by Katherine Restrepo
Director of Health Care Policy, John Locke Foundation
Legislators involved with the Certificate of Need (CON) debate are probably overwhelmed with conflicting studies on whether the regulatory program should stay, be deregulated, or be derailed.
The Department of Justice (DOJ) notes that CON laws were passed in large part because hospitals were once reimbursed on a cost-plus basis, (i.e., the actual cost of care delivered). This in turn ignited a “medical arms race.” Providers lured patients to hospitals with the latest technology and equipment. Hospitals didn’t have to compete for patients based on price like other markets – patients were insensitive to price because many were covered under generous indemnity plans at the time.
A 40-year look back shows that the federal CON mandate did not effectively slow the growth in health care expenditures. Which is why Congress repealed the mandate and made it optional for states in 1987.
Cost containment can instead be attributed to the advent of managed care in the 1990s when insurers began to pressure providers to accept discounted payment in return for a guaranteed volume of patients.