How Much Money Could Taxpayers Save By Abolishing Certificate Of Need Laws?

Justifications for certificate of need (CON) laws have evolved since their inception nearly 60 years ago, but their creators initially cited a desire to control healthcare costs. These laws require any medical business to prove a need for their services in the community where they wish to practice or expand, due to two suppositions: medical practitioners cannot be trusted to run their businesses efficiently, and insured patients cannot be trusted to use the services judiciously.

The fact that the purported reasoning changed over the years, coupled with the reality that so many initial supporters of the laws reversed their opinions, indicated that this legal experiment failed. But what do statistics say? Do these laws cut healthcare spending? If not, how much money might society save if legislators abolished them?

Fortunately, CON laws provide an ideal study subject. The federal government mandated them for more than a decade, then repealed the mandate and allowed individual states to decide whether to make their own CON provisions, as well as how many to make. As a result,15 states abolished them entirely, and the remaining 35 states retained a wide variety of market-distorting CON  provisions. This large sample yields telling data and gives evidence for the likely results of abolishing the laws entirely.

Broad Implications

Numerous individual studies have found that CON laws are cost-ineffective. In an exhaustive analysis, BMC Health Services Research examined 90 articles in 2020 and attempted to quantify the costs vs. benefits of CON laws in financial terms. They took into consideration direct monetary expenditures, such as medical bills and regulatory compliance fees, and also tried to assign financial value to “disparate societal costs,” including those such as travel time and mortality.

BMC concluded that the costs of CON indeed outweighed the benefits. Although they cautioned that results were “mixed,” they estimated costs outweighed gains by 8%, for a total loss of $302 million per year.

At first glance, this number may appear small in a country of 332 million people. However, although 70% of states have CON laws, only 60% of the U.S. population lives in a state that has them. More importantly, many of the 35 states with these laws actually have very few. For example, New Mexico and Arizona only require a CON for ground ambulance services. This affects a tiny percentage of overall healthcare services. So although the cost spread over the entire population seems minor, affected individuals can still face hefty burdens.

Impact On Individual Patients

Individuals in CON states pay an average of 11% more in medical costs per year, and healthcare costs are disproportionately incurred by the elderly, which means more taxpayer spending through Medicare due to CON. 

Residents of New York and the District of Columbia, both CON states, have the highest average expenditures, at about $14,000 per year. Residents of Utah and Idaho, neither of which have CON programs, have the lowest average, at about $8,000. 

Multiple factors may be at play, but the fact remains that the most expensive states for health care have CON laws, and the least expensive do not. And the difference in cost per individual between the highest and the lowest is a staggering $6,000 per year. 

It’s important to note, furthermore, that the general cost of living cannot be blamed for higher healthcare prices. West Virginia, known for its affordability, has the second-lowest cost of living per capita in the nation. Yet, annual healthcare expenditures are $2,000 more than average per capita. And West Virginia has the fifth-highest number of CON laws in the country. 

Conversely, California is infamous for its high cost of living. It is the third highest in the nation. However, its per capita healthcare expenditures are almost exactly average, at $10,000 annually. And California has no CON laws. 

To be fair, other factors certainly play a role here too. The median age in West Virginia is 43, whereas it is 37 in California. And obesity rates are ten percentage points higher in West Virginia than in California. West Virginia also leads the nation in adult smokers, However, high rates of poor health choices can result from a lack of medical knowledge, which many patients get solely from their medical providers. So lack of medical care that could help lower obesity and smoking rates could be attributed to high medical bills. Patients don’t get good nutrition and exercise regimens from a doctor they can’t afford to see. 

Impact On Individual Practitioners

Would-be new medical businesses in CON states often face astronomical costs, both in time and money, in their quest to receive permission to open. The potential costs are limitless. A business could spend hundreds of thousands of dollars in legal fees, unable to practice for years in the meantime, during the application process. And at the end, the certificate might still be denied on the grounds the services are “not needed,” even if the entire community of potential patients petitions on behalf of the hopeful medical provider.

Dr. Jay Singleton, an ophthalmologist who wants to perform routine cataract surgery in the surgical suite attached to his office in North Carolina, has appealed to the courts for years to be allowed to do so. His lawyer warned him the total price for applying might be $400,000, and they would likely lose the case anyway.

Nobody is denying the surgery could safely be performed en suite or that Dr. Singleton is a licensed and competent surgeon, but the state has refused to issue any certificate of need for such a facility in a decade. They claim patients have no need for it, regardless of what patients say, and despite the fact that it does not cost anyone but Dr. Singleton to open the suite. 

Singleton could perform the surgery at his office for $1,800, whereas the facility fee alone at the local hospital is $6,000. Not only has the CON law drained Dr. Singleton financially, but patients are forced to pay an extra $6,000 per surgery—including costs passed on to taxpayers—and are inconvenienced by having to go to the hospital instead of remaining at their eye doctor’s office. 

Conclusion

CON laws raise healthcare prices. Doing away with them in all states would lower overall medical expenditures. But looking at the broad picture does not clearly illustrate the real costs.

Most states have relaxed their CON programs over the years, and 15 have abolished them entirely. This has brought a welcome drop in national costs. But to individuals languishing in the states that maintain a grip on their overbearing CON programs, the prices remain unacceptably—and unnecessarily—high.