Will West Virginia repeal its ‘Permission to Compete’ laws?

In 1974, Congress passed the National Health Planning and Resources Development Act, which gave grants to states for creating Certificate of Need (CON) Commissions to decide if the state’s residents need a new hospital or health care facility or for existing ones to add beds or equipment. They thought restricting the supply of health services would somehow reduce demand for them and thus restrain health spending.

The West Virginia House of Delegates will soon hold a vote to repeal their own CON law. Twelve states have already repealed their CON laws, but 35 states plus the District of Columbia still have them, and three states still require at least a few health provider categories to get state permission to compete with existing providers.

Incumbent health care providers heavily influence CON commissions. They fiercely resist attempts to repeal them, claiming they are only acting in the public interest. Imagine if state certificate of need commissions had to approve new restaurants or grocery stores. How many new and innovative restaurants or supermarkets would never see the light of day?

Lawmakers should have noticed that private or government-run third-party payers pay for most health care services. This insulates most patients from the actual prices of health care services, while the third-party payers absorb the costs. Consumer — patients with little skin in the game have no incentive to be cost-effective. When price signals are inoperative, demand continues despite restrictions in supply. Shortages inevitably develop while prices paid by third-party payers increase at a greater rate than would have otherwise occurred. This is basic economics.

The only way to reduce health care expenditures when health care consumers are largely insulated from price effects is to decrease availability and access to health care. The former communist bloc countries learned this the hard way when they tried central planning.

Congress finally figured this out in 1988 and repealed the federal CON grant program. Unfortunately, many existing health care organizations, especially the hospitals, fought state lawmakers attempting to return to market economics by ending certificate of need requirements. This is understandable. The certificate-granting process effectively gives monopoly privileges to existing hospitals and facilities. Established providers usually testify against their would-be competitors when new providers petition for a certificate.

Hospital administrators usually claim CON laws allow them to generate enough revenue to provide 24-hour emergency services and uncompensated care. Physicians and other health care practitioners also provide uncompensated care and other services. Yet state professional organizations don’t argue for creating a certificate of need requirement before allowing additional doctors, nurses, psychologists, physical therapists, etc., to set up practices in a state. The public would rightly deride them if they did so.

A 2016 paper by researchers at George Mason University’s Mercatus Center concluded that the presence of a CON program is “associated with 30 percent fewer hospitals per 100,000 residents across the entire state” and “is also associated with 30 percent fewer rural hospitals per 100,000 rural residents.” In 2020, research from the same institution found states with CON laws spend more per patient on Medicare and Medicaid in rural areas. Per-patient hospital readmission rates, ambulance utilization rates, and emergency department utilization rates are also higher in rural areas of states that have CON laws.

During the COVID-19 pandemic, many states realized their CON laws left them unprepared for a sudden surge in demand for critical care and other health care services and straight-jacketed by bureaucratic red tape. Twenty states suspended their CON laws, and four other states issued emergency certificates of need (bypassing the usually months-long certificate application process), a tacit admission that CON laws impede the rapid response of the health care system to sudden changes.

West Virginia’s proposed CON repeal would leave the certificate of need requirements for hospice care services intact. That’s unfortunate. Comparisons between states with some CON laws and those with no CON laws show nursing homes dominate hospice expenditures in states with CON laws rather than alternatives like home health care.

Some scholars refer to CON laws as a “competitor’s veto.” I call them “permission to compete” laws. Whatever you call them, these laws assault patient autonomy by empowering a government commission and its cronies to decide how many and what kinds of health care services West Virginians can access. Lawmakers this session can help rectify that transgression.

Jeffrey A. Singer, MD practices general surgery in Phoenix, Ariz., and is a senior fellow at the Cato Institute.