Obscure State Laws Hurt Patients, Make Hospitals Worse

October 7th, 2016 by 2 Comments

By Christopher Koopman and Thomas Stratmann

Comparing states with and without certificate-of-need laws provides us with a unique window into how providers would react in a world without CON laws: When providers have to compete for patients, the level of care increases. Individual doctors, nurses and health care administrators are doing their best, but on the macro level, the basic laws of economics still apply to their industry. 

More than five decades have passed since New York state first enacted something called a certificate-of-need law (CON) in an effort to curb rising health care costs. Such laws, now enforced in 35 states and the District of Columbia, require providers to first seek permission from their state’s government before opening a new practice, expanding services and making certain investments in devices and medical technology. In short, they force would-be competitors in the health care sector to get a permission slip to do what they’re trained to do.

It has become increasingly clear that these laws have failed to achieve their goal. And if that isn’t enough reason to be skeptical, we are now beginning to understand the real effect they have on the provision of health care in America. It isn’t pretty: CON laws may be diminishing hospital quality, and even raising death rates in some cases.

For the better part of the last century, CON laws have enjoyed relative obscurity. Oftentimes, existing providers are even invited to challenge an applicant’s claim that the local market needs increased competition. Because these programs were well-intentioned and are rather innocuous-looking, however, health care reformers have a tendency to focus their efforts on other issues, and certificate-of-need laws have been given little attention. As a result, they have persisted with consistently unfortunate results.

This is not to say that there is no role for regulation, especially when real public-safety concerns are in play. But these regulations have nothing to do with quality or safety: CON laws are enforced in addition to all the licensing and training already required of health care providers.

While certificate-of-need laws were not initially enacted with quality-control in mind, proponents have begun to use that argument to justify them. Allowing only a few providers, the argument goes, will mean that each provider sees more patients. As a result, they will conceivably garner more experience and become better at diagnosing and treating complications.

It is correct that CON laws affect the level of care provided. The problem is that they have had the opposite outcome.

Evidence for this comes in a new working paper published by the Mercatus Center at George Mason University coauthored by one of us (Thomas Stratmann) and David Wille, which shows that mortality rates are higher at hospitals in CON states than in non-CON states. After controlling for demographic and other factors, the average 30-day mortality rate for patients with pneumonia, heart failure and heart attacks discharged from hospitals in CON states is between 2.5 percent and 5 percent higher.

This is alarming news, but it shouldn’t be too surprising. Providers compete on a variety of margins beyond price, and quality is one of them. As a result, when CON laws artificially restrict the number of providers in a local market — protecting those few favored providers from increased competition — there is less pressure for them to worry about the quality of care. Patients are then left with fewer options.

Comparing states with and without certificate-of-need laws provides us with a unique window into how providers would react in a world without CON laws: When providers have to compete for patients, the level of care increases. Individual doctors, nurses and health care administrators are doing their best, but on the macro level, the basic laws of economics still apply to their industry.

While it is troubling to note that certificate-of-need programs are tied to poorer outcomes, this finding should also come as welcome news. With some effort, we can achieve marked improvements in our health care markets. It is simply a matter of admitting that these programs have failed and recognizing that the goal isn’t the health of existing providers but the health of patients.

This commentary by Research Fellow Christopher Koopman and Scholar Thomas Stratmann of the Mercatus Center at George Mason University appeared first in The Fiscal Times on October 3, 2016and is reprinted by the Georgia Public Policy Foundation with permission. The Foundation is an independent think tank that proposes market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the view of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
© Georgia Public Policy Foundation (October 7, 2016). Permission to reprint in whole or in part is hereby granted, provided the authors and their affiliations are cited.

2 thoughts on “Obscure State Laws Hurt Patients, Make Hospitals Worse

  1. Whom ever wrote this is insane. The surveyors looking at care in facilities in Georgia change like the wind as different political groups go in and out of power. Nursing Homes, as we speak, are getting fines in the millions. If you are getting government funds you are under extensive scrutiny. The most notable measures on Quality come from Medicare.gov which changes regs and algorithms (used in their star rating system )so often that trending is impossible. Check out the new regs and changes in the past 8 years under Obama!

    The problem is that the whole health care delivery system in Georgia is set up under the CON which is designed to balance Cost, Quality and Access. Access is a tremendous issue among the indigent who must rely on Medicaid or subsidies of some kind to get care. Hospitals and nursing homes give 10s of millions in uncompensated care. The CON makes sure that each provider takes its share of indigent patients . Are you funded by those who don’t like the fact that they just can’t come in and take all the lucrative patients from existing providers that serve up to 85% Medicaid patients. Who would be willing to throw tens of thousands of indigent Medicaid patients under the bus.. In addition there are thousands of Georgians who work in these facilities all over the state and have a job because risk takers have played by the rules and competed to win Certificates of Need fair and square. After these businesses have risked hundreds of millions, played by the rules, and provided to care to the indigent year after year, you want to help the crowd who did not compete and only wants to come in after the fact and cherry pick lucrative patients leaving the rest of affected health care companies with only indigent care and bankruptcy! This kind of lunacy is exactly why the CON was developed. The Federal government forces low reimbursement (sometimes no reimbursement) on Hospitals and nursing homes serving the indigent and Medicaid. If you allow other homes or hospitals to open and not take their share of the indigent crowd you will cause ten businesses to fail for every one you allow to open up unregulated.

    Take Dekalb County for example with around 18 nursing homes, most of which who serve at least 70-80 percent Medicaid patients. The reimbursement for Medicaid patients is insufficient, but the losses on Medicaid are hopefully made up by being able to attract 6-7 percent Medicare. If there was no CON in Ga a facility could open up in Dekalb Co, take only Medicare, and bankrupt over half of the nursing homes there because of the loss of Medicare revenues. Chuck would say “who cares” this is how the free market works. That may work for him but where do those 1400-1500 Dekalb Medicaid patients go? They certainly don’t go to the swanky facility that does not want Medicaid. In Georgia Medicaid is mot just for the indigent. IN GEORGIA MEDICAID HELPS THE MIDDLE CLASS!!! At the end of your mom or dads life they can spend down their assets and receive nursing home care (or Hospital care) via Medicaid. Many residents on Medicaid lived their whole life in the middle class! Whos is going to care for you and me with out some sort of protection from the CON laws?

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