As a new presidential administration prepares to take office amid deep dissatisfaction with the state of U.S. healthcare, questions are swirling about the future of federal health policy. But while reforms in Washington, D.C. tend to dominate the news, action at the state level can have just as profound an impact on the cost and accessibility of healthcare services.
More than two-thirds of states have Certificate-of-Need (CON) laws that serve as a gatekeeper to the supply of healthcare facilities. CON laws require providers seeking to build new healthcare infrastructure or expand services to get permission from a government board. These regulations emerged in the 1970s in an attempt to curb rising health spending. The CON process was intended to bring objective, factual analysis to local healthcare planning and prevent “unnecessary” facilities from being built.
Despite these good intentions, CON laws have backfired. Decades of research overwhelmingly shows that CON laws are not effective at controlling costs, improving quality, or expanding access to care. While CON laws might theoretically serve a useful purpose, in practice they are vulnerable to being manipulated to serve the interests of existing providers. According to one expert, “CON regulation appears to do little other than increase market concentration by blocking entry.”
Although the decisions of CON boards are supposed to be data-driven, special interests exert enormous control over the process. After examining the CON programs of six states, the National Institute for Health Care Reform concluded that “the CON approval process can be highly subjective and tends to be influenced heavily by political relationships rather than policy objectives.”
A study using data from Georgia, Michigan, and Virginia found that organizations that made campaign contributions to state lawmakers—who appoint the members of CON boards—had a substantially better chance of obtaining CON approval. This dynamic favors large providers with pockets deep enough to influence the political process.
In some cases, members of CON boards have gone even further, accepting bribes and kick-backs to green-light favored projects. In 2005, a former member of Illinois’ CON board was indicted and later convicted for engaging in a multi-million dollar scheme to grant a CON application in return for a share of the facility’s revenue.
Even when members of CON boards are trying their best to be fair, states lack clear criteria for judging CON applications, leading to inconsistent results. The uncertainty of the process can deter potential applicants, especially those without the financial resources to survive drawn-out proceedings.
One common tactic used by incumbent institutions to derail a potential competitor’s CON application is to request additional hearings, lodge frivolous objections, and file endless appeals. A study of Georgia’s CON program found that when a competitor objects to an application, the odds of denial more than double. The complexity of the CON process has led to a cottage industry of law firms and consulting groups reaping enormous fees to help clients navigate the process.
To make matters worse, some states specifically require members of CON boards to represent the interests of existing providers. In Tennessee, for example, the 15-member CON board includes 10 representatives of various provider types, while only two members are responsible for protecting the interests of consumers.
Patients are the ultimate victims of CON laws. In Virginia, a premature infant died after the hospital was barred from opening a neonatal intensive care unit due to opposition from a competing hospital. In Kentucky, a large home health agency has intensively lobbied against expanding the supply of home health care, contributing to deep shortages across much of the state. An ophthalmologist in North Carolina was prevented from opening an outpatient facility, leaving him no choice but to charge patients significantly higher hospital prices.
These stories aren’t outliers. In recent research published in the Southern Economic Journal, my colleagues and I found that repealing CON laws led to a marked increase in the supply of hospitals, especially small facilities that tend to lack the political clout and legal savvy to win CON disputes.
Over the last few years, a growing list of states have recognized the flaws of CON laws and enacted reforms. In our contentious political climate, reducing or eliminating CON regulations— an idea with bipartisan support from the last seven presidential administrations—should be a unifying policy objective.
Liam Sigaud is a research analyst at the Knee Regulatory Research Center located at West Virginia University’s John Chambers College of Business and Economics.
