COVID-19 Spotlights the Problems With Health Care 'Certificates of Need'

Mississippi's CON law means that physical therapist Charles "Butch" Slaughter (and others like him) can't adapt to the changing circumstances created by the pandemic.

The COVID-19 pandemic has spurred major changes in how Americans interact with the health care system—except in places that literally forbid providers from adapting.

That is the situation in Mississippi, which in 1981 enacted a law that arbitrarily and permanently capped the number of licenses for home health agencies, businesses that arrange for nurses and other medical professionals to make house calls. For 40 years, the only way to legally launch a new home health agency in the state has been to purchase a certificate of need (CON) license from an existing agency—an arrangement that guarantees incumbent businesses won't face new competition.

This was a bad way to run a health care market before 2020. Now it looks like a disaster.

Mississippi's CON law means that physical therapist Charles "Butch" Slaughter can't adapt to the changing circumstances created by the pandemic. Slaughter, who has a clinic in Jackson, Mississippi, wants to launch a home health care agency so he can serve his patients directly in their homes. First, however, he will have to win a legal challenge to the 1981 law.

"I can't believe it is illegal for me to start a home health business to help more patients," says Slaughter. "Other companies are already doing this, but it's illegal for anyone else to do it. It makes no sense."

CON laws regulate aspects of the health care industry in 35 states, despite decades of evidence showing that they drive up costs and limit access to care. Most of those CON laws require hospitals and other health care providers to get approval from the state before acquiring new medical equipment or expanding services. Sometimes even something as simple as adding hospital beds can require the government's approval.

These laws have nothing to do with ensuring safety or quality. They solely address whether the market "needs" the service or piece of equipment. At best, CON requirements accomplish nothing more than adding layers of red tape between medical professionals and their patients. At worst, they can be abused by incumbent providers to limit competition, often with tragic consequences.

One of the only hospitals in Virginia with a neonatal intensive care unit (NICU), for example, twisted the CON approval process to block a nearby hospital from getting permission to build a similar facility. Even after an infant died in 2012 at the second hospital under circumstances that may have been prevented if there had been a NICU on site, the state continued to deny permission for the facility, citing a lack of "need" and saying it would be unnecessary competition with the neighboring hospital.

In Mississippi, the stakes are lower, but the anticompetitive nature of CON laws is even more obvious. The 40-year ban on new home health care agencies is "an absurd law that serves absolutely no purpose other than preventing legitimate competition and creating an oligopoly for existing providers," says Aaron Rice, director of the Mississippi Justice Institute, a nonprofit law firm that is representing Slaughter in his lawsuit against the state.

The suit, filed in December, notes that only 16 other states have CON laws regulating home health care agencies at all. Mississippi is one of just two states with an arbitrary cap on the number of CON licenses. If 48 states are getting by without this rule, it is hard to believe it is necessary.

The COVID-19 pandemic has provided another reminder that CON laws are dangerous. Researchers at the Mercatus Center, a free market think tank at George Mason University, found that states without CON laws were able to adapt more quickly to rising demand for hospital beds and intensive care equipment in the pandemic's early days. In a paper published in August, they estimate that repealing or suspending CON laws could save 28 lives per 100,000 people by letting hospitals respond to surging demand without getting clearance from bureaucrats first.

"Repealing CON laws could be an ounce of prevention that saves countless lives as well as billions of dollars in last-minute medical supply scrambles and shortages during emergencies," the Mercatus researchers wrote. It would also let health care entrepreneurs like Slaughter provide care to medically vulnerable people who want to avoid the risk of leaving their homes in the midst of a pandemic. There's no excuse for the government to stand in his way.