The federal government recognized this 30 years ago, which is why it’s no longer mandatory for states to have Certificate of Need laws. Just look at the chart below:

CON cost growth chart

Unfortunately, North Carolina still has its certificate of need law – a law that holds state bureaucrats responsible for limiting the supply of health care resources unless there is a “need” in a particular area. The good news is that there is momentum in the House and Senate to try and do away with this law as a means to inject more competition in the health care market and let health care providers extend more medical options for their patients without being blocked by state oversight.

The John Locke Foundation has written extensively on mounds of academic literature concluding that CON’s intent to slow rising health care costs has failed. The relationship between CON and spending concludes that there is zero evidence that CON reduces prices or health care spending per capita. Rather, such widely cited studies suggest that restricting the supply of health care resources is associated with statistically significant higher prices. Cost containment can instead be attributed to the factors such as the advent of managed care in the 1980s when insurers began to pay providers at a discounted rate in return for a guaranteed volume of patients.

Yet CON proponents still attempt to uphold the cost argument. The latest analysis released by the Palmetto GBA, the region’s Medicare fiscal intermediary, argues that non-CON states in the region average 1.4 times higher claims submissions and 1.5 times higher costs among Medicare patients:

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Some takeaways:

1. This information is misleading, given that the comparisons don’t account for differences in average age, income, education, racial composition, nor health status. Merely comparing average disbursement between Medicare enrollees in non-CON states and CON states is misleading information.

2. Those aforementioned factors are likely important, because allowable charges by Medicare are the same across states. So if the income, age, education, etc. of seniors in CON and Non-CON states would be the same, one would observe the same disbursement rates across these two types of states. This is why point 1 (above) is important.

3. Moreover, the socioeconomic difference among states matter in this analysis. The percent of non-Hispanic white population is much higher in non-CON states. CON states tended to have more minorities, esp. blacks. Also higher unemployment in CON states, which may result in higher demand for care, because lower socioeconomic status patients tend to be sicker. Also, Medicare specifically pays higher rates to Disproportionate Share Hospitals – facilities that serve an overwhelming majority of uninsured and Medicaid patients. This factor could also explain difference disbursement averages across states.

4. The study is cherry picking, by selecting only a handful of CON vs. Non-CON states. While it might be OK to compare only states in the South, it is not clear why this study includes IL, OH, NM, and IN, which are clearly not in the South and differ from NC.

5. The states listed are very heterogeneous with respect to the number of CON regulations. Within CON states included NC has 25 different CON regulations while OK has only four.

6. Importantly, this chart does not correctly classify CON vs Non-CON states. Five of the seven listed non-CON states are in fact CON states with varying regulations. For example, IL is listed as being a non-CON states but IL has 14 CON regulations. FL is listed as being a non-CON state, but has 11 CON regulations.