Agenda 2012: CON Laws | Eastern North Carolina Now

   Publisher's note: Agenda 2012 is the John Locke Foundation's charge to make known their wise political agenda to voters, and most especially candidates, with our fourteenth installment being the "CON Laws," found in the Budget, Taxation, and the Economy section, and written by Dr. Roy Cordato, Vice President for Research and Resident Scholar at the John Locke Foundation. The first installment was the "Introduction" published here.

    North Carolina and 34 other states have what are called Certificate of Need (CON) Laws. The purpose of CON Laws is to restrict entry into the market for medical facilities and equipment. If you are a health care entrepreneur and you want to do anything from adding a new wing or extra beds to an existing hospital, to opening an office that offers MRI, X-ray or other services, you need a "Certificate of Need" from the state. The function of CON is summarized by the state as follows:

    The North Carolina Certificate of Need Law prohibits healthcare providers from acquiring, replacing, or adding to their facilities and equipment ... without the prior approval of the Department of Health and Human Services...The law...limits unnecessary health services and facilities based on geographic, demographic and economic considerations... All new hospitals, psychiatric facilities, chemical dependency treatment facilities, nursing home facilities, adult care homes, kidney disease treatment centers, intermediate care facilities for mentally retarded, rehabilitation facilities, home health agencies, hospices, diagnostic centers, oncology treatment centers, and ambulatory surgical facilities must first obtain a CON before initiating development. In addition, a CON is required before any upgrading or expansion of existing health service facilities or services.

    The stated purpose of the law is to eliminate duplication of services in an attempt to reduce health care costs. In reality it protects existing facilities from competition by creating a legal, bureaucratic, and expensive maze that must be navigated by any person or company that wants to provide the kinds of medical services mentioned above. This maze usually takes years to negotiate with the outcome being very uncertain.

    Key Facts

    •    North Carolina's Certificate-of-Need Law is, with few exceptions, an all-inclusive and all-intrusive blueprint for state government control of all supply and pricing decisions with respect to the provision of institutional health care facilities.

    •    Depending on the number of reviews, the process can take anywhere from 90 days to over two years. If a denial is appealed to the state Court of Appeals, the process can go well beyond this two-year period.

    •    An April 2005 article in the Triangle Business Journal tells the story of a partnership of three neurologists who have spent three years and over $250,000 in an attempt to set up an MRI imaging center in Garner. Their request was denied.

    •    The stated purpose of CON laws is to hold down health care costs. But, as noted by East Carolina University researchers Ellen Campbell and Gary Fournier, "there are reasons to suspect that CON may have been adopted for other purposes...the states most likely to enact CON...were those with a highly concentrated hospital industry and increasing competitive pressures...hospitals were largely in favor of CON regulation, which is understandable considering that it protected them."

    •    One of the most recent and widely referenced studies about CON laws was written by Duke University Professors Christopher Conover and Frank Sloan in 1998 in the Journal of Health Politics, Policy, and Law.

    •    Their results are consistent with "orthodox" economics. Output restrictions lead to higher, not lower costs, and higher profits for providers.

    •    CON laws resulted in a 2 percent reduction in bed supply and "higher costs per day and per admission, along with higher hospital profits."

    Recommendations

    1.    Eliminate monopoly protections for hospitals and other health care facility providers, and Repeal North Carolina's Certificate of Need Law.

    Analyst: Dr. Roy Cordato
    Vice President for Research and Resident Scholar
    919-828-3876 • rcordato@johnlocke.org