by Hans Bader

Legislators in a subcommittee killed a bill in the Virginia legislature would reform the state’s obsolete and costly certificate-of-need laws, which require state permission for healthcare facilities even in badly underserved areas. Cardinal News reports:

Legislation put forth by state Sen. Bill Stanley, R-Franklin County, to reduce regulations in accessing machinery, equipment and patient services for some health care providers was effectively killed in subcommittee on Tuesday.

Stanley’s bill, SB 910, would have created a three-phase process to eliminate the certificate of public need, or COPN, requirement for smaller, rural health care providers seeking to obtain machines used for MRI, PET and CT scans, along with other equipment needed for radiation therapy and other service.

In a 4-1 vote, the Senate Education and Health Subcommittee on Health declined to report the bill to the full committee….Stanley pointed out that there aren’t many hospitals in the largely rural Southwest and Southside regions. That can sometimes force residents to drive long distances to obtain medical procedures. This bill was an effort to remedy that…the COPN program requires health care providers to obtain a certificate before they are able to secure new facilities or equipment or provide certain new services. To secure that certificate, a commissioner must first determine that a public need exists and has been demonstrated….“It’s an old, antiquated system that has to change,” Stanley said.

From the 1960s to the 1980s, Medicare had a cost-plus reimbursement framework that spawned skyrocketing healthcare expenses. Instead of changing this perverse incentive to raise costs, the federal government responded to rising costs by demanding that states pass certificate-of-need laws that mandated permits for significant health care facilities. The idea was to constrain health care spending by restricting unnecessary capital expenditures that would otherwise be reimbursed.

Medicare changed its reimbursement policies in the 1980s and repealed the certificate-of-need mandate for states in 1987. But today, 35 states still have certificate-of-need laws, a vestige of the cost-plus era.

Regulation magazine looked at the harmful effect of certificate-of-need limits on non-hospital surgery centers (also known as ambulatory surgical centers). In 1980, most surgeries took place in hospitals as in-patient procedures, while only 16% were done on an outpatient basis in ambulatory surgical centers. Today, things are radically different. In 2023, 80% of all surgeries occurred in outpatient settings in some 6,000 surgical centers.

From 1991 to 2019, six states repealed their certificate-of-need laws restricting ambulatory surgical centers. This helped residents of rural and underserved areas, increasing ambulatory surgical centers in those states by 92-112% per capita in rural communities, and 44-47% per capita overall.

By limiting the number of ambulatory surgical centers, certificate-of-need laws shift surgeries to hospitals where surgeries are more expensive, driving up healthcare expenditures and costing taxpayers money.

Certificate-of-need laws sometimes make it hard to access even basic healthcare services. As The Washington Post reported:

In 2017, M’Moupientila “Marc” N’dasought state approval to drive older and disabled Nebraskans to doctor’s appointments. Given what he was seeing among clients of his home health business — who often complained about unreliable rides — the need seemed obvious.

But would-be competitors protested, backed by laws that give them sway over new entrants to the market. Though state regulators determined N’da was qualified to run a medical transport operation, they denied his application because he hadn’t demonstrated it would be “harmless” to the businesses that had come before him.

N’da responded with a lawsuit accusing the state of denying him due process. The case is now before the Nebraska Supreme Court.

N’da is part of a wave of litigants pressing to dismantle regulations that plaintiff lawyers say have fomented health care “cartels” in more than 30 states — limiting, for example, the number of methadone clinics in West Virginia, youth mental health beds in Arkansas and MRI centers in North Carolina.

These certificate-of-need (CON) laws require certain health care and transportation businesses to demonstrate community need for their services before they can operate…. Would-be competitors can challenge applicants whose services could cut into their sales. “It creates these little fiefdoms,” said William Aronin, a lawyer with the Institute for Justice, the libertarian law firm representing N’da. “No one benefits but the incumbents.”

Hans Bader is an attorney living in Northern Virginia. This column is republished with permission from Liberty Unyielding.