I have been writing about Mississippi’s Certificate of Need law for more than two decades, so it’s nice to see the topic being vigorously debated in legislative hearings this month.
To open a clinic or hospital in Mississippi, you have to get permission from the state government, which studies the market and decides whether there is a need. It is central planning rather than reliance on market forces.
Many health care executives and officials believe such government planning is crucial to efficient allocation of health care resources. Others think it protects monopolies and raises costs.
You can gain some insight by learning a bit about the history of the Certificate of Need (or CON for short) law.
Four decades ago, Medicaid, Medicare and even private insurance were based on a cost-plus model. The hospital just figured its costs and then added a standard profit margin. With cost-plus there was little incentive for a hospital to cut costs. Medical costs rose.
So in 1974, the federal government required all states to develop a program to limit the number of hospitals and clinics. The CON laws were born.
But then things changed. The feds abandoned the cost-plus model and moved to a fee-for-service model, which still exists today. As a result, in 1987 the federal government repealed the requirement that states have CON laws.
Since then, 17 states have repealed their CON laws, but not Mississippi and the rest of the states.
When in doubt, ask the Great Google. So I asked the search engine: “Are Certificate of Need Laws beneficial?” I got study after study arguing for their repeal. They restrict supply, raise prices and limit services. I could not quickly find any study arguing CON laws are beneficial.
That being said, repealing the CON laws is not a magic bullet that will immediately lower health care costs. Repeal would be disruptive and the immediate effects could be negative.
One thing I like about my job: I am paid not to get bogged down in the details. Keep it simple. Look at the big picture.
I am not an expert in health care, but I did study social theory at Harvard. There I learned that, in general, the free market is a better way to allocate scarce resources than central planning.
Of course, you don’t have to go to Harvard to figure that out. The ultimate attempt at central planning was communism, which impoverished billions and killed hundreds of millions before it utterly failed.
Venezuela recently resurrected the art of communistic central planning. Within a decade, this turned one of the most affluent countries in South America into a desperate nation of citizens waiting for hours to buy toilet paper. I rest my case.
Think of the free market as an engine on a car. It’s the basic thing that makes the car go. But you still need brakes, throttle, seat belts and many other devices to keep the engine under control so it doesn’t run you straight into a ditch.
Are the CON laws reasonable controls over the free market engine? Or do the CON laws kill the engine altogether? Tough call. The legislative hearings produced insightful comments from both sides.
The bipartisan but conservative American Legislative Exchange Council (ALEC) is clearly against CON laws. They even passed a resolution calling for their repeal in all states.
The resolution states: “Certificate of Need (CON) laws and similar programs are prominent government-imposed barriers to entry into the health care market that force health care firms to fulfill various over-burdensome requirements to obtain state permission to provide certain services; and
Government-imposed barriers to entry into the health care market thwart access to quality care and healthy competition by preventing and/or delaying entities from bringing new technologies into certain geographical regions.”
The bipartisan but less conservative National Conference of State Legislatures (NCSL) has a more mixed approach to the CON laws. That group publishes pro and con bullet points:
Arguments in Favor of CON Laws
- Health care cannot be considered as a “typical” economic product.
l Most health services (like an X-ray) are “ordered” for patients by physicians, patients do not “shop” for these services the way they do for other commodities.
- American Health Planning Association (AHPA) argues that CON programs limit health-care spending. CON programs can distribute care to areas that could be ignored by new medical centers.
- CON requirements do not block change, they mainly provide for an evaluation, and often include public or stakeholder input.
Arguments Against CON Laws
- By restricting new construction, CON programs may reduce price competition between facilities and keep prices high.
- Some changes in the Medicare payment system (such as paying hospitals according to Diagnostic Related Groups – “DRGs”) may make external regulatory controls unnecessary by sensitizing health care organizations to market pressures.
- CON programs are not consistently administered.
- Health facility development should be left to the economics of each institution rather than being subject to political influence.
- Some evidence suggests that lack of competition encourages construction and additional spending.
- Potential for CONs to be granted on the basis of political influence, institutional prestige or other factors apart from the interests of the community.
- It is not always clear what the best interests of the community entail.
There are many factors to this equation. It’s a good thing the Legislature is at least holding hearings on this very important issue.