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Tearing Down Regulations That Restrict The Supply Of Health Care Has Become A Bipartisan Affair

By News Creatives Authors , in Business , at September 9, 2021

As Texas demonstrated this past summer, the national media loves to cover state legislation related to election law and abortion. What doesn’t get as much press, though it is deserving of it, is the way in which Democrats and Republicans in many state capitals are working together this year to expand access to health care by reducing or repealing certificate of need requirements, which are regulatory barriers that impede growth in the supply of health care and inflate costs. 

The latest example of such bipartisan cooperation comes from North Carolina, where Governor Roy Cooper (D) signed Senate Bill 462 into law on August 30. SB 462, which was approved with bipartisan support in both chambers of the North Carolina General Assembly, raises the value threshold above which a state issued certificate of need (CON) is required for the installation of new medical equipment. SB 462 also establishes a time frame under which a CON must be approved or denied. 

The way CON regulations work is that health care providers who want to expand existing medical services or offer new ones must first prove to state regulators that there is a need. Those tasked with granting a certificate of need include competing health care providers, creating an inherent conflict of interest. It would strike many as crazy to require that any time McDonalds

MCD
wants to open a new location it must seek permission from the local Burger King, but that’s analogous to the way in which CON regulations work. 

“Though states approach it differently, these certificates are required for everything from beds and burn care units to dialysis clinics and drug abuse therapies,” explains Matt Mitchell, a senior research fellow at the Mercatus Center. “Providers can wait months or years. The process can cost tens or even hundreds of thousands of dollars in fees and compliance costs.”

35 states have CON requirements on the books today. As with nationwide efforts to reduce the amount of occupational licensing requirements that serve as barriers to employment, there is also growing bipartisan recognition that CON mandates unjustly restrict the supply of health care and should be repealed or reformed. Lawmakers in 10 states (Alabama, Alaska, Kentucky, Maine, Mississippi, Missouri, North Carolina, Oklahoma, South Carolina, and West Virginia) introduced legislation in 2021 to partially or fully repeal CON regulations. “In many of these states,” notes Mitchell, “the momentum seems to be moving in the direction of something big happening in the next few years.” 

Demonstrating the potential for bipartisan cooperation on this issue, the need to repeal or reform CON requirements was a rare instance of agreement between the Obama and Trump administrations. 

“CON laws, when first enacted, had the laudable goals of reducing health care costs and improving access to care,” noted a January 11, 2016 joint statement of the Federal Trade Commission and President Obama’s Department of Justice, which was sent to South Carolina legislators regarding CON reform under consideration at the time. “However, after considerable experience, it is now apparent that CON laws can prevent the efficient functioning of health care markets…the Agencies historically have suggested that states consider repeal or retrenchment of their CON laws.” 

The Obama administration’s criticism of state CON mandates and recognition of the harm they cause was echoed years later by the Trump administration:

“Available evidence suggests that CON laws have failed to produce cost savings, higher quality healthcare, or greater access to care, whether in underserved communities or in underserved areas,” stated a joint report released on November 30, 2018 by the Trump administration’s Department of Health and Human Services, Department of the Treasury, and Department of Labor. The adverse effects of CON regulations are well documented. 

“Controlling for other factors, researchers find that the average patient in a CON state has access to fewer hospitals, fewer hospice care facilities, fewer dialysis clinics and fewer ambulatory surgery centers (ASCs),” notes the Mercatus Center’s Mitchell. “There are fewer beds in these states and fewer medical imaging devices.”

Of the 35 states with CON requirements, governors in 24 of them temporarily suspended CON mandates in 2020 after the onset of the pandemic. While the problems caused by CON requirements have become more evident during the pandemic, there is also growing recognition among state legislators that these regulations have adverse effects outside of a pandemic and should thus be permanently repealed. The logic behind efforts to make these temporary suspensions permanent is, if a CON requirement is unduly restricting the supply of health care in an emergency, it must also be artificially limiting supply during normal times and unnecessarily driving up the cost of care.

“The real damage in the certificate of need is in the unseen, the denial of care and the inflation of cost in healthcare,” South Carolina Senator Wes Climer (R) said during a May hearing on legislation to repeal South Carolina’s CON requirements. 

“This system is so broken, the concept is so deeply flawed,” Senator Climer added. “If our interest is expanding access and lowering cost, there are no other options besides complete repeal.” 

CON laws’ association with reduced access to health care is evident. According to a study from the Mercatus Center, states with CON requirements have 30% fewer hospitals per 100,000 people. This translates into CON states averaging 131 fewer hospital beds per 100,000 residents than states lacking CON requirements. States with CON requirements also tend to have fewer rural hospitals

North Carolina Senator Joyce Krawiec (R), who sponsored the aforementioned CON reform recently enacted by Governor Cooper, also introduced legislation to repeal CON requirements outright. That bill, SB 309, didn’t advance this year, but is expected to be reintroduced in a future legislative session, perhaps as soon as 2022. 

As they have in other states, the Federal Trade Commission has expressed support in the past for repealing North Carolina’s CON requirements entirely. In 2015 the FTC sent a letter to North Carolina lawmakers noting that “CON laws can restrict entry and expansion, limit consumer choice, and stifle innovation,” and that “the CON process can be exploited by firms to thwart or delay entry by new competitors and can obstruct efforts to restore competition that has been lost to an anticompetitive merger.” 

North Carolina wasn’t the only state where legislators took action to repeal or reform CON mandates this year. Next door in Tennessee, state lawmakers enacted Senate Bill 1281, which exempts hospitals in the state’s most economically distressed counties from the certificate of need requirements. SB 1281, which was signed into law by Governor Bill Lee (R) on May 26, also seeks to modernize and streamline the CON approval process. This reform combines two oversight bodies into one and also lowered the population threshold for exempted counties. CON requirements were also repealed for psychiatric services and hospitals are now allowed to operate nonresidential substance abuse centers without applying for a new CON.

“This is going to relieve one of those impediments [to health care providers],” Tennessee Senator Page Wally (R) said when SB 1281 was passed in May. Wally notes that SB 1281 will make it so health care providers “are not going to have to go through that multi-month or even year process.”

Virginia lawmakers also passed legislation this year (SB764 and Chapter 227) to exclude some facilities from CON requirements. In Washington State lawmakers passed SB 5236, which extends the state’s temporary CON suspension through June 2023. In the same month that Tennessee lawmakers passed their reform, Montana Governor Greg Gianforte (R) and the Republican-controlled state legislature enacted a bill that repealed all but one CON requirement, that for long-term care (or nursing home). 

“By repealing CON regulations, permanently expanding telehealth and authorizing Direct Patient Care, Montana’s leadership have ushered in one of the most dramatic expansions of healthcare access in recent memory,” said Kendall Cotton, President and CEO of Montana’s Frontier Institute. The Mercatus Center’s Mitchell calls the bill Governor Gianforte signed “the most significant reform in any state in recent years.”

Media outlets may like to cover conflict, but the way in which Republican and Democratic lawmakers are working together to remove or ease CON regulations that restrict access to health care and drive up costs deserves more media coverage in the future. Even though most state legislatures have adjourned for the year, it’s clear that bipartisan interest in and efforts to repeal CON mandates will continue into 2022 and beyond.

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