COVID-19 Prompts States to Suspend Regulations That Have Limited Expansion of Health Care Facilities
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Commentary

COVID-19 Prompts States to Suspend Regulations That Have Limited Expansion of Health Care Facilities

Permanently repealing certificate of need laws is one way to proactively prepare our health care system for future emergencies.

Many hospitals around the country are overwhelmed by the influx of COVID-19 patients. Several states are responding to the pandemic by temporarily suspending regulations that limit access to care, including waiving certificate of need requirements for new or expanded health care facilities.

Certificate of need (CON) laws require health care providers to receive government approval before building medical facilities, expanding services, or adding new equipment. Health care providers must demonstrate that there is an unmet need for additional capacity in order to receive approval. However, existing providers, who have an interest in limiting competition, can block new entrants and competitors by arguing that there is no additional need.

Beginning with New York in 1964, states enacted CON laws under the theory that excess investment would create too many health care facilities and inflate the cost of care. The National Health Planning and Resources Development Act of 1974 spurred further adoption by withholding federal funds from states that failed to adopt CON laws. By 1982, every state except Louisiana had some form of CON requirement on their books. The federal mandate was repealed in 1986, prompting several states to repeal or reform their CON programs.

Today, 35 states and the District of Columbia maintain some form of CON program. Three other states––Arizona, Minnesota, and Wisconsin––do not officially have CON laws in place but maintain similar approval processes for certain facilities and services.

Contrary to their intent, there is ample evidence to suggest that CON laws increase costs and reduce access to care. They also reduce hospital capacity by preventing expansions, limiting the number of hospital beds, and reducing investment in additional equipment. In a Mercatus Center study, Thomas Stratmann and Jacob Russ examined the effect of certificate of need laws on the supply of hospital equipment. The authors found that while there is an average of 362 hospital beds per 100,000 people in the US, states with CON laws have about 99 fewer hospital beds per 100,000 people than those without. States that specifically regulate acute hospital beds have, on average, about 131 fewer hospital beds per 100,000 people.

Reduced capacity resulting from anti-competitive CON requirements could have devastating consequences amid the current crisis. As Reuters’ Robert Cyran noted in February:

[t]he United States has about 900,000 hospital beds, about two-thirds of which are occupied on average according to the CDC. The World Health Organization estimates about 80% of coronavirus cases are mild, with others serious or critical. So if just 1% of America’s population of 330 million contracted the virus at the same time, there wouldn’t be enough hospital beds.

In response to COVID-19, at least 18 states have suspended their certificate of need requirements to lend greater flexibility to hospitals. However, hospitals in these states may still be required to file paperwork to add new beds for COVID-19 patients. For instance, North Carolina suspended its CON requirements, but hospitals must still submit written requests to the state Department of Health and Human Services. The department will then review requests to determine if they are “necessary for public health and safety.” This approach eliminates the anti-competitive elements of the CON approval process but maintains some of the regulatory burden and the notion that state bureaucrats, not hospitals, know how many beds or facilities are needed.

Even with temporary suspensions of CON laws, the long-term consequences of overregulation—in the form of fewer facilities, fewer hospital beds, and reduced investment in equipment—will inhibit hospitals’ ability to care for those who contract the virus. The US health care system would have been better prepared to handle the large inflow of patients if these regulations had not prevented investment over the last several decades.

While many states are wisely suspending their certificate of need requirements in the wake of COVID-19, lawmakers should recognize the negative impacts of these regulations going forward. Permanently repealing certificate of need laws is one way to proactively prepare our health care system for future emergencies.

Vittorio Nastasi

Vittorio Nastasi is a policy analyst at Reason Foundation where he works on Florida policy issues including education reform and water quality management.