Not only has North Carolina retained its Certificate of Need program long, long after Congress repealed the federal mandate as a hopeless failure (in 1987), but among the remaining CON states, N.C.’s program is one of the most aggressive.
The chart below is from a February 2015 study of North Carolina’s CON program by researchers at the Mercatus Center of George Mason University:
Click for a larger image. Source: Mercatus
Among obvious regulatory reforms, North Carolina’s CON is pretty low-hanging fruit. Carolina Journal reports on one effort in the legislature: House Bill 200, sponsored by Rep. Marilyn Avila (R-Wake) and co-sponsored by Rep. Jeff Colllins (R-Nash), Rep. Dan Bishop (R-Mecklenburg), and Rep. Mickey Michaux (D-Durham), which would repeal portions of the state’s CON regulations.
The N&O featured an op-ed this morning by William Mahone, president and CEO of Halifax Regional Medical Center in Roanoke Rapids, in favor of keeping CON as is.
Along with doubling down on CON’s foundational and rather Sovietesque notion that government regulators are the ones who best determine market needs, Mahone discusses the “need” for hospitals to (in my words) keep to themselves certain services for which they can overcharge in order to fund charity and uncompensated care:
Last year, N.C. hospitals provided more than $1.8 billion in uncompensated care, including charity care as well as unpaid co-pays and deductibles and services not covered by insurance. Many N.C. hospitals already operate in the red, and one-third have margins between zero and 5 percent. …State lawmakers must not surrender to entrepreneurs working to take profitable services away from hospitals, leaving them to care for the emergencies and the uninsured.
North Carolinians can have freestanding specialty centers or they can have hospitals, but they can’t have both.
Even as it is hard to believe the 14 non-CON states lack hospitals, the Mercatus study tackled the aspect of CONs and charity care directly.
While there is little evidence to support the claim that certificates of need are an effective cost-control measure, many states continue to justify these programs using the rationale that they increase the provision of health care for the poor. To achieve this, 14 states—including North Carolina—include some requirement for charity care within their respective CON programs. This is what economists have come to refer to as a “cross subsidy.”
The theory behind cross-subsidization through these programs is straightforward. By limiting the number of providers that can enter a particular practice and by limiting the expansion of incumbent providers, CON regulations effectively give a limited monopoly privilege to providers that receive approval in the form of a certificate of need. Approved providers are therefore able to charge higher prices than would be possible under truly competitive conditions. As a result, it is hoped that providers will use their enhanced profits to cover the losses from providing otherwise unprofitable, uncompensated care for the poor. In effect, those who can pay are charged higher prices to subsidize those who cannot.
In reality, however, this cross-subsidization is not occurring. While early studies found some evidence of cross-subsidization among hospitals and nursing homes, the more recent academic literature does not show this cross-subsidy taking place. The most comprehensive empirical study to date, conducted by Thomas Stratmann and Jacob Russ, finds no relationship between certificates of need and the level of charity care.
To wit, when a state regulatory scheme of
deliberately limiting supply of medical services
in order to allow
hospitals effectively to overcharge for those services
in the hopes that the hospitals will
roll their bigger-than-otherwise profits into charity care
is nevertheless
ineffective at boosting charity care,
then it is essentially
a state regulatory scheme of deliberately boosting hospital costs and profits.
Hospitals would favor this, of course. They’re in the business.