A veil of uncertainty shrouds federal health care policy. The latest effort to repeal and replace the troubled Affordable Care Act has stalled. Led by Sen. Bernie Sanders, Democrats are lining up behind an unrealistic single-payer proposal that has no chance of passing.
States are not powerless to pursue their own policies that could substantially improve health outcomes, improve access, and reduce expenditure. Certificate-of-need laws require providers to obtain approval from the state regulators to open new health care facilities or invest in new technologies that would allow them to offer new services. Providers have to prove to regulators that the new services or facilities are needed, and existing providers can challenge new proposals.
As is the case in many policy areas, New York State was at the forefront of the rush to regulate the supply of health care providers. It became the first state to enact a certificate-of-need law in 1964. A decade later, the federal government made continued receipt of some federal contingent on the state enacting a certificate-of-need program. The requirement induced a wave of implementation at the state level, until Louisiana was the only state without some version in place. The federal government dropped this requirement in 1986, and 15 states have since repealed their certificate-of-need programs, although the rollback has slowed more recently. Only New Hampshire and Wisconsin have repealed their programs since 2000.
According to proponents, the laws were supposed to prevent competition that would lead to overinvestment in services and technologies, and the provisions would ensure access to care, maintain a high level of quality of care, and restrain health care costs. Despite these intentions, these laws have failed to deliver, and states with these laws in place should consider repealing them to improve their health care environment. For instance, a review from Matthew Mitchell found that although the regulations might reduce overall health care spending by reducing the amount of health services residents consume, certificate-of-need laws actually increase per unit health care costs.
These programs have also provided a direct mechanism for incumbent providers and facilities to block new potential competitors from entering the market by contesting their proposals. Existing hospitals have a vested interest in limiting the number of competing hospitals, leading to instances where proposed entrants are denied even if there entry would improve the health care environment for residents.
Thirty-five states and the District Columbia have certificate-of-need restrictions in place. The Mercatus Center has produced a new, comprehensive resource describing the various laws, which services are subject to the program, and how the laws correlate with other factors in the health care marketplace. Based on studies comparing states with such laws to those without, the Mercatus team provides estimates for how the provisions affect everything from per capita health care spending, to access, to outcomes such as post-surgery complications for each applicable state.
In many states, the improvements to the state health care environment would be substantial. For example, in Virginia a whole host of health care services require a certificate-of-need, from acute hospital beds and CT scanners to nursing home beds. The Mercatus team estimates that per capita health care expenditure would be $205 lower without a certificate-of-need law in effect. With reduced barriers to entry, the number of provider options would increase substantially: the authors estimate there would be 166 hospitals without the certificate-of-need law in effect, compared to 117 now. Quality would also improve, as post-surgery complications would fall by almost six percent. Across some of the most important metrics related to health care, Virginia would be better off without the certificate-of-need law.
These effects are not unique to Virginia. The health care market in most states with a certificate-of-need program still in place would improve if it were repealed. In Massachusetts, for example, total per capita health care spending would be $320 lower.
The majority of states have the ability to improve their health care markets. Certificate-of-need laws have failed to deliver their stated goals, and in many cases are counterproductive. Fifteen states have already repealed their certificate-of-need programs, and New Hampshire enacted a repeal just last year, allowing more competition and a higher number of facilities and services to be offered. States that still have some form of certificate-of-need program in place could improve access, quality of care, and restrain health care spending by removing barriers to entry and competition.
Charles Hughes is a policy analyst at the Manhattan Institute. Follow him on Twitter @CharlesHHughes.
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