Certificate of Need and Government-Run Health Care
Jan 2, 2024
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Exploring the impact of certificate of need laws in healthcare, including their effect on competition, alternative care options, and innovation. Also discussing the failure of government attempts to reduce healthcare expenses through supply restrictions, and examining the irony of needing government permission for a safer option like a birthing center compared to home births.
Certificate of Need laws were introduced to curb healthcare costs but did not achieve their intended goals.
Certificate of Need laws block competition, limit innovative alternatives, and hinder access to healthcare services.
Deep dives
Certificate of Need Laws and their Impact on Healthcare
Certificate of Need laws were introduced in the mid-70s as an attempt to curb rising healthcare costs. These laws require organizations or individuals to obtain approval from a state commission to set up medical practices or facilities. The idea was that restricting the development of healthcare services would reduce utilization and decrease costs. However, this approach did not consider that most people had insurance, which insulated them from price increases. As a result, demand continued to rise, prices increased further, and the policies did not achieve their intended goals. While lawmakers in Washington eventually realized the flaws and repealed the federal incentive for these laws, almost every state enacted them, benefiting entrenched incumbents who had influence over the commission's decisions.
Blocking Competition and Restricting Alternatives
Certificate of Need laws often serve to block competition and limit innovative alternatives in healthcare provision. The approval process is influenced by existing providers who may prevent new entrants from offering services, even if there is a demand for them. For instance, in Kentucky, where certificate of need requirements exist in various healthcare categories, arguments in favor of maintaining these laws often center around protecting financially struggling hospitals from competition. However, this argument neglects the fact that doctors, who also primarily serve Medicaid and Medicare patients, do not receive the same protection. The laws also impede the adoption of alternative healthcare delivery models, keeping certain areas stuck in outdated methods of care.
Negative Impact on Access and Quality
Certificate of Need laws can have negative effects on access to healthcare and the quality of services provided. By restricting the entry of new providers, these laws limit the availability of certain medical services in rural areas and deter innovative approaches to care. For example, the laws prevented the emergence of freestanding radiology centers, resulting in patients having to transport from one hospital to another for certain diagnostic procedures. Moreover, they hinder the establishment of birthing centers, which have proven to offer safer and more personalized care for women. While birthing at home requires no government permission, opening a birthing center often necessitates a certificate of need. Studies have indicated that birthing centers have positive outcomes, such as lower preterm delivery rates and higher breastfeeding rates. Despite these advantages, alternative forms of care are stifled by these laws, limiting choice and potentially compromising quality.
For many states in the southeast, certificate of need laws have needlessly complicated the delivery of health services. Cato's Jeff Singer describes some differences among CON and non-CON states. We spoke in November.
