More Evidence that CON Increases Healthcare Spending and Hurts Outcomes

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by James A. Bacon

As critics of Virginia’s Certificate of Need law gear up for another round in the General Assembly next year, the Mercatus Center at George Mason University has been publishing a series of working papers showing that, from a national perspective, CON laws push health care costs incrementally higher and result in lower-quality hospital care for some measures of quality.

Aside from Medicaid expansion, which is a dead letter politically, the CON issue is probably the most contentious health-care issue facing Virginia today.  The law requires health care providers to make a case that there is a “public need” for 18 categories of healthcare services and facilities running the gamut from new hospitals to high-dollar diagnostic equipment such as MRIs and PET scanners. The original justification was that the law would control the escalation of health costs. Foes say it restricts competition and raises costs. Established hospitals, which enjoy a status as near-monopoly suppliers in some regions of the state, defend the law while insurers and physicians groups tend to oppose it.

Tracking the debates taking place in the academic research, as well as Virginia and 34 other states that retain their CON laws, the Mercatus center has published a series of papers and commentaries this year.

One study by James Bailey, a Creighton College business professor, compared the increase in health care spending in the 35 states that have maintained their CON laws, mostly enacted in the 1970s, with the 15 states that repealed their laws in the 1980s. He concludes:

I find some evidence that CON backfires and leads to increased spending. I estimate that CON leads to a statistically significant 3.1% increase in total spending and a 6.9% increase in Medicare spending. … I show that CON has no effect on hospital volumes, though it is associated with up to a 5% increase in the average length of inpatient hospital stay and a 0%-5% increase in hospital charges.

Another study

by Thomas Stratmann and David Wille, both Mercatus scholars at GMU, examines the effect of CON laws on medical outcomes.

We find that mortality rates are statistically significantly higher at hospitals in CON states than in non-CON states. Our findings show that the estimated average 30-day mortality rate for patients discharged with pneumonia, heart failure, or heart attack from hospitals in CON states is between 2.5 and 5 percent higher than the average mortality rate for all hospitals in our subsample … that contains providers in both CON and non-CON states, depending on the illness.

Admittedly, those are not earth-shaking conclusions. It’s not as if repealing CON in Virginia will yield dramatic results. Any gains to patients would be incremental and hard to distinguish from other factors impacting cost and quality in the medical marketplace. Accordingly, it is important for foes of CON not to over-promise the benefits. Still, in the battle against relentlessly increasing health care expenditures, every little bit helps.

Furthermore, I have long argued that repealing CON is only one of many health care reforms that Virginia needs to enact. If the battle for reform starts and ends with repealing that one law, the benefits will be too small to notice against the backdrop of general health care increases. The larger significance of CON is that it acts as a barrier to innovation in the delivery of health care. The law protects Virginia’s huge, quasi-monopolistic health care cartels from competitors coming from outside the state or from arising from medical entrepreneurs. In the long run, the only two broad options for saving America’s health system from cannibalizing the economy are rationing and innovation. I’ll take innovation, thank you. Repealing CON is a necessary condition to creating an entrepreneurial, innovation-driven healthcare system, the first step in a long march.

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3 responses to “More Evidence that CON Increases Healthcare Spending and Hurts Outcomes”

  1. Larrytheg Avatar

    I see the CON issue as one where the “free market’ types in the Va Gen Assembly get the opportunity to put their money where their mouth is …

    to basically – lead – on the issue of the free market – actually delivering what is promised on health care.

    I’m willing to watch and reserve judgement. I seriously doubt their theory works -but the time has come to let the folks who believe so passionately to have a run at it.

    then if it fails – I expect them to not run away but to stick with the issue and move on to what might work.

    I can handle someone who believes differently – and stand back and let them have a run at it. What I can’t stand is hypocrisy… and saying one thing then running away when it doesn’t work. we all should be in this for what works.

  2. This post should have the headline:

    “C.O.N. is a Killer! You’re more likely to die in a hospital with a Certificate Of Need than without it”

    Now that should get some attention in the GA.

  3. Larrytheg Avatar

    What might convince me is some specific examples of where CON did actual harm that would not have happened if CON was not involved.

    Without some convincing evidence we are, once again, being “treated” to some folks ideological beliefs more than facts and evidence.

    I’m not a defender of CON by the way – In our area – I’ve actually seen it used by one hospital to stop competition from another, in fact, used initially to claim that a second hospital was not needed.

    But now that the second hospital is up and running – I have yet to see any real competition on quality or cost of services so I wonder how that can be if they both now offer very similar services… with no difference in cost and no knowledge of whether one has a better service or not.

    I do not think the abolition of CON will fix this but I’m curious to hear from the supporters of CON – what more we have to do to actually see competition on quality and cost.

    I think you’d have to have the govt mandate disclosure of prices (like they do with bank fees and such) and the implementation of a rating system like Medicare does rather than expect the free market to do it…with with CON done away with.

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