Certificate Of Need No Longer Needed (and it never was)

One of the issues that came up early in my career with the North Carolina DHS (Department of Human Resources, now the Department of Health & Human Services, DHHS) was the implementation of North Carolina’s new Certificate Of Need (CON) law, enacted to comply with a Federal mandate.  The idea was that health care providers ought to have to convince the State planners that there was a genuine need for any new and substantive (meaning expensive) health care capacity (such as new hospitals, new equipment for existing hospitals, etc.), else those providers in their reckless, willy-nilly way would spend large amounts of money on unwarrented facilities and equipment.  If the customer (patient) base did not expand fast enough to absorb this new spending, the providers would jack up their rates on the existing customer base in order to pay for their new toys, thereby creating a hardship on those patients.

An example that was often cited to support this view was that of medical imaging equipment (MRI, CAT), as it was very expensive at the time and hospitals were competing with each other to see which one could acquire the equipment first.

Most of the accountants in the fiscal section of DHS (myself included) thought that this was a ploy to stifle competition and just another form of rent-seeking behavior on the part of the existing health care providers, particularly the large hospitals and the BCBS establishment.  We also knew that anything that reduces competition will eventually result in higher costs.

And that is exactly how it has played out.  As was stated by John Locke Foundation reporter Jon Sanders in a comprehensive JLF piece last October:

Four decades’ worth of data and research into CON laws have produced a recurring theme in the research literature: CON laws fail to lower health care costs; if anything, they raise them.  In 1987 Congress repealed the mandate, and subsequently 14 states (but not North Carolina) ended their CON regimes.  North Carolina hosts one of the most restrictive CON programs in the country, regulating 25 different services.  While patients and rural communities are negatively impacted by CON restrictions (especially the poor, elderly, and those with emergencies), existing hospitals and medical service providers reap the benefits of CON laws insulating them from competition.  Fewer than one-fourth (23 out of 100) of counties in North Carolina have more than one hospital.  Seventeen counties still have no hospital.

The 2013 General Assembly began to address this issue, but no legislation was enacted.  This year, the CON law should be repealed, or extensively revised in order to promote competition rather than suppress it.

Jon Sanders summarizes the issue in this video, just over two minutes long:

UPDATE
Law professor Timothy Sandefur, guest blogging at The Volokh Conspiracy, just posted a lengthy article about how CON laws can be made to apply to many business endeavors other than the provision of medical services.  His focus is mainly on states that require CONs for moving companies, but there are many other examples including taxi companies in New York City.  Sandefur’s piece, lengthy but informative, is HERE.