Certificate of Need (CON) has been around in the U.S. for decades as an attempt to control skyrocketing health care costs through government regulation. But unfortunately, today it’s stifling competition and leading to higher costs.
The theory of CON is pretty simple. Let’s say you have a hospital, and the hospital wants to add beds to increase their inpatient capacity. Doing this incurs costs – building new facilities, medical equipment for each of those rooms, staffing, and more. This causes costs go up.
But what if they don’t actually have the patients to fill those new beds? What if there is no actual need for all those new costs? All of those new empty beds need to get paid for somehow, and the costs end up being passed on to the patients they do have. This is bad because it raises hospital costs, which raises insurance premiums.
A Certificate of Need is something the government bestows upon a health care provider, such as a hospital, to allow them to expand, open a new facility or offer more services.
And the provider can only get a Certificate of Need if there is an actual community need.
The problem is that, for the most part, providers building facilities for which there is no demand doesn’t happen. It’s bad business and regulation like CON is largely unnecessary.
In fact, it can increase prices.
CON Causes Prices to Go Up
CON artificially limits competition.
Take dialysis, for instance. If a provider builds a dialysis center in a community that already has enough dialysis facilities, they are going to lose money. No amount of advertising is going to increase the demand for dialysis – patients either need it, or they don’t.
In fact, the only way a new dialysis facility could possibly make money in a saturated market is by drawing patients from existing facilities. And the best way to do that in a competitive environment? Offer lower prices or better services – either of which would be a good thing.
But CON eliminates the positive consumer impact of competition by preventing competitors from setting up shop since there isn’t a “need” for another dialysis facility.
Another example is Ambulatory Surgical Centers (ASCs). ASCs provide many of the same services a large, fully equipped hospital can, but at a much lower cost.
As the John Locke Foundation points out, one cost estimator shows that “policyholders living in Onslow County can undergo a cataract removal for less than half the cost at the independent surgery center in Carteret County compared to their county’s hospital.”
If the government decides that in a small community the nearest hospital has enough beds to serve the community, then it will not bestow a CON for any competitor, including a new Ambulatory Surgical Center (ASC).
Without competition, the hospital has more freedom to inflate fees, or at least no incentive to try to reduce them.
Reforming CON is much needed and long overdue. Increasing competition will lower costs and increase quality – both of which are good things when it comes to healthcare.