Many of the government machinations that dictate daily life function unnoticed. This presents a problem when harmful laws pass and survive for years without affected citizens ever becoming aware of them.
Neither regulatory capture nor medical certificate of need (CON) laws arise frequently in casual conversation, and someone not involved in public policy may never have heard of either. But the two are ubiquitous and intertwined, and understanding both is necessary to help voters improve access to healthcare.
The theory of regulatory capture (or “capture theory”) states that regulatory agencies, such as the Food and Drug Administration (FDA) and the Centers for Disease Control and Prevention (CDC), tend to regulate in favor of the industry giants they are supposed to be monitoring, rather than in the interest of the public they are supposed to be protecting.
Far from being an uninformed anti-government notion, capture theory comes from economics experts such as Nobel Laureate George Sigler. It is supported by common sense and verifiable examples of business owners exerting control over regulatory agencies.
The capture cycle typically begins innocently, with entrepreneurs creating new products or services that consumers want. They initially build wealth organically, by creating the most desirable commodities or engaging in the most clever marketing.
But some of these entrepreneurs, once successful, use their new resources to influence lawmakers to pass legislation that benefits them and damages their competitors. Due to their wealth, they can afford to pay skilled lobbyists to influence government officials. Industries collectively spent a staggering $4.1 billion on federal government lobbying in 2022, with the pharmaceutical/health product industry taking a wide lead in the spending over the past quarter century. And unlike even the most politically-involved and educated lay person at the voting booth, lobbyists can spend all their work hours researching one narrow issue, finding constitutional loopholes, and petitioning lawmakers for an outcome beneficial to the company that hired them.
Furthermore, voters themselves are undeniably swayed by the effective marketing efforts of the lobbyists, which spread throughout media, schools, and private businesses. The trusted family doctor, after all, used to help advertise the benefits of cigarettes. The public’s perception of the issues is colored by lobbying, and they in turn help the lobbyists sway legislation.
Another potential problem arises when government officials go on to work for the very companies they once regulated (and vice versa). For instance, more than 25% of FDA regulators who were responsible for approving cancer and hematology drugs between 2001 and 2010 now work for pharmaceutical companies. This “revolving door” creates an obvious conflict of interest. An official who hopes to one day gain a lucrative position at a pharmaceutical company has financial incentive to relax regulations on his future employer.
Of course, bribing a public official is technically illegal, and some industries are prohibited from certain revolving door practices. But the supposed barriers to this type of corruption are in reality little more than speed bumps.
Politicians do accept money for votes. Some types of lobbying can hardly be seen as anything else, such as when lobbies donate money to political campaigns with the understanding that the politician, if elected, will be voting their way. Although lobbyists simply exercising the rights delineated in the First Amendment can play a legitimate role in sharing information with officials and the public, some other methods of lobbying suspiciously resemble bribery.
And politicians do come from industries with revolving door prohibitions. The same legal expertise that enables industries to find and create loopholes for lobbying also enables them to find and create loopholes in anti-corruption laws.
Also, short of obtaining a taped confession, it is usually impossible to prove why an official decided to ban or boost a certain practice or product. The vague reason of “public interest” or “safety” can apply to the creation of virtually any law. A large and successful business can easily point restrictive laws away from its own door and aim them at weaker competitors.
And thus, an industry-regulating agency is “captured.”
Certificate of Need (CON) Laws
CON laws are a type of regulation that specifically affect the medical industry. These laws, which exist in 35 states, require any new or expanding medical practice to prove its services are needed in its community in order to obtain permission from the government to operate.
Permission is not based on the safety or qualifications of the incoming provider, and it is often not even based on the wants of the community at large. Existing medical providers can simply insist they are capable of handling the area’s medical needs, then pressure the regulators to prevent new competitors from opening. And because the medical industry giants have money, they lobby.
CON laws, in other words, function as a type of regulatory capture. And like capture theory itself, this is not merely a vague idea. In one Virginia case, thousands of residents petitioned to allow a specialty neonatal unit to be built at a hospital near them, but the chief competitor of that hospital convinced the government to prohibit the project. The lack of a neonatal facility led to at least one tragedy, but Virginia refuses to retract its CON program.
In another instance, 20,000 potential patients in Florida signed letters in favor of a new proposed medical facility, only to be overpowered by the protests of existing hospitals. And these are far from isolated cases.
The ever-changing justifications used for CON laws are too complicated to explain in depth here. One line of reasoning states that more hospital beds will lead to more patients, which will lead to higher medical costs. Essentially, too much access to health care will result in people actually using it. Another rationale is that hospitals are not savvy enough to spend their money efficiently, and this will lead to higher medical costs.
But whatever the reasons listed, the outcome remains the same as in any regulatory capture situation: regulations that purport to protect the public instead protect established businesses. Start-ups have little chance of surviving, even in the presence of high consumer demand.
And in health care, the consumer’s lack of access can have dangerous consequences.
Residents need to be aware of their state’s CON laws, and they need to demand repeal of any that exist. So far, voters in 15 states have managed to remove theirs, and other states can absolutely follow suit.