Certificate-of-Need laws (CON laws) require health care providers to obtain state approval for significant capital expenditures, such as expanding the number of beds in a hospital or investing in robotic surgery capabilities. The National Health Planning and Resources Development Act of 1974 prompted the wide enactment of CON laws by the states by making it a condition for certain federal funding. Initially, CON laws were supported because of their apparent benefits to health care. In theory, CON laws encourage smart growth and discourage undisciplined spending by providers. It is also thought to benefit quality by providing the states with an additional standards-setting and outcome-monitoring mechanism. Finally, proponents of CON laws argue that they create an incentive for providers to operate in underserved areas by protecting margins.
CON programs have fallen out of favor in recent decades. The federal statute requiring state participation was repealed in 1987, and many states responded by discontinuing their programs. Currently, 14 states have repealed their CON laws. The Federal Trade Commission and Department of Justice are often asked to weigh in on states’ proposed legislation to repeal their CON laws and they uniformly recommend repeal. The reason is simple: the agencies see these laws as inhibiting competition.
The January 11 joint statement issued by the FTC and DOJ addresses South Carolina’s House Bill 3250 that would repeal its CON law. As described in the joint statement, the South Carolina program adds significant time and costs to expanding existing services and to potential new health care facilities. The process of obtaining approval can take months to several years— the joint statement includes a particularly egregious example of a legal battle over a South Carolina CON application that took six years to resolve. The federal agencies also assert that this process can be abused by health care providers to delay or block competition.
Interestingly, the joint statement is accompanied by a dissenting statement issued by FTC Commissioner Julie Brill—in our observation the first of its kind on the topic. In the dissenting statement, Commissioner Brill encourages the South Carolina legislature to avoid myopically focusing on competition goals at the risk of ignoring other legitimate health care objectives.
Commissioner Brill cites her experience working for state antitrust and consumer protection agencies in acknowledging the challenges of weighing several policy objectives at the state level. She quotes an influential 2004 joint study issued by the FTC and DOJ, which recognized that “competition is not a panacea for all of the problems with American health care.”
The dissenting statement takes no issue with the federal agencies’ arguments that CON laws undermine competition. Instead, Commissioner Brill stresses the potential benefits of CON laws on non-competition policy goals. For example, CON laws may help safety-net hospitals (hospitals with open-door policies and who serve a large number of low-income patients) by preventing competing providers from “cherry-picking” patients with more resources.
Although CON laws artificially suppress the availability of health care services, Commissioner Brill raises some interesting points in her dissenting statement and it will be interesting to observe how these arguments impact the South Carolina bill and shape future state legislation. As always, stayed tuned.