J. Justin Wilson
J. Justin Wilson · August 19, 2020

Arlington, Va.— As the COVID-19 pandemic swept across the country, public health professionals issued dire warnings that the nation could face a critical shortage of hospital beds. At the height of the pandemic, no one had the time to stop and ask: “How could one of the world’s most advanced health care systems run out of hospital beds?” But now, a new report by the Institute for Justice (IJ) details how a patchwork of decades-old laws hindered health care providers’ ability to meet the needs of the nation.

In “Conning the Competition: A Nationwide Survey of Certificate of Need Laws,” IJ’s attorneys detail how certificate of need laws, or “CON” laws, in 35 states set hard caps on a variety of medical services—including much-needed ICU beds—in the name of preventing “oversupply.” In reality, the CON laws that remain in place serve only one purpose: to protect existing health care providers from competition. They are the vestiges of a discredited attempt to govern health care access by formulas and regulators, rather than allowing doctors and patients to work together to best meet the needs of the nation.

“It is telling that the majority of institutions that support CON laws are those that benefit from them,” said IJ Attorney Jaimie Cavanaugh, who co-authored the report. “In reality, they only serve to protect existing providers from competition.”

The report was released in conjunction with IJ’s “2021 Initiative,” which seeks to take the lessons learned in 2020—including the need to eliminate CON laws—and work with lawmakers at the state and local levels to identify and craft substantive, responsive and impactful reforms ahead of the 2021 legislative session.

IJ also has three active lawsuits challenging state CON laws. Most recently, in a lawsuit challenging Kentucky’s CON for home health care services, a federal judge questioned the policy, writing: “It’s hard to picture this kind of central planning in most other American industries. Consider, for example, if Michigan had told Henry Ford he couldn’t build a Model T factory because the market had enough Buicks. Just think how different our Commonwealth would look if Kentucky had told the innovators behind Louisville Slugger, Churchill Downs, and Kentucky Fried Chicken we already had enough baseball bats, race tracks, and fast food.”

“It should not have taken a worldwide pandemic for states to loosen or eliminate their CON laws,” said co-author Melissa LoPresti, IJ’s Litigation Projects & Training Programs Manager. “For decades, state CON laws have limited health care options and driven up health care costs, while doing nothing to ensure quality, affordability or safety for patients. That much is borne out by the fact that twelve states have completely eliminated their CON laws with no detrimental effects.”

At their core, CON laws are government-mandated permission slips governing nearly every aspect of opening or expanding health care services. Although the federal government has agreed for decades that CON laws are a policy failure, 35 states have been slow to repeal or reform their existing CON programs. And many states have expanded their CON laws to further insulate existing providers from competition.

As the report illustrates, the restrictions associated with CON laws are so great that at the onset of the pandemic this spring, 25 jurisdictions quickly suspended or loosened their CON requirements to allow health care facilities to respond properly to COVID-19. This demonstrates that political pressure—not concern for health and safety—has kept CON laws in place all along.

Comparing states’ CON requirements—along with their myriad exceptions—reveals an utterly incoherent doctrine. There is no rhyme or reason as to why certain facilities or services require a CON. This suggests that CONs are driven less by what will improve patient health and more by lobbying efforts from insider groups within each state.

Nevada, for instance, only requires hospitals in rural areas to obtain CONs, while several states, including Alabama, Kentucky, Oregon and Washington exclude rural areas from their CON programs. Conversely, those states only require CONs in urban areas.

Most states with CON programs regulate hospice care or hospice facilities, but Connecticut and Maine exempt hospices from their CON programs. Many states require facilities to obtain a CON to offer cardiac or cardiovascular surgeries, but not other types of surgeries.

The report also details how the CON application process is both time consuming and expensive. The process can stretch for months. In Arizona, it lasts over a year. And costs vary greatly: The report notes that application fees are $200 in Louisiana, $10,000 in Florida and up to $300,000 in Washington, D.C.

The report’s other key findings include:

  • Twelve states maintain health care moratoria. Moratoria are more dangerous than CONs, as they are a total ban on opening or expanding a facility. While CONs typically make expanding health care facilities more difficult and more expensive, moratoria make it impossible.
  • CONs are not limited to facilities with large capital investments, as originally intended. Instead, small-ticket items like routine renovations, removing or converting a hospital bed, or opening a home health agency require CONs.
  • Multiple states require CONs for technology that hasn’t been used in the state before. This undercuts the justification that CONs are necessary to prevent the costly duplication of services, because where a CON is required for brand-new technology, there is no duplication of service.

Although the report surveys 39 CON or quasi-CON jurisdictions, nearly 40% of the nation’s population live in states free from the burdens of CON laws. These states, which include California, Pennsylvania and Texas, have recognized that CON laws are a government-mandated barrier to health care. And government shouldn’t be in the business of picking winners and losers in the marketplace. Indeed, none of these states has witnessed the horrors predicted by CON advocates.

Thus, the report concludes that the CON states should follow the lead of the dozen states without CON laws and repeal their CON programs to open access to more care options. At the very least, the 25 jurisdictions that suspended or loosened CON requirements in response to COVID-19 should make those changes permanent.

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