What if I told you that there was a state law limiting the number of restaurants that can serve hamburgers? And what if I told you that this law was passed under the theory that limiting the number of hamburger providers would make dining out less expensive? You’d probably scoff, but something very similar is happening in the health care field right now.
There are many reasons for rising medical costs, but there is wide agreement that at least one factor is the prevalence of state certificate of need (CON) laws. Despite their prevalence — 35 states have some kind of CON law — few Americans have even heard of them.
A CON is best understood as a government permission slip to compete in a certain market. CON laws block competition in the health care industry, but they are not unique to medical services. Various industries like taxis, food trucks and moving companies also use such laws to stifle innovation by allowing existing businesses to decide which new businesses can operate in their industry.
In 1974, Congress began incentivizing states to adopt CON laws, causing their rapid spread. The idea behind the push was that limiting medical facilities would allow government to control access to care, and thereby control costs. In fact, the opposite proved to be true. Worse, large institutions realized that they could utilize CON programs to stifle competition. Recognizing its error, in 1986, Congress repealed funding for CON programs and has continually disavowed these laws since that time.
In 2004, the Federal Trade Commission and U.S. Department of Justice recommended that states end CON requirements because they are “not successful in containing health care costs and ... pose serious anti-competitive risks that usually outweigh their purported economic benefits.”
In 2018, several federal agencies collaborated on a report finding “that CON laws have failed to produce cost savings, higher quality health care or greater access to care, whether in underserved communities or in underserved areas.”
Recognizing these anti-competitive and economic shortfalls, at least 12 states have repealed their CON laws. So why, then, do they remain on the books in so many other states? The answer is clear: CON laws tend to benefit large, established hospitals or medical systems, while keeping independent providers or facilities out of the market.
For example, Dr. Gajendra Singh, a surgeon in North Carolina, opened an imaging center after hearing his patients say they couldn’t afford necessary scans. While he has been able to provide some scanning services, the state won’t let Dr. Singh purchase a fixed MRI scanner. Though he is allowed to rent and use a mobile MRI scanner, purchasing a permanently installed scanner would ensure that Dr. Singh can keep imaging prices low and make his services more reliable. But a provider cannot purchase an MRI scanner in North Carolina unless the state predetermines a “need” for such equipment. Those determinations are made by a state agency annually.
As a result, Dr. Singh cannot even apply for a CON, and Dr. Singh’s competitors that own MRI scanners are largely free to charge patients whatever rates they choose. To fight this exclusionary system, Dr. Singh teamed up with the Institute for Justice to sue to end North Carolina’s CON program.
But South Carolina lawmakers don’t have to wait for a court to force their hand. They have a chance to repeal South Carolina’s CON regime. Doctors in Charleston see firsthand how the CON law keeps out much-needed competition that would drive down prices, and the Charleston County Medical Society has been spearheading this year’s repeal effort. The medical society hopes South Carolina can join other states that have allowed market forces to work in the health care industry. The bill will be considered next week in a House committee, where it is expected to pass and move on to a floor vote.
Without a doubt, large medical providers with a government-granted monopoly will tell senators that the CON law is necessary to protect public health. Hopefully, lawmakers will look at the hard evidence and conclude that the CON program is about picking winners and losers in the health care industry, not providing patients with affordable options for care. Now is the time to end the CON.
Jaimie Cavanaugh is an attorney with the Institute for Justice, which represents health care providers in North Carolina and Iowa fighting CON laws in the courts.