. Two years ago, New Hampshire got rid of its CON law and last year West Virginia limited the scope of its law. Some other states—Florida, Illinois—may be next. 

Your book is called The Pathology of Privilege: The Economic Consequences of Government Favoritism.  Great topic.

Thank you. That’s the unifying theme of my research and all of the research in the program I direct (the Study of American Capitalism). We aim to understand the causes and consequences of government favoritism. We look at everything from CON laws and occupational licensing to targeted economic development incentives and stadium subsidies. 

Thank you for talking with us today.



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