Considering all the talk about the need to lower health care costs, one would think there would be more serious discussion about the state law that impedes the  very competition that leads to lower costs. It’s called “Certificate of Need” and it’s commonly referred to as the state’ “CON” law. In short, when a hospital or doctor group wants to add beds or an MRI machine, for example, they must gain approval from the state, which decides if the beds/machine is really “needed.” That, of course, turns the marketplace on its head. CON law dates back to the 1970s, as JLF’s Katherine Restrepo explains here.

History reveals Congress’s intent behind enacting certificate of need (CON) laws under the federal Health Planning Resources Development Act in 1974. The goal was to cut down on health care inflation. At that time, reimbursements for services were based on the cost of production, or a cost-plus system. Providers therefore had strong incentives to build and expand the capacity of health facilities, knowing they wouldn’t have to assess patient demand.

Yet once the reimbursement system shifted to fee-for-service, the feds repealed the CON mandate in 1987. Fifteen states have since scrapped their CON programs, while the severity of the oversight and approval process for the provision of health services in the remaining states varies.

Those in favor of keeping CON intact claim that this law prevents duplicative services and underuse of facilities, both of which arguably inflate health care costs. Central planning is therefore necessary to determine which regions of the state have sufficient demand — a “need” — for certain medical commodities.

But the central planners are wrong. North Carolina regulates 25 different services.

Granted, the program did undergo some reform in 2005, which allowed gastroenterologists to perform colonoscopies in their own endoscopy units. As a result, the state saved roughly $225 million in Medicare payments within six years, since procedures performed in such free-standing facilities are reimbursed at a lesser rate than full service hospitals.

Combined with lower payment from Medicare and private insurers, an increase in the supply of services creates competition and puts downward pressure on healthcare costs. Since relaxing these regulations, 56 new units have sprung up throughout North Carolina.

It is clear that if we want to lower costs, we must infuse the health care system with competition. It is well past time for North Carolina to join the states that have repealed this impediment.