February 28, 2020
By Christina Sandefur
Over the past 50 years, most states enacted certificate of need laws, believing that by limiting the supply of services and facilities to only what is “needed,” these laws would control medical costs. But soon after the federal government encouraged states to adopt such laws in the 1970s, it became clear that this cost control experiment was a failure. The U.S. Federal Trade Commission, the Department of Justice, and several academic studies found that by eliminating competition, CON laws actually drove up costs, lowered quality, and limited the availability of needed healthcare services. As the American Medical Association succinctly put it: “CON laws represent a failed public policy.”
So why do 38 states still have CON laws on their books? In a new paper for the Federalist Society’s Regulatory Transparency Project, I examine how existing providers have strong incentives to keep CON laws intact. After all, these laws make it illegal for healthcare providers to offer services to patients, or to purchase certain medical equipment, without first getting permission from those already operating in the market. Unsurprisingly, these providers often use CON laws to block would-be competitors.
In the paper, I discuss several recent examples of entrenched interests using CON laws to block state-of-the-art surgical centers, critical diagnostic equipment, and facilities to treat mental health issues and addiction, even in the face of overwhelming demonstrated need. It’s no surprise that existing businesses invest time and resources in preserving the anti-competitive power that these laws give them.
But there may be hope in the courts. Several state constitutions contain provisions that prohibit the state from creating or maintaining monopolies or restricting economic competition. By empowering existing providers to bar others from serving patients, CON laws are inherently monopolistic. While few state courts have so far directly addressed whether CON laws violate state anti-monopoly clauses, several have noted that they are inherently anticompetitive.
And new legal challenges will provide opportunities for state courts to opine on the question of whether CON laws violate state constitutions. Barring people from providing much-needed medical services for reasons that have no relationship to their honesty or skill, but simply to prevent legitimate economic competition, is the very definition of a monopoly. Courts should take a stand in favor of protecting citizens against the injustice of government-perpetuated healthcare cronyism.
Goldwater Institute National Investigative Journalist Mark Flatten has done groundbreaking work exposing how CON laws are particularly keeping mental health patients from getting the treatment they need. You can read his investigative report here, and watch our video showing how Iowa’s CON law is contributing to the suffering of the mentally ill here.
Christina Sandefur is the Executive Vice President at the Goldwater Institute.