Opinion: 'Certificate of need' laws hinder Michigan health care providers

Matthew D. Mitchell

It is an unusual regulation in a market with plenty of unusual regulations: In Michigan and 34 other states, a health care provider must obtain a “certificate of need” (or CON) before opening or expanding his or her facility. In order to obtain such a certificate, the provider must prove to the regulator that their community needs the given service (never mind that the provider must think the service is needed, otherwise, he or she wouldn’t be trying to offer it).

Evidence suggests certificate of need laws undermine the goals they were intended to reach, writes Mitchell.

The rules are supposed to increase access to care, lower costs, and improve quality. But the evidence suggests they undermine each of these laudable goals. Now, Michigan legislators are considering changes that will ease some of these restrictions. 

In Michigan, providers must obtain CONs before offering 18 separate services or technologies. Among other things, this includes opening a neonatal intensive care unit; offering air ambulance service; acquiring a psychiatric bed; offering medical imaging services such as CT, PET, and MRI scans; or opening an ambulatory surgery center that offers same-day surgery and release.

In the 1970s, the federal government encouraged states to adopt CON laws by withholding funding if they refused. Nearly every state complied. But early research suggested that CON laws were failing to achieve any of their stated goals. So the federal government repealed its mandate in the mid-1980s and 10 states immediately eliminated these rules. Over the next few decades, others followed suit, either eliminating CON rules altogether or at least paring them back.

As I explained to the Michigan Senate Committee on Health Policy and Human Services in testimony last week, nearly 4 in 10 Americans now live in a state without a CON law. These are urban, rural, coastal, inland, high-income, and low-income states alike. For over two decades, health economists have compared outcomes in these non-CON states with those in CON states, employing sophisticated statistical techniques to control for demographic and economic conditions. This research overwhelmingly suggests that CON laws limit access to higher-quality, lower-cost care.

In both urban and rural settings, patients in CON states have access to fewer hospitals, fewer hospital beds, and fewer ambulatory surgery centers. They are less likely to live near dialysis clinics, hospice care facilities, or hospitals offering medical imaging services. They are more likely to leave their counties and travel long distances in search of care.

Low-income patients in CON states are no more likely to obtain treatment than low-income patients in non-CON states. However, African Americans are less likely to obtain certain kinds of care in CON states than African Americans in non-CON states.

These restrictions on access have not led to any cost savings. In fact, estimates show that both per-unit costs as well as per-person expenditures are higher in states with CON laws. Nor have they improved health outcomes: Mortality rates for heart failure, heart attack and pneumonia are all higher in CON states relative to non-CON states. And in states like Michigan with especially comprehensive CON programs, readmission rates and post-surgery complications are higher while patient satisfaction levels are lower.

These laws do not persist because they protect patients. They persist because they protect large, well-heeled providers from new competition. But this need not be so. Last October, when Michigan’s CON board moved to apply the regulation to a cutting-edge cancer treatment known as CAR-T therapy, the state legislature stepped in to stop it. Now, legislators are considering easing the state’s CON restrictions on psychiatric care beds, air ambulances, and certain capital expenditures.

These reforms represent small but meaningful steps toward greater access, lower cost, and higher-quality care.

Matthew D. Mitchell is a senior research fellow with the Mercatus Center at George Mason University.