health care

How Certificate of Need Laws Harm the Health Care Market

CON laws stifle competition and hurt consumers.

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If I got a dollar each time the federal or state government promised that new regulations of the health care market would reduce the cost of health care—and it subsequently failed to deliver on that promise—I would be a rich woman. The Affordable Care Act is the most recent example of such failed promises, obviously. But certificate of need laws take the cake at the state level.

CON restrictions come in addition to state licensing and training requirements for medical professionals. They require that all medical providers wanting to build or expand an existing health care facility, offer new services, or acquire new medical equipment must first gain approval from state regulators.

Born out of bad economics and fears that the oversupply of hospital capacity would increase costs, New York was the first state to institute a CON program, in 1964. Over the following decade, 23 other states adopted CON programs. In 1974, the federal government joined in the effort and required states to implement CON requirements in exchange for receiving funding through certain federal programs.

In theory, the regulation would cut health costs while increasing the provision of care for lower-income people. By restricting market entry, lawmakers believed, the regulatory winners could be forced to use their government-inflated profits to subsidize indigent care or medical services to the poor. These services are seen as socially desirable but notoriously unprofitable to providers.

Though the theory of cross-subsidization is well-established, in practice CON laws were soon captured by established interests that used them to keep competition out and raise the cost of medical services. In 1987, the federal government repealed its mandate after recognizing the program as a failure. Though a few states have since retired their programs, 36 states and the District of Columbia are still living under this type of law, with negative consequences for their residents.

As part of a large effort by the Mercatus Center to study CON laws around the country, economists Thomas Stratmann and Jacob W. Russ published a comprehensive empirical study looking at whether CON laws increase indigent care. They found that under the regulatory scheme, the poorest Americans see no increase in the availability of care and that it limits the provision of medical services.

Their study shows that while on average there are 362 hospital beds per 100,000 people in the United States, the presence of a state CON regulation program reduces that number by 99 beds. They also found that for each additional service that a state regulates—such as the acquisition of CT scanners or MRI machines—the number of hospital beds per 100,000 people decreases by 4.7.

Looking at CON laws on a state-by-state basis, my colleague Christopher Koopman found that Vermont is the worst offender, with its CON program currently regulating 30 different services, devices, and procedures, which is much more than the national average of 14.

But hospital beds aren't the only casualties of CON regulations. They also reduce the number of hospitals with MRI technology by one to two hospitals per 500,000 people. Koopman calculated that in North Carolina, the fourth-worst CON state, it could mean 49 fewer hospitals offering MRI services.

CON laws were intended to limit the supply of health care services. They succeeded. Not surprisingly, they also failed to contain the cost of health care. State policymakers looking for ways to bend the health care cost curve downward should get rid of CON laws. As Koopman summed up in his work, it would open the market, create more competition, and ultimately give more options to those seeking care.

© Copyright 2015 by Creators Syndicate Inc.

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  1. Requiring permission from your competitors harms competition? Who’d a thunk it?

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  2. This is such a textbook example of how ideology and the refusal to admit a program won’t work leads to insanity. They started with the insane premise that getting everyone to have health insurance was the way to lower healthcare costs. If people can get their healthcare for free from a charity hospital, they will less likely to buy insurance. So, the solution is therefore to limit the number of charity hospitals.

    Thus we have a situation where our “experts” set out with the goal of lowering healthcare costs for the poor and wound up taking measures to lower the supply of free healthcare. As Orwell said, some ideas are so stupid only an intellectual could believe them.

    1. actualuy, it goes deeper. The core problem is the deep seated conviction held by far too many that it is possible to understand and control the market.

      Does ANYBODY have any evidence of this?

      1. You can understand the market and in some sense “control it”. What you can’t do is control it in ways that go against the laws of human behavior. In the same way you can “control” a river by building a dam. Yes you can build a damn and create a lake. But you can’t make the water flow upstream. These idiots think you can.

    2. And I think one of the freaking ‘justifications’ was that, by providing ‘free’ health care for kids and young people, they’d live healthier lifestyles in the future and THUS be ‘less expensive’ to maintain in their older years.

      So everyone expected health care costs, as a result of this, to decrease in the Short Term, too.

      Fucking morons incapable of Critical Thinking.

      http://www.plusaf.com/criticalthinking.htm

  3. Only a progressive could possibly believe that reducing supply would decrease prices. The economic illiteracy is astounding.

