John Locke Update / Research Newsletter

North Carolina’s Certificate of Need Law Is One Reason Why Health Care Costs In Charlotte Are So High

posted on in Health Care & Human Services, Law & Regulation
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The government has filed a lawsuit against a hospital system in North Carolina about a problem that the government itself created.

Late last week, the state’s Attorney General Roy Cooper and the Department of Justice (DOJ) filed a lawsuit against Charlotte-based Carolinas HealthCare System (CHS) for prohibiting insurance companies from incentivizing their policyholders to seek care at competing facilities that provide services at a lower cost. This concept is formally referred to as “steering.” The plaintiffs argue that such anti-steering clauses illegally reduce competition in the health care market, a violation of the Sherman Antitrust Act.

An in-depth reading of the complaint elaborates on what steering vehicles insurers typically use to push patients to search for lower health care cost options. Narrow networks and tiered networks (top-tiers being those that bring patients the best value for their health expenditures by offering services at high quality and low cost) are just two examples. Apparently, Carolinas throws its weight around by not letting participating insurers formulate top-tier networks that include CHS competitors, or develop narrow networks that exclude CHS. The state’ largest hospital system certainly has the leverage to do so – namely because they’ve captured 50 percent of Charlotte’s health care market and insurers might not be viable if they walked away from the monolith.

Some thoughts on this:

  • Avoiding competition allows CMS to burden patients with higher health care costs. But the contractual terms aren’t necessarily the root cause of this monopolistic behavior. The actual problem here is the excessive amount of government regulation pervasive in our nation’s health care system.
  • North Carolina’s Certificate of Need (CON) law – a law in which state bureaucrats are responsible limiting the supply of health care resources unless there is a “need” in a particular area – is just one of the many policies that induce protectionism among hospitals and health care providers. How? Let’s say that hospital A has been awarded a monopoly to own the only MRI machine in its Health Service Area (HSA) that is “needed.” Five years pass by, and the state’s CON regulatory regime finds that another MRI machine is needed in that area based on population growth and increasing MRI usage. Hospital A can certainly apply to acquire another MRI machine. It can also petition against competitors’ applications for that same MRI machine, and it has the right to appeal the state’s decision to grant the MRI machine to another health facility. One would think that the procedural process under CON reduces competition in the health care marketplace, thereby violating federal anti-trust law. It doesn’t. Health care entities can be immune from anti-competitive practice laws if they are subject to state oversight. In other words, it is legal for a health care organization to have a monopoly under North Carolina’s CON regime. It’s all in the Noerr-Pennington Doctrine, and it’s no wonder such state immunity zoning has helped contribute to the fact that prices for some medical services in the Charlotte region are 20 percent higher than the national average.
  • The Charlotte Observer quotes the state’s Attorney General saying, “Pushing medical costs artificially higher and limiting choices harms North Carolina families” and that “Consumers who need health care deserve accurate information and access to quality, affordable options.” If state policymakers and state government officials are seriously concerned about restoring health care freedom and breaking up artificially constructed market power in North Carolina, then repealing CON is a quicker way to help lower health care costs since it welcomes a freer market. It sounds like our state’s Attorney General is highly in favor of repealing CON.
  • If CON law didn’t exist in North Carolina, there would be a stronger possibility that insurers could walk away from these “anti-steering” contracts and still remain in business due to the likelihood that there would be more health care organizations to conduct business with.

For more information on Certificate of Need, be sure to visit JLF’s restorehealthcarefreedom.com

Katherine Restrepo is the Director of Health Care Policy at the John Locke Foundation. Before joining the John Locke Foundation, she interned at the Cato Institute under the direction of Michael Cannon, Director of Health Policy Studies. … ...

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