Regulation

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.

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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.

NEXT: Brickbat: What Are They Smoking?

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  1. I wonder why this issue never gets any traction. We run this story here at Reason once a year or so… And we post our outrage…. And that is it.

    NBC never picks it up. CNN does not seem it newsworthy.

    A law that is absurd on its face, and not even a hint of interest, despite periodic outbursts of coverage of healthcare issues.

    1. Because CON laws are nothing less than central planning, the “experts” deciding what the proper number of health care facilities is, and central planning is superior to the free market. Central planning is better because neutral, unbiased, dispassionate bureaucrats thinking only of the public good rationally decide these things rather than greedy, self-interested, corrupt human beings thinking only of their own welfare making the decision on the basis of what’s good for them. How exactly the government manages to only hire saints and angels rather than human beings for these positions is a mystery, perhaps it is the act of having your paycheck signed by the government that makes one holy.

      1. CON laws are more than central planning. They provide the foundation for collusion between government planners and compliant “private” enterprises. I wonder if there is a name for that…

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      2. Because the movement in favor of certificate of need was motivated by cost containment in fields wherein the market had already broken down. It’s “cost-plus” thinking: the idea that providers have to raise their prices to recover their investments — which means that costs were not being determined by supply and demand to begin with, but by guarantees that everyone would be taken care of fairly, both healthwise and financially. The idea was that if a piece of equipment was available, it would be used whether it was needed or not, and that someone other than the provider would ultimately pay for it. There being no hope of restoring actual bargaining over services, what was seen as the next best thing was adopted: making sure too much of anything was never deployed to begin with, and therefore that those costs wouldn’t need to be recovered.

    2. I’m sure if we keep voting for third party candidates, Washington will eventually have to listen to us.

      1. This, but unironically.

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    3. It’s very inside-baseball type stuff, and difficult to connect to patient/consumer harm. It’s also something where the wrench is moving (slowly) in the right direction: it’s assumed and voiced at AHA seminars and the like that CONs are going to go by the wayside for most things, and that rationalization within the industry will end up making the others irrelevant anyway (even in blue New Jersey, the big change we’re dealing with is the opening up of cardiac cath outside the CON process, which is very much against type).

      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.

      Mostly right, but there is a concern around dilution of skills and the DOH will use the CON process to guard against having to do enforcement actions after an institution/practitioner doesn’t meet its volume requirements; said requirements are certainly a quality concern from their perspective.

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  2. This is just another example of why we need universal healthcare in America. Do socially just countries, like Cuba, have citizens that want for healthcare? America’s inverted values hierarchy puts profit above people!

    1. Amazing that no state enacted universal health care!

      1. Well, no state has enacted universal health care and kept it going.

  3. They solely address whether the market “needs” the service or piece of equipment.

    If only there were some other way to determine the needs of a market. Perhaps some principle that addresses the supply and demand of product, or something.

  4. Once again, confusing medical science with political science.

  5. “At best, CON requirements accomplish nothing more than adding layers of red tape between medical professionals and their patients.”

    No, at best CON laws prohibit competition, enhance profits for privileged companies, provide campaign support for cooperative politicians, and promote the entrenched power structure. All the “important people” win!

  6. Whenever I meet a “single payer” proponent, I always discuss the need to remove CoN laws. They always agree but never offer to help.

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