State certificate-of-need programs limit the introduction and expansion of a wide variety of medical services and equipment

See Certificate-of-Need Laws: Are They Achieving Their Goals? by Matthew D. Mitchell, Director, Project for the Study of American Capitalism. Excerpts:

"In 1986—as evidence mounted that CON laws were failing to achieve their stated goals—Congress repealed the federal act, eliminating federal incentives for states to maintain their CON programs. Since then, 15 states have done away with their CON regulations."

"A majority of states still maintain CON programs, however, and vestiges of the National Health Planning and Resources Development Act can be seen in the justifications that state legislatures offer in support of these regulations. Policymakers claim CON regulation is intended to

1. ensure an adequate supply of healthcare resources,
2. ensure access to health care for rural communities,
3. promote high-quality health care,
4. ensure charity care for those unable to pay or for otherwise underserved communities,
5. encourage appropriate levels of hospital substitutes and healthcare alternatives, and
6. restrain the cost of healthcare services.

Research, however, shows that CON laws fail to achieve these laudable goals. In fact, by limiting supply and undermining competition, CON laws may undercut each of these aims."

"CON programs limit the introduction and expansion of a wide variety of medical services and equipment, such as rehabilitation centers, nursing home beds, and medical imaging technologies. The process for obtaining a CON can take years and tens or even hundreds of thousands of dollars. By definition, CON programs restrict supply, making them unlikely to ensure an adequate supply of healthcare resources. Research on the supply of dialysis clinics and hospice care facilities finds that CON programs do, indeed, restrict the supply of both.

George Mason University Professor and Mercatus-affiliated scholar Thomas Stratmann led the most recent comprehensive study of the effect of CON programs on the supply of medical equipment. Stratmann and his coauthor, Jacob Russ, report that there are on average 362 hospital beds per 100,000 people in the United States. Controlling for other factors, however, they find that states with CON programs have about 99 fewer hospital beds per 100,000 people than states without these regulations. Moreover, they find that CON programs that specifically regulate acute hospital beds are associated with an average of about 131 fewer hospital beds per 100,000 people relative to non-CON states. Furthermore, they find that CON regulations reduce the number of hospitals with MRI machines by one to two hospitals per 500,000 people and that states that regulate MRI machines have, on average, 2.5 fewer hospitals providing MRI services than non-CON states. Taking Michigan as an example, this means the state may have between 20 and 40 fewer hospitals offering MRI services than it would if it had no CON program.

In separate research, Stratmann and his coauthor Matthew Baker find that patients in states with CON programs are more likely to travel longer distances in search of health care, a fact that has been documented by others. Finally, they assess the effect of CON regulations on nonhospital providers such as ambulatory surgical centers (ASCs), finding that—controlling for other factors—there are significantly fewer nonhospital providers of MRI and CT scans in CON states than in non-CON states. This may explain why hospital providers have a stronger market share in CON states than in non-CON states. It may also explain why hospitals tend to support CON regulation."

 "As they are today, policymakers in 1974 were concerned about healthcare price inflation, and Congress hoped that CON regulations would address the problem. Today, many states explicitly name cost control as a goal of their CON programs. The Virginia Certificate of Public Need Program’s website, for example, states that “the program seeks to contain health care costs while ensuring financial viability and access to health care for all Virginia at a reasonable cost.”

Cost is a per-unit concept. It refers to the amount of money needed to produce one unit of a product or service. Economic theory predicts that a supply restriction such as CON regulation will increase per-unit costs by reducing supply. As economists Jon Ford and David Kaserman put it, “To the extent that CON regulation is effective in reducing net investment in the industry, the economic effect is to shift the supply curve of the affected service back to the left. . . . The effect of such supply shifts is to raise . . . [the] equilibrium price.” The empirical evidence on how CON regulation affects cost has been consistent with economic theory, showing that CON regulation tends to increase the cost of healthcare services."