Monday, January 24, 2005

Do "Certificates of Need" Help or Hurt?

Frequently, politicians come up with ideas for government policies that do the opposite of what was intended. In the 1970's, Congress decided to try to apply pressure against rising health-care costs by encouraging "Certificate Of Need" (CON) laws. This early health care regulation acted on the supply, rather than demand, side of the health-care cost equation. By 1974, the federal government required all states to have Certificate Of Need regulations in effect.

At the time, some economists argued that the regulations would actually raise health care costs because they would stifle competition and raise the cost of entering a market. As it turned out, they were correct. As evidence began mounting that the laws were driving costs up, Congress did an about-face and repealed the requirement. Several states, but not Virginia, acknowledged the new evidence and subsequently repealed their Certificate Of Need regulations.

The intent of these regulations was to drive health care costs down by requiring hospitals to first demonstrate to a government commission that a major expansion of existing facilities, or the construction of a new facility, or the purchase of big-ticket new equipment, would genuinely benefit in the community -- that is, that it was truly "needed".

In a recent article in the Richmond "Times-Dispatch", a reporter described the four-year-long legal battle Bon Secours Health System has been forced to wage in trying to win a Certificate of Need from the Virginia Department of Health, for its proposed $72 million St. Francis Medical Center facility the company wants to build in western Chesterfield County.

Bon Secours' rival in the area, HCA Inc., has used the Certificate of Need statutes to freeze its competition out of the market; sending lawyers and "experts" to testify in front of the government commissioner -- in an attempt to prove the Bon Secours facility is not "needed". Naturally, HCA wants to maintain its monopoly on health care in its markets; and the only way to do that is to use the power of government. Were the situations reversed, no doubt Bon Secours would be doing the same thing.

Therein lies the problem with giving the government the power to portion out markets to any person or business.

Bon Secours is willing to gamble $72 million that there is enough of a need for its facility that it will earn a return on the investment. That's what free enterprise is all about -- taking a risk in the hopes of earning a profit.

But when a market is distorted by government meddling, all rules change. Costs for all parties go up. The government spends millions of dollars adjudicating the case; the hospitals spend millions of dollars on lawyers to argue the case back and forth, one trying to build, the other trying to force them not to build. Consumers -- i.e., patients -- end up footing the bill, both through higher taxes and again when they need medical attention. Other factors are worth considering, as well. For instance, if the property upon which Bon Secours wishes to build has already been purchased by the company, they can't yet use it - a substantial investment of money that it is forced to leave sitting in a corner, when it could tbe used to service their customers. This will also raise the cost to the consumer.

Congress recognized the errors of its ways on this issue years ago; now, it's time for Virginia to catch up with the eighties. To lower health care costs, the state legislature should repeal the "Certificate Of Need" statutes immediately.

This will have the added benefit of reducing expenses related to administering the regulations, during a time when the Virginia state government desperately needs to shed non-essential functions. And considering how bloated the Code of Virginia is, deleting sections that are wholly unnecessary and making it a shorter document can only be a good thing.

Any time governments are asked to expand beyond their proper and limited role of protecting individuals from fraud and aggression, they dilute their ability to do anything particularly well. Governments function best when their job is kept simple.

Conversely, private companies can deliver the best service to their customers at the lowest price when they are allowed to conduct their business as they see fit, free of interference by government bureaucrats.


Marc Montoni, a network consultant & installer, is a resident of Shenandoah County, Virginia; serves as an elected Director of the Lord Fairfax Soil & Water Conservation District; and is also the Chairman of the Shenandoah County Libertarian Party.


Copyright © October 2002 by Marc Montoni. Permission to publish or reprint in any and all venues hereby granted.



"Hospital's Fate Awaits Ruling", by Bob Raynard, Richmond Times-Dispatch, Saturday, September 28, 2002.



STUDY: Beyond Health Care Reform: Reconsidering Certificate Of Need Laws In A Managed Competition System, by Patrick John Mcginley; published 1995 in the Florida State University Law Review: