Imagine if a state law prohibited new restaurants from opening in your town unless an aspiring restaurateur successfully convinced the government that the area "needed" another eatery.
Now imagine if that law didn’t stop there – that is also gave incumbent restaurants a say in the matter. If one could persuade the government that a new entrant would harm its interests – or could marshal its employees to lobby the state to protect their jobs – then that new restaurant would never open.
Freed from competition, existing restaurants could hike prices or reduce service. And there would be little diners could do about it.
Such laws actually exist. But they don't govern restaurants. They prevent new hospitals and clinics from being built. These anti-competitive statutes, known as "certificate of need" (CON) laws, are driving up health care costs across the country. It's time to repeal them.
New York enacted the first certificate of need law in 1964. State lawmakers feared that hospital groups would build too many facilities and pass the cost of creating and maintaining excess capacity on to consumers. So they required health care providers to seek permission before constructing or expanding hospitals or clinics.
In 1974, the federal government effectively forced states to put certificate of need laws on their books as a condition for receiving federal funding.
[I]nstead of keeping health care prices stable, CON laws concentrated market power with incumbent providers, who then gouged consumers.
But instead of keeping health care prices stable, CON laws concentrated market power with incumbent providers, who then gouged consumers. On average, U.S. hospital spending grew at a 14 percent annualized rate during the 1970s and a 9.6 percent annualized rate over the course of the 1980s.
The federal government repealed its CON law requirement in 1986. Since then, 15 states have abolished their statutes.
But 35 states and the District of Columbia still enforce them. And their residents pay a heavy price. Those 36 jurisdictions have 99 fewer hospital beds per 100,000 people than non-CON states, according to a study from the Mercatus Center at George Mason University.
Patients in CON states also travel farther to receive health care. And they pay a lot more for it. Per capita health spending is 11 percent higher in states with CON laws than in those without them.
These anti-competitive laws make it particularly hard for rural patients to access care. There are 30 percent fewer rural hospitals per capita in states with CON laws, according to another Mercatus study.
Consider the impact of CON laws on Georgia. They've increased state health spending by almost $200 per person. Without them, there would be 74 more hospitals in the state, including 27 additional rural hospitals.
Certificate of need laws represent crony capitalism at its worst. They privilege the interests of politically connected incumbents over those of patients desperate for more affordable, better quality health care. That's why the Trump administration, in a recent policy paper, has urged states to repeal their CON laws.
Georgia's legislators are taking that advice to heart. Lawmakers on the state's House Rural Development Council have urged their colleagues to replace certificate of need laws with a "rigorous licensing system" to ensure that any new facilities are well-qualified to treat patients.
The state Senate has considered less ambitious, though still significant, reforms that would exempt mental health and substance abuse treatment providers from existing CON laws. Rural providers would also receive some exemptions from CON requirements.
Other states should follow Georgia's lead. Axing certificate of need statutes would reduce health costs and improve access to care for patients.