By Shayne O’Loughlin
In March 2020, with the COVID-19 pandemic spreading across the United States, hospitals attempted to prepare the necessary medical equipment to relieve the stress generated by the swelling number of in-patients. They had a massive problem, however. Standing in the way of large shipments of hospital beds and ventilators were nearly three dozen state governments and a federal district, all with laws made to destroy fair competition in healthcare.
To understand the environment in which American healthcare finds itself, we need look no further than Certificate of Need laws. This legislation started in our home state of New York in 1964 as a way to control “unnecessary” expansion of healthcare facilities, specifically in an area where their use would be “conflicting” and cause an increase in prices. Say a hospital in Binghamton wants to build a new facility on their premises to focus on neurosurgery, but a competitor hospital 20 minutes away already has a facility focused on neurosurgery. The CON agency within New York State then reserves the right to essentially veto the construction of the facility by refusing to accept the certificate of need, given that the two hospitals overlap and fulfill the needs of the same community.
In theory, by preventing duplicate services within a community, the space for medical expansion would be focused on medically-underserved communities such as rural America. In practice, the bureaucratic nature of this system naturally lends itself to corruption and inefficiency. To create a government agency or board, medical professionals within the state make these decisions, people who can be all-too-easily bought-out by corporate hospitals with a vested interest in maintaining market-share. This problem is exacerbated by the definition of “need” being unspecified , and requires no clarification or a method of appeals.
Within the first decade of New York’s adoption of the Certificate of Need legislation, 26 states had followed suit. In 1974, Congress passed the National Health Planning and Resources Development Act, providing federal funding to any state that embraced these laws. By 1982, every state had hopped on the bandwagon. The twist is that upon investigation, both the Federal Trade Commission and Department of Justice came to the conclusion that CON laws negatively impacted the quality, prices, and availability of medical services. In 1986, Congress reneged on the NHPRDA and pulled federal funding, leading to a slew of states dismantling their agencies.
The sheer number of studies that report similar findings to the FTC and DOJ are staggering. A study from Duke University found that in states with CON laws, there are 13% fewer hospital beds, 30% fewer hospitals per capita, and 42% fewer substance abuse treatment centers, as well as increasing the overall expenses of an average patient from 3 to 10%. The study also found that the distance from healthcare centers increased in CON states, as did racial disparity in equal quality of service. Washington State did an analysis on the effectiveness of their CON laws and admitted that “CON has not controlled overall healthcare spending or hospital costs.” Even healthcare providers have expressed uncertainty that the system in place works, according to two studies from the National Institute for Healthcare Reform and the independent Lewin Group in Illinois.
What empirical evidence can’t account for is the true cost of creating and maintaining these laws. How many independent competitor offices and centers could have been opened were it not for these laws that create a legal loophole for established corporate hospitals to create a barrier for entry? How many people were unable to afford life-changing surgeries because they were uninsured and had no alternatives to hospitals with egregiously bloated administrations and prices?
To see an example of what these laws inhibit, look no further than the success story of the Surgery Center of Oklahoma, where they continue to provide flat-rate operations with no hidden fees to anyone, whether they’re insured or not. In retaliation, local hospitals attempted to destroy the business through lobbying the state for new laws. Were it not for local politicians’ sympathy for the center from seeing what it provided to the community, there is no doubt the center would have been closed down by outside pressure. The prices for their operations are still available to peruse freely on their website.
Following the pandemic, many states reacted by putting moratoriums on CON agencies, so that hospitals could provide enough beds and ventilators. In light of this newfound (albeit limited) freedom, there is hope for a call to amend or abolish CON laws in some states, with North Carolina, one of the strictest states, already passing a revision in 2021 that slashed the power of CON agencies by raising the minimum cost for a Certificate of Need. The big problem facing reform is the relative obscurity of CON laws in the media and the role they play in making American healthcare the mess it is today. The only solution is staying informed and, in turn, informing others of the damage this system ultimately does.