Don’t Fall for the ‘Certificate of Need’ Laws Con Game


Last week, the South Carolina state Senate voted overwhelmingly to end the state’s certificate of need program, which requires healthcare providers to seek government approval before building or expanding a hospital or purchasing pricey medical equipment.

Such policies have long been justified as tools for avoiding duplicative or wasteful healthcare expenditures.

Their only real purpose, however, is to protect incumbent healthcare providers from competition. In this way, certificate of need laws certainly serve the interests of those incumbents.

But what they also do is increase costs, reduce access, and harm health outcomes for patients.

Certificate of need laws amount to artificial restrictions on the supply of healthcare.

Hospitals and investors may be interested in responding to rising demand for care in an area — say, because of an influx of new residents or an aging population.

But the prospect of an expensive battle with state bureaucrats to prove that there’s a need for a new facility — or a fight with incumbent providers content to raise prices in response to that demand — may make the economics of a new project cost-prohibitive.

According to a study in The American Journal of Managed Care, “certificate of need laws” have reduced the number of hospital beds nationwide by 10%.

It’s often rural areas that suffer most from these rules.

According to research from the Mercatus Center, states with some form of a certificate of need program tend to have fewer rural hospitals and fewer rural ambulatory surgical centers than states without such programs.

Allowing bureaucrats to determine “need” rather than the market can leave areas without the infrastructure they need to respond to shocks like the COVID-19 pandemic.

The challenges that providers have faced during the various waves of the pandemic are the most common justification offered for keeping COVID-19 restrictions in place indefinitely.

It stands to reason that boosting healthcare capacity — particularly at hospitals — could help accelerate the return to pre-pandemic normalcy we’ve all been waiting for.

Yet certificate of need laws obstruct the ability of hospitals to adapt to these unexpected upticks in healthcare demand. It’s for this reason that, during the first wave of COVID-19 in 2020, 25 states suspended these programs.

Certificate of need laws don’t just limit healthcare capacity.

By stifling competition, they result in higher costs and lower quality.

Consider that death rates among patients with pneumonia, heart failure, and heart attacks are higher in hospitals in states with certificate of need laws than in hospitals in states without them, according to another Mercatus Center analysis.

Lower levels of competition translate into more provider pricing power. Certificate of need laws have been shown to increase overall health spending by more than 3%.

Given the damage these programs inflict, it’s tempting to ask why they remain on the books in 39 states. Most date back to a federal law from 1974, which mandated certificate of need laws in hopes of containing healthcare spending.

Congress eventually repealed the mandate in the 1980s, after the programs proved ineffective at achieving this goal. But by then, these laws had a powerful constituency behind them — incumbent providers — that wasn’t eager to see them go.

The primary goal of American health policy should be to expand access to affordable, high-quality care to as many patients as possible. Certificate of need laws have never served that goal. South Carolina is right to move to roll back these restrictions on the supply of care.

Other states that still have certificate of need laws on the books should do the same.

Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is “False Premise, False Promise: The Disastrous Reality of Medicare for All,” (Encounter Books 2020). Follow her on Twitter @sallypipes

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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