- I am taking a position against the use of certificate of need program. My argument is that Certificates of Need (CON) laws are a typical government-founded barrier to health care entry and barrier to competition. Creating or expanding economic opportunity could rightly be considered a responsibility of governments toward their citizens. But in today’s global market environment, various risks and opportunities provide reasons for health care providers to engage. In order to reduce health care costs, providers should be part of the economic suppliers. For example, community hospitals affected by specialty hospital entry maintained profit margins in line with national averages. Rather than undercutting community hospitals, we have seen that new entry drives them to do a better job. Thus, CON laws harm society in general by depriving it of the increased efficiency that competition would have brought to the health care market.
- Economic/Market Impacts:
- CON Laws levy other costs and may facilitate anti-competitive behavior. CON laws appear to raise a particularly substantial barrier to entry and expansion of competitors because they create an opportunity for existing competitors to exploit procedural opportunities to prevent or delay new competition. For instance, competition among and between hospitals and physicians intensified with the development of managed care organizations. In addition to putting pressure on costs, managed care plans have pressured providers to use shorter hospital stays and to offer alternative outpatient treatments. This evolution in health care purchasing led to lower costs and increased choice without sacrificing quality. Moreover, lower costs and improved efficiency made health insurance more affordable and available. Competition also helped bring to consumers important innovations in healthcare technology. Additional example is that health plan demand for lower costs and patient demand for a non-institutional, friendly, convenient setting for their surgical care drove the growth of Ambulatory Surgery Centers (ASC). ASCs offered patients more convenient locations, shorter wait time, and lower coinsurance than a hospital department. Important to the success of these competitive forces in improving the delivery of care to consumers was the availability of technological advances, such as endoscopic surgery and advanced anesthetic agents. CON laws illegalizing certain locations from proposed use for medical centers— ASC is against its objective analysis of community need.
- CON laws hurt the consumers who would have chosen alternative, lower priced, higher quality, or more convenient sources of care. The government need to realize that health care differs from other goods and services in important ways. For example, the output of a shoe factory is shoes. But the output of the health care industry is less well defined. It is unpredictable and imperfectly understood by even producers and government, and still less by consumers. None of these characteristics is unique to health care, but their extent and their interaction are. Nevertheless, health care markets obey the fundamental rules of economics, and economic analysis is vital in evaluating public policy.
- CON laws and government intervention lead to less competition and complex prices. Government is the largest insurer, through Medicare and Medicaid, and public hospitals act as provider of last resort for those who cannot pay for care. Licensure, accreditation, and other regulations either directly or indirectly affect entry of physicians, dentists, and other medical professionals, as well as hospitals, nursing homes, and other institutional providers. New pharmaceuticals and medical devices must first be approved by the FDA. Government intervention to assure access includes public insurance and government subsidies to hospitals and clinics, and free-allowance of facility buildings in order to appreciate competition while reducing consumer (or patient) demand. Economic theory generally concludes that government intervention to stimulate the consumption of particular commodities is detrimental. People will consume, without subsidy, what they regard as the optimal amount of various items. A subsidy for consuming hamburgers, for example, causes people to consume too many hamburgers relative to other goods. One exception to this rule is for goods whose consumption by some consumers deliberates benefits on others. If, for example, people would not get vaccinated against polio unless subsidized or required to do so, a strong case could be made for supporting or requiring polio vaccinations. But the great majority of health expenses are now keen to only private services that benefit only the recipients of the services.
Reference List:
The Effect of Certificate of Need Laws on Cost, Quality, and Access (Georgia State University, Oct. 2006); Report of Data Analyses to the Georgia Commission on the Efficacy of the CON Program, at 9 (Nov. 2006).
Pauly, Mark, Patricia Danzon, Paul Feldstein, and John Hoff. “A Plan for ‘Responsible National Health Insurance.’” Health Affairs (Spring 1991): 5-21.