    1. It is beyond illiteracy. I think it goes into the realm of insanity.

      1. It’s the triumph of policy over reality. They’re quite sane about their cronyism.

      2. That assumes that the stated end is the reason and not the excuse. If what they are actually after is control, then their policies make a great deal of sense. What makes no sense is.the degree that thier excuses are believed.

    2. There is supposedly a ‘housing crises’ in SF; it’s too expensive. So one of the more port-listing supervisors introduced a new moratorium in building ‘market rate’ housing in an area favored by hipsters. Yes, he did.
      BTW, housing is not too expensive; every house that goes up for sale is sold.

      1. The moratoria are actually passed by current home owners in the area. They have a strong interest in limiting the housing supply because it drives up the value of their homes. Ditto for zoning laws and taxes on new building.

        These people understand economics just fine, and they are using it to their full personal advantage. The “think of disadvantaged” arguments are just window dressing for their own greed.

      2. Campos is indeed an absolute economic illiterate and as we know bad ideas just keep coming back In new forms. SF is a veritable clearinghouse of bad ideas. All the progressives here should be taken out back and given hugs and ice cream sundaes.

        1. I really want to fix that for you, but Preet Bharat…

    3. Government has a very limited set of tools.

      All it can really do is say “No, you can’t do that” or “If you’re going to do that, then you’re going to do it our way.”

      Given those tools, and a demand to DO SOMETHING, limiting supply is all it can do.

      1. Actually it just has one tool. “If you do something we don’t like, we’ll kill you.”

        1. Now I know why they say you are the worst.

        2. You know who else killed people he didn’t like?

          1. Orca?

        3. That was clearly a threat. DOJ has been notified.

      2. Government is just the word we use for “world’s smartest retards.”

        1. Government is the idiots with guns who tell the experts how to do their job.

      3. When all you’ve got is a hammer, everything looks like a nail.

        I remember a video about the battle of Cannae, one of the historians said that Hannibal saw the massive amount of Romans in the shape of a rectangle, it looked like a hammer. The historian said that Hannibal looked at that hammer and realized that it was dangerous, yes, but you can’t do anything really clever with a hammer…

        This always reminds me of government. It’s a hammer and you can’t do anything really clever with a hammer.

    4. I wish I’d kept a copy of the original article, but a few years ago, Time Warner Cable was quoted in the Raleigh News & Observer, predicting that “increased competition in the cable market would cause consumers’ costs to increase.”

      And a lot of the locals actually nodded and said “Uh-huh… Makes sense to me.”

      Assholes.

  4. It is all about preventing anyone with private insurance or private cash payers from escaping being forced to subsidize uncompensated care and/or being forced to make up the difference of the below cost reimbursements from Medicare and Medicaid patients.

    1. Ms. de Rugy did say that in the article, but it doesn’t hurt to capsulize. My previous reading had led me to believe it was more like public-utility regul’n on the cost-plus basis: that if facilities were allowed to install expensive stuff, they’d pass those costs along to customers, so if you prevented them from doing so, health care would be “cheaper”. Or even worse, that it was just a way of rationing care, just so a state could say they were saving on the total amount people were spending on health care in their state.

  5. It’s Faux News lies. Obama has made healthcare more affordable. Plus, I have gumdrop trees and chocolate rivers at my doctor’s office.

    Best Prez EVAR.

    1. Oh the buzzin’ of the bees
      In the cigarette trees
      Near the soda water fountain
      At the lemonade springs
      Where the bluebird sings
      On the big rock candy mountain

  6. If I got a dollar each time the federal or state government promised that new regulations of the health care market would reduce the cost of health care of anything?and it subsequently failed to deliver on that promise?I would be a rich woman.

    FIFY, Veronica.

    1. That’s not how things work?

      1. But that’s what Tony keeps sayin’….

  7. fears that the oversupply of hospital capacity would increase costs

    Sort of in the same way that unicorns are an invasive species threatening the desert tortoise?

    1. That is quite the jarring sentence to anyone who took Econ 101.

  8. Off topic. Holy shit is Paul Ryan an asshole. What an epic, unbelievable asshole. Our system is so broken. It literally seems to select for the largest asshole possible.

    http://www.breitbart.com/big-g…..agreed-to/

    1. It took me a long time to get an audience with the U.S. Trade Representative,” Burgess said.

      That is so wrong. A congressman shouldn’t have to get an “audience” with the Trade Rep, the Trade Rep should go to the congressman when called. If they vote for this they are even more stupid than I think they are, so we will see.

