Texas did it in 1985. California did it in 1987. Pennsylvania did it in 1996. New Hampshire did it in 2016. Florida did it in 2019.
I’m talking about states that repealed their Certificate of Need laws. CON laws were implemented by almost every state as a condition to receiving federal funding when Congress passed the Health Planning Resource Development Act of 1974. Congress sought to keep the supply of health-care services in check over concerns the high overhead costs of underused facilities would be passed on to patients.
But the federal government would not do the dirty work. Instead, it directed states to create planning boards that would control the approval process. If an entrepreneur wanted to open up a facility that would offer a service regulated under the CON law, they would only receive permission from the board if they survived an elaborate review process.
The outcome was predictable for anyone with basic knowledge of economics. When you keep the supply of a service artificially low, incumbent providers aren’t subject to competition and gain more market power than they otherwise would. The natural consequence is less access and higher prices. Regulating health-care facilities with CON laws makes the patient worse off by putting the choice of health care in the hands of the government rather than the private market.
Consider an example using an industry other than health care. Let’s say you’re interested in opening a sporting goods store. You do market research, and you find an area in which you believe you could set up a successful business. You raise capital, come up with a business plan, and are ready to start building a facility. Now you learn you must obtain permission from the state government to open your store. Through a lengthy and expensive application process, you notify the state planning board of your business plans and what you intend to sell. The planning board reviews your application to determine whether there’s enough “need” for a sporting goods in the area.
During the application process, existing sporting goods stores in the area — your potential competitors — have the opportunity to comment on your application and tell the planning board whether they would like to have a competitor in the area. After this process, which can take several months and cost thousands of dollars, the planning board could accept or deny your application based solely on their calculations for the need of additional sporting goods to be sold in the area.
Would this sort of government intrusion into private enterprise be considered reasonable for any other industry? For potential new providers of health care in North Carolina, this is the reality.
The supply of health-care facilities regulated by CON laws in North Carolina is in complete control of the State Health Coordinating Council. What’s worse is incumbent owners of health-care facilities, some of whom hold certificates of need, sit on this board, which decides if new private actors can enter a given market. Brian Floyd, for example, who represents hospitals on the SHCC, is the COO of Vidant Health, a hospital chain in eastern North Carolina. Floyd would presumably influence decisions of whether new hospitals could enter the market to serve eastern North Carolina. Also serving on the SHCC are members who represent home health agencies, hospices, and nursing homes — all of which are facilities regulated under CON laws.
Of the states that still have CON laws in place, North Carolina is the fifth most restrictive state in terms of the number of facilities that need government approval to build. Only New Jersey, the District of Columbia, Hawaii, and Vermont have a higher number of facilities regulated under CON laws. Sixteen states have fully repealed these laws because of the demonstrated costs to patients and state-sanctioned benefits to incumbent facilities. By creating a system in which market incumbents can dictate competitors, monopolistic behavior follows.
It’s not just the John Locke Foundation who’s an advocate for the state repeal of CON laws. Earlier this year, a conglomerate of health policy scholars from left- and right-leaning organizations came up with a list of policy proposals they believe would lower health care costs. The report recommended states repeal their CON laws. The Federal Trade Commission and Department of Justice are also advocates for repeal due to the laws inherent anti-competitive nature.
This year, North Carolina lawmakers have an opportunity to repeal CON laws and put the interests of patients back in the hands of the private market. Let’s hope that 2019 is the year that North Carolina finally repeals its CON laws.
Jordan Roberts is health policy analyst for the John Locke Foundation.