Press Release

Repealing N.C. certificate-of-need law would help lower health care costs

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Click here to view and here to listen to Jon Sanders discussing this Spotlight report.

RALEIGH — North Carolina can help prevent unnecessary increases in health care costs by repealing a 35-year-old law that has failed to address that goal. A new John Locke Foundation Spotlight report delivers that verdict.

“State policymakers should give health care consumers — including the poor, the elderly, and people with emergencies — what they really need: more choices, closer access to care, and lower costs,” said report author Jon Sanders, JLF Director of Regulatory Studies. “Repeal of the certificate-of-need, or CON, law would accomplish all three goals.”

Sanders’ review of CON is the latest installment in his “Carolina Cronyism” research series.

The CON law’s “fundamental premise is hopelessly wrong,” Sanders said. It assumes government restrictions on medical services, equipment, and hospital beds can lead to lower costs. The new report highlights data and research that tell another story.

“As four decades of research have demonstrated conclusively, CON makes higher health care costs more likely, not less,” Sanders said. “CON’s fundamental premise has the relationship between competition and prices completely backwards. Competition, not central planning, is what would prevent artificial price increases.”

North Carolina joined many other states by enacting certificate-of-need requirements in 1978, largely to comply with a federal government mandate. Since Congress repealed its mandate in 1987, 14 states have ended their CON rules.

Meanwhile, this state maintains one of the most restrictive CON programs in the country, Sanders said.

“North Carolina’s CON law regulates 25 different health care services,” he said. “The state Division of Health Service Regulation says the law prohibits health care providers from acquiring, replacing, or adding to their facilities and equipment, except in specified circumstances, without prior approval from state government. Prior approval is also required for the initiation of certain medical services.”

Only half of the 25 services regulated in North Carolina also face regulation in a majority of the other states with CON laws, Sanders said. “Five services regulated in North Carolina — including burn care, CT scanners, and assisted-living facilities — are regulated in no more than one-third of the other states with certificate-of-need requirements.”

While North Carolina’s CON restrictions remain in place, 17 counties have no hospital, and just 23 of the state’s 100 counties have more than one hospital.

“Small towns and rural areas are dealing with more than just artificially higher prices linked to the CON law,” Sanders said. “The elderly, the poor, people under time constraints, and especially people with emergency medical needs would be served better by having medical services nearby.”

State restrictions do benefit one group, Sanders said. “Existing hospitals and medical service providers reap the benefit of CON laws, which insulate them from competition,” he said. “The effect of limiting the supply of beds, equipment, and facilities is higher hospital profits.”

In a free market, higher profits would entice new providers to offer their services and compete with existing providers. The CON law discourages that competition, Sanders said.

“The CON process itself discourages smaller potential providers from attempting to do business in North Carolina,” he said. “From preparation consulting fees to application fees, public hearing consulting fees, expedited review, and appeals, the process can last up to two years or more and cost millions of dollars.”

“What emerges is essentially a government-blessed cartel — an OPEC of sorts for health care services,” Sanders added.

Many state legislators have recognized the need for a change, Sanders said. “A select committee in the N.C. House offered several major recommendations to improve the CON process, and the House voted 112-2 this year to make some helpful changes,” he said. “That House bill now sits in the state Senate. Senators could consider the issue when they return to work next spring.”

This a good time for North Carolina to rethink its costly CON rules, Sanders said. “Especially amid the uncertain environment and inflationary forces fostered by the federal health care law, keeping health care costs down is a worthy and important goal for state policymakers,” he said. “CON is an area especially open for reform in North Carolina, since it is one of the most restrictive — and therefore most inflationary — in the country.”

“Now is not the time to promote a cartel,” Sanders added. “State leaders could honor the intent behind CON — preventing unnecessary increases in health care costs — by repealing CON.”

Jon Sanders’ Spotlight report, “Certified: The Need to Repeal CON,” is available at the JLF website. For more information, please contact Sanders at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].

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About John Locke Foundation

We are North Carolina’s Most Trusted and Influential Source of Common Sense. The John Locke Foundation was created in 1990 as an independent, nonprofit think tank that would work “for truth, for freedom, and for the future of North Carolina.” The Foundation is named for John Locke (1632-1704), an English philosopher whose writings inspired Thomas Jefferson and the other Founders.

The John Locke Foundation is a 501(c)(3) research institute and is funded solely from voluntary contributions from individuals, corporations, and charitable foundations.