The problem with CON laws

The General Assembly, we are told, is still very interested in addressing health care reform and continues to look for ways both to improve access to health care and limit public outlays for that care.

One item legislators ought to have on their reform agenda is the state’s Certificate of Public Need law. Virginia is one of 36 such states with such a measures on the books. They are exceedingly peculiar laws, which essentially limit competition and access. Consider how Virginia’s works:

[It] requires owners and sponsors of identified medical care facility projects to secure a COPN from the State Health Commissioner prior to initiating projects such as general acute care services, perinatal services, diagnostic imaging services, cardiac services, general surgical services, organ transplantation services, medical rehabilitation services, psychiatric/substance abuse services, mental retardation services, lithotripsy services, miscellaneous capital expenditures and nursing facility services. The program seeks to contain health care costs while ensuring financial viability and access to health care for all Virginia at a reasonable cost.

No certificate of public need may be issued unless the Commissioner has determined that a public need for the project, or portion thereof, exists and has been demonstrated. There are criteria or factors used in determining whether a public need exists. The criteria include: (i) the relationship of the project to the long term health care state plan, (ii) the need for enhanced facilities to serve the population of an area, (iii) the extent to which the project is accessible to all residents in the proposed area and the immediate economic impact and financial feasibility of the project.

Boil all that down and what do we have? Essentially, state-enforced rationing of health care facilities that favors existing entities and their owners over start-ups.

And as anyone with even a rudimentary understanding of economics knows, rationing raises prices — exactly what we don’t want to happen in health care.

Some Virginia physicians have challenged the law in the past and the Institute for Justice has fought the idea in court:

“Virginia’s CON program is nothing more than the government’s permission slip to compete, amounting to a certificate of monopoly for favored established businesses,” said Robert McNamara, an attorney for the institute. “Patients and doctors — not the government — are in the best position to decide what medical services and equipment are needed in Virginia.”

The lawsuit contends Virginia’s CON requirement is unconstitutional for two reasons. First, it violates the constitution’s “equal protection of the laws” provision because it requires CONs for some medical services, but exempts others, such as nuclear cardiac imaging. Second, the CON requirement interferes with interstate commerce, according to the lawsuit.

The lawsuit failed. But the other remedy is for the General Assembly to review the existing law and see if, indeed, it erects economically destructive barriers to competition.

There is a wealth of research showing that it does. The Mercatus Center at George Mason University recently published a study that found CON laws “limit the supply of medical services” and can, in some cases, do harm to the quality of care.

So why do such regulation endure? It’s a classic case of rent seeking.

Virginia is better than this (or aspires to be). In the struggle over Medicaid expansion, large hospitals banded together and warned that without more Medicaid dollars, they might be forced to close up shop. The reality is that with CON laws on the books, they have a significant financial and regulation hedge that will keep their doors open. And you are paying for it.

If politicians are looking for candidates for health care reform, they should begin here.

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