Healthcare Regulations That Don't Help

by Levi A. Russell

Health care policy continues to be a contentious issue at the national level, but state level policies can have important effects as well. The Mercatus Center at George Mason University has published a few studies examining the effect of Certificate of Need (CON) laws on health care provision. CON laws require new health care providers to get permission from state governments. This permission is granted on the basis of a committee's determination of the need for new facilities in an area. Currently, CON laws are on the books in 26 states primarily in the southeast, northeast, and northwest.

According to the authors, the primary concern that CON laws address in rural areas is that ambulatory surgical centers (ASCs) will engage in "cream skimming" which is the practice of refusing to treat poorer, more risky, or less well insured clients and only treating the easy cases. If new health care providers engage in this practice, rural hospitals would be swamped with all the most difficult cases and may have to close. This would reduce the quantity and quality of care in rural areas.

However, CON laws are a barrier to entry in the health care market, meaning that the committee could keep out new providers. Thus, it remains an open question whether this barrier to entry reduces the quantity of hospitals or, through some unintended consequence, increases the quantity of hospitals by preventing "cream skimming."
The authors of the paper find:

CON Programs Are Associated with Fewer Hospitals

The presence of a CON program is associated with 30 percent fewer hospitals per 100,000 residents across the entire state.

The presence of a CON program is also associated with 30 percent fewer rural hospitals per 100,000 rural residents.

And the authors conclude:

The data do not support the cream-skimming hypothesis as a justification for CON programs ... CON programs do not promote access to rural care in the form of rural hospitals. CON laws are associated with a decrease, not an increase, in the number of hospitals, rural or otherwise. Policymakers seeking to protect access to rural care should not use CON programs to achieve their goals.

Dr. Levi A. Russell is the Gwartney Institute Professor of Economic Education and Research at Ottawa University