Improving Healthcare: Repeal Certificate of Need Law

The COVID-19 pandemic has impacted Iowa’s rural hospitals. The Iowa Hospital Association has estimated, the “state’s 118 hospitals, collectively, could lose as much as $2.17 billion in revenue by the end of this year.” A significant reason for this potential loss is, during the start of the pandemic, hospitals were not providing elective surgeries and other procedures. “Most of the revenue streams in these rural areas come from elective surgeries. Unfortunately, because of COVID-19, those elective surgeries were stopped during the most trying phase of the coronavirus, so our rural health care providers are now struggling significantly,” stated Iowa’s Senator Joni Ernst.

 

Before COVID-19, rural health in Iowa was confronted with challenges. One area of concern is the number of maternity wards being closed. In the past two decades, 29 Iowa hospitals have closed their maternity wards, and out of the 118 hospitals, only half of them are providing services to deliver babies.  Of the 99 counties in the state, 66 of them are without a practicing OB/GYN.  The reason for these closers and lack of providers is the declining population in rural Iowa. This decline is making it difficult to find doctors willing to serve these small communities.  This problem does not stop at maternity wards. It is also affecting mental health care and other critical medical services.

 

Rural areas certainly bring challenges such as declining population, but Iowa’s regulatory climate also impacts rural health care. This is especially true with Iowa’s Certificate of Need (CON) laws. The Institute for Justice recently released Conning the Competition: A Nationwide Survey of Certificate of Need Laws which is an in-depth analysis of CON laws across the nation. Iowa is a state that heavily uses CON laws to regulate health care.

 

The purpose of a CON law is to regulate (limit) health care supply unless a need is determined by a state government agency or board. When CON laws were introduced in the 1970’s, it was hoped that they would be able to control the cost of health care by preventing health care facilities from unnecessary and potentially costly expansions.  In the 38 states and the District of Columbia who still have CON laws on the books, this essentially means health care facilities must obtain government approval to build, expand, acquire new equipment, or offer additional services.

 

Iowa’s CON law is intended to regulate “whether someone is allowed to open a new facility; it is explicitly designed to make sure new facilities are not allowed to take customers away from established healthcare facilities.” The Institute for Justice argues, this is nothing more than granting “certificates of monopoly,” and Iowa “has absolutely nothing to do with public health or safety.”

 

Iowa’s CON law requires a health care provider to apply for approval “prior to the offering or development of a new or changed institutional health service.” Iowa law mandates hospitals, nursing homes, outpatient surgery centers, and other health care providers purchasing medical equipment valued above $1.5 million seek approval through the CON process.

For a breakdown of Iowa CON laws see the appendix

 

The COVID-19 pandemic demonstrated the need for immediate health care services. Numerous states suspended health care related regulations in order to effectively deliver medical services. Governor Kim Reynolds temporarily suspended the CON requirement for health care facilities who wanted to increase bed capacities for potential patients. The Institute for Justice reports “as of May 15, 2020, 25 jurisdictions had suspended or loosened CON requirements.” This means, “two-thirds of CON jurisdictions promptly recognized that healthcare providers required greater flexibility to respond to the pandemic.”

 

The CON application process can take 60-90 days and fees can range from $600-$21,000. During the application process any competitor can submit arguments on why a CON should be denied. This is why CON laws are considered protectionist measures, because it allows a competitor to object to potential competition.

 

This would be like Hy-Vee or Fareway being able to object to a new grocery store in a community based on the argument that they are providing all necessary service. CON laws often protect existing health care providers, especially larger facilities who do not want the competition. “Think of a CON like an expensive admission ticket to access an exclusive club. You can be sure that those who are lucky enough to get in do their best to keep others out,” wrote the authors of Conning the Competition.

 

Over time, CON laws have seemingly failed in their original purpose to lower health care costs.  What they have been particularly effective in doing though, is limiting the supply of health care facilities and services. The reduced competition results in health care costs increasing. In the process, people suffer as they are faced with greater difficulties in obtaining access to needed care.

 

The Mercatus Center at George Mason University noted, CON laws limit access to medical care in rural areas: “Comparing rural areas in CON states with rural areas in non-CON states, research finds that the presence of a CON program is associated with fewer rural hospitals.”

 

Iowa’s CON law is an unnecessary regulation that only serves the purpose of restricting competition. Medical providers, who must meet numerous state and federal regulations, should be able to meet demands for care without the need to obtain “permission” from existing providers who may fear competition.

 

CON laws result in higher health care costs. In a recent study by the Mercatus Center found, “patients residing in counties restricted by CON laws spend more per Medicare beneficiary and have higher utilization rates in ambulance services, emergency departments, and readmissions.”

 

The Institute for Justice notes, CON laws require people to not only pay more for health care, but “per capita, patients in CON states have access to fewer hospitals, hospital beds, dialysis clinics, ambulatory surgical centers, medical imaging centers and hospice facilities.”

 

The best policy solution would be to outright repeal Iowa’s CON law. Matthew Mitchell, a Senior Research Fellow at the Mercatus Center, argues, a full “repeal would increase access to lower-cost, higher-quality healthcare.” Policymakers could also implement a gradual phase-out of the CON laws. A sunset provision could be applied which would allow “individual CON mandates or entire CON programs” to expire unless renewed by the legislature.

 

Some states have implemented a partial repeal of their CON laws. West Virginia “eliminated the need for a CON for telehealth, remedial care, ambulatory health facilities, and imaging services.” Florida eliminated their CON laws “for new hospitals; specialty hospitals converting to general hospitals; children’s, women’s, specialty medical, rehabilitation, psychiatric, and substance abuse hospitals; and intensive residential treatment facilities services for children.”

 

The pandemic demonstrated regulations make it more difficult to deliver health care services, especially during times of emergency. Iowa should join the 12 other states who have repealed their CON laws. Repealing, total or partial, Iowa’s CON laws would help to expand health care access and make it more affordable for everyone.

 

TEF Iowa would like to thank the Institute for Justice for granting permission to feature the Certificate of Need regulations for Iowa. The full Institute for Justice study, Conning the Competition: A Nationwide Survey of Certificate of Need Laws can be found at: https://ij.org/report/conning-the-competition/

Appendix

 

Iowa CONs in Detail
Iowa CONs Exemptions