      1. Our entire system of checks balances and Congressional oversight is broken.

        1. Our entire system of checks balances and Congressional oversight is broken.

          Yes it is. The problem is no congressperson wants to be a ass and hold the other side accountable because they are afraid if they do that, the other side will do the same when their person is in charge, and we can’t have that. It would take literally one term of congress for them to regain the control the constitution gave them; IF they have the balls to do it.

          Which is why I like Rand Paul and think he is better for the country as a sitting Senator rather than as a President.

          1. Problem with that is, what the hell good is a Cato gonna do when the president is hellbent on being a Caesar and can’t be stopped?

            1. Problem with that is, what the hell good is a Cato gonna do when the president is hellbent on being a Caesar and can’t be stopped?

              Education, hope for allies?? I honestly don’t know the answer. Maybe if other pols see good reactions from “the people” to what Paul and Cruz are doing, more will join.

    2. Yea I was starting to like Ryan but now I know better. The only reason to keep laws that everyone will have to obey a secret is because they know they will only harm those who have to obey them.

    3. The Senate vote threshold also drops down to a simple majority rather than normally having a 60-vote threshold, or in the case of treaties, a 67-vote threshold.

  9. By restricting market entry, lawmakers believed, the regulatory winners could be forced to use their government-inflated profits to subsidize indigent care or medical services to the poor.

    Because this worked so well in…what other case?

    1. And even if it did, people are already spending money on that care in the form of charity hospitals. The rational answer to this is that these people are just in the pockets of the healthcare companies and are saying “but the profits on charity care, we promise” because they think everyone is stupid enough to believe that. And that may be the case. But part of me thinks that they are not in anyone’s pocket and are that stupid and probably insane.

      1. Yeah, this is one of those times where you are really not sure where to put it on the corrupt vs. stupid scale…

        1. Why can’t it be corrupt AND stupid?

      2. The rational answer to this is that these people are just in the pockets of the healthcare companies and are saying “but the profits on charity care, we promise” because they think everyone is stupid enough to believe that. And that may be the case. But part of me thinks that they are not in anyone’s pocket and are that stupid and probably insane.

        AFAIK, CON laws exist because in a free market, Medicare/caid’s notoriously low reimbursement rates world drive any provider that accepted them it of business.

  10. The economic stupidity is so mind blowing.

    Reducing supply to increase profits of old players so that the old players can subsidize poor patients. Why not just increase supply and lower the fucking cost for everyone?

    What a bunch of useless assholes. Liberals will never see this as market disruption. Their intentions were pure. Well fuck you and your fucking intentions. Hitler thought he was doing the right thing too you fucking assholes.

    1. “Reducing supply to increase profits of old players so that the old players can subsidize poor patients. Why not just increase supply and lower the fucking cost for everyone?”

      This x 1 trillion.

      The answer is easy though. Old players donate to political candidates and have lobbyists on speed dial. It is never about helping anyone, it’s about politicians retaining power and protecting special interests, in this case, hospitals, imaging centers, clinics, and doctors who already have a CON. It’s no different than requiring a taxi driver to have a medallion or someone who wants to braid hair to have a cosmetology license.

      1. I don’t want any more help. I just want the active hurting to stop.

    2. Why not just increase supply and lower the fucking cost for everyone?

      Because at some level, those who promote contrary policies believe in producer sovereignty rather than consumer sovereignty. “If you build it, they will come.” They think entrepreneurs, including those in health care, magically convince people to buy goods & services they don’t need or “really” want. So by holding down supplies, believers in/promoters of such policies think they’re keeping us from wasting our $ & effort.

      1. Like 23 kinds of deodorant.

    3. You know who else had good intentions?

      Oh. You do. Never mind…

  11. So where can i get a list of the 36 states that still have these CON laws

  12. Go here:

    http://www.ncsl.org/research/h…..-laws.aspx

    1. Kinda surprising California and Pennsylvania don’t have them. That’ll be their next reform.

        1. Pennsylvania also has a state health planning office.

          Looks like North Dakota and Wisconsin (the map is wrong if the chart is right — Wisconsin ended their second CoN program in 2011) are the only states without CoNs or state health planning offices.

    2. Thanks I knew someone here where to find it.

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  14. Only a progressive could possibly believe that reducing supply would decrease prices.

    Not only that; price controls will increase supply and curb demand, because that’s what we want them to do.

  15. Another wage and price control disaster. How stupid and for how long will our regulators screw up economic market driven forces. The market still seeks its own level regardless of what they think is right for the collective. Screw them.

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