Medical providers in North Carolina must receive permission from the state — called a certificate of need — to add services such as hospital beds or a testing machine. According to new research by the John Locke Foundation, the regulations restrict competition and harm consumers.
Dr. Roy Cordato, vice president for research at the Raleigh-based think tank, noted that North Carolina is one of 35 states that retain certificate-of-need laws. Originally, the rules were developed to satisfy the provisions of a 1974 federal mandate. When Congress ended the mandate in 1987, some states repealed their certification laws, while others kept them in place, allowing for useful comparisons across the country about the effects of the regulations.
The certification system was intended to dampen health-care costs by restricting access to costly medical procedures, but Cordato said that basic economic principles and real-world experience showed a different outcome.
“One sure way to raise the cost of something is to give producers power to restrict output and production,” Cordato said. “Politicians understand this when the issue is OPEC and oil, but when the issue is health care, they think the way to protect people from higher costs is to restrict the supply of medical facilities and equipment.”
In North Carolina, certificates of need are issued by the Health Planning Development Agency, under the Department of Health and Human Services. The agency develops criteria and standards for health facilities planning; registers and inventories health facilities and equipment statewide; and determines when and where new facilities may be constructed and where new equipment may be needed and located.
The process for gaining certificate-of-need approval in the state can last as long as two years, and sometimes longer, Cordato said. He cited the case of Good Hope Hospital in Harnett County, which has waited more than four years for permission from the state to expand.
Cordato said states that got rid of their certification laws did not experience the increases in health-care costs that would have occurred if the laws truly worked to keep costs down. Instead, several studies showed that certification laws increased health-care costs but restricted services.
One 1998 study, conducted by Duke University professors Christopher Conover and Frank Sloan, found that hospitals subject to certification laws experienced a 2 percent reduction in bed supply and “higher costs per day and per admission, along with higher hospital profits.”
“It’s a hidden tax,” Cordato said. Competition, not government-sponsored health cartels, lowers health care costs, he said.
“If you were to describe the certificate-of-need process to someone who had never heard of it before,” Cordato said, “he’d probably think you were describing a crazy, Soviet-style system — not a policy at work right now, here in North Carolina.”