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Certificate of need (“CON”) laws require health care providers to obtain approval from the state before adding or expanding facilities, services, or equipment. Fifty years ago, lawmakers believed they could contain rising health care spending by preventing providers from offering redundant services in the same proximate area. However, recent research finds that CON laws fail to achieve their goals. Nonetheless, CON laws persist in many states.
“Permission to Care” is a first-of-its-kind series of analyses of publicly available CON application data in several states, including Arkansas, Georgia, Iowa, Michigan, North Carolina, South Carolina, Virginia, and West Virginia. We analyze CON application data to measure the impact of certificate of need laws in each state.
In sum, we find states denied billions in proposed health care provisions. For example, North Carolina denied $1.5 billion from January 2012–June 2022, Georgia denied $700 million from February 2010–November 2022, Michigan denied $585 million from January 2018–February 2021, and Iowa denied $250 million from July 2016–February 2020. We also find evidence of the “competitor’s veto.” For example, although West Virginia has a low CON application denial rate, dozens of applications totaling $44 million in proposed capital expenditures were withdrawn over three years after competing providers filed opposition. Similarly, while only two percent of proposed capital expenditures were denied in South Carolina over three years, a quarter, roughly $400 million, were withdrawn or appealed.
Read the reports to learn more:
Kevin Schmidt is Director of Investigations at Americans for Prosperity Foundation. His work focuses on health care, veterans’ issues, corporate welfare, and immigration. He is also a co-founder and contributor to FOIA Advisor, a forum designed to help the public learn more about the federal Freedom of Information Act. His work has been featured in the Wall Street Journal, New York Post, Arizona Republic, and Washington Examiner.
Thomas Kimbrell is an analyst on the Legal and Judicial team at Americans for Prosperity Foundation whose work focuses on health care, criminal justice reform, and government transparency. Previously, Thomas worked as an investigative analyst at Cause of Action Institute, where he utilized oversight tools such as the FOIA to limit the administrative state’s power and check government overreach.
In many states, government planners, not patient needs, determine people’s access to quality health care. As COVID-19 transitions from pandemic to endemic, hospitals across the nation remain overrun with patients—especially children—suffering from additional viral respiratory illnesses such as RSV, influenza, and enterovirus. The surge of patients has sustained shortages of hospital beds and medical-grade cribs. With hospital beds full, patients with other conditions, such as those seeking screening services or surgery, are forced to wait. In many states, the number of hospital beds is regulated by certificate of need (“CON”) laws, which limit the supply of health care provisions and hinder providers’ ability to respond to public health emergencies.
Congress mandated states establish CON laws to receive certain federal health care funds. Congress lifted the mandate in 1987 after CON laws proved ineffective at controlling costs. At least a dozen states have since repealed their CON laws.
In many states, however, CON persists to protect incumbent care providers from competition by limiting the supply of health care at the patients’ expense. These states claim the purpose of their respective CON regimes is to control costs while ensuring access to and quality of care. But a growing body of research shows that CON fails to achieve these goals. Compared to states without CON laws, states with CON are associated with higher patient spending, fewer medical facilities, and inferior patient outcomes.
Americans for Prosperity Foundation’s (“AFPF”) review of CON regimes in states across the country found CON prevents billions in new health care investment and needlessly delays the development of new health care provisions. AFPF’s analysis of CON applications revealed, for example:
But the true value of forgone health care is much greater. Industry gatekeeping, opposition from competitors, and high costs conspire to preclude many providers from ever applying to develop facilities and services. Thus, the above numbers are likely only a fraction of the real harm CON brings to patients and entrepreneurs in these states.
For instance, in 2019, the Michigan CON Commission projected a need for about 3,000 additional nursing home beds based on state health agency research. Within three months, the state received dozens of CON applications to build new nursing homes and expand existing homes—estimated at over $630 million in new health care investment. But suddenly, the Commission arbitrarily reduced the projected need by nearly ten-fold at the urging of existing nursing home providers. About four-fifths of the applications were disapproved or withdrawn, denying health care access to thousands of people that the market predicted would need it.
In nearly every state with CON laws, competing care providers can intervene in the CON process, pitting providers against each other to fight for government favor. Rather than appeal to patients, providers must petition the government’s central planners for permission to care.
Under this system, competitors can oppose other providers’ applications to offer similar services and even challenge the state’s decisions in court, drawing out the CON process for extraordinary lengths of time. In two recently resolved cases in South Carolina, legal challenges to CON decisions delayed the openings of much-needed hospitals in two counties by over a decade.
AFPF’s analysis of CON applications finds:
CON laws and other government red tape are having a devastating effect on mental health care. In Michigan, children across the state, some with severe and dangerous mental health disorders, wait “stacked up” for days to weeks in emergency rooms for psychiatric care beds to become available. In response, one psychiatric care provider applied to add 60 beds, yet the state denied the application in March 2021 despite the obvious need.
Similarly, in Arkansas, a little-known law banning the development of new adolescent mental health facilities forced parents to take children to emergency rooms ill-equipped to provide psychiatric care during the pandemic. Since 2008, Arkansas law has prohibited adding beds or constructing new psychiatric residential treatment facilities (24-hour psychiatric facilities for children and adolescents between six and 21 years old). Predictably, the moratorium creates an artificial shortage of facilities, provides a government-granted monopoly to incumbent providers, and reduces patient options.
The COVID-19 pandemic further exposed CON’s shortcomings as public health policy. At the onset of the public health emergency, dozens of states with CON laws — including Iowa, Michigan, North Carolina, South Carolina, and Virginia — moved quickly to suspend them, recognizing that their CON programs would prevent health care providers from ramping up services to adequately respond to the crisis. But CON laws always restrict the supply of health care, not just during pandemics, and hinder preparedness for the next public health emergency. One working paper even found higher mortality rates from COVID in states with CON laws than those without them.
Permission to Care is an investigation of CON schemes in eight states that reveals billions of dollars in new health care investment denied by state regulators. Red tape, restrictive need determinations, and competitor opposition deter the development of even more health care provisions than just what the states deny.
Read the reports to learn more about how CON harms patients and providers and stifles health care innovation in each state: Arkansas, Georgia, Iowa, Michigan, North Carolina, South Carolina, Virginia, and West Virginia.
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