by James A. Bacon

As critics of Virginia’s Certificate of Need law gear up for another round in the General Assembly next year, the Mercatus Center at George Mason University has been publishing a series of working papers showing that, from a national perspective, CON laws push health care costs incrementally higher and result in lower-quality hospital care for some measures of quality.

Aside from Medicaid expansion, which is a dead letter politically, the CON issue is probably the most contentious health-care issue facing Virginia today.  The law requires health care providers to make a case that there is a “public need” for 18 categories of healthcare services and facilities running the gamut from new hospitals to high-dollar diagnostic equipment such as MRIs and PET scanners. The original justification was that the law would control the escalation of health costs. Foes say it restricts competition and raises costs. Established hospitals, which enjoy a status as near-monopoly suppliers in some regions of the state, defend the law while insurers and physicians groups tend to oppose it.

Tracking the debates taking place in the academic research, as well as Virginia and 34 other states that retain their CON laws, the Mercatus center has published a series of papers and commentaries this year.

One study by James Bailey, a Creighton College business professor, compared the increase in health care spending in the 35 states that have maintained their CON laws, mostly enacted in the 1970s, with the 15 states that repealed their laws in the 1980s. He concludes:

I find some evidence that CON backfires and leads to increased spending. I estimate that CON leads to a statistically significant 3.1% increase in total spending and a 6.9% increase in Medicare spending. … I show that CON has no effect on hospital volumes, though it is associated with up to a 5% increase in the average length of inpatient hospital stay and a 0%-5% increase in hospital charges.

Another study

by Thomas Stratmann and David Wille, both Mercatus scholars at GMU, examines the effect of CON laws on medical outcomes.

We find that mortality rates are statistically significantly higher at hospitals in CON states than in non-CON states. Our findings show that the estimated average 30-day mortality rate for patients discharged with pneumonia, heart failure, or heart attack from hospitals in CON states is between 2.5 and 5 percent higher than the average mortality rate for all hospitals in our subsample … that contains providers in both CON and non-CON states, depending on the illness.

Admittedly, those are not earth-shaking conclusions. It’s not as if repealing CON in Virginia will yield dramatic results. Any gains to patients would be incremental and hard to distinguish from other factors impacting cost and quality in the medical marketplace. Accordingly, it is important for foes of CON not to over-promise the benefits. Still, in the battle against relentlessly increasing health care expenditures, every little bit helps.

Furthermore, I have long argued that repealing CON is only one of many health care reforms that Virginia needs to enact. If the battle for reform starts and ends with repealing that one law, the benefits will be too small to notice against the backdrop of general health care increases. The larger significance of CON is that it acts as a barrier to innovation in the delivery of health care. The law protects Virginia’s huge, quasi-monopolistic health care cartels from competitors coming from outside the state or from arising from medical entrepreneurs. In the long run, the only two broad options for saving America’s health system from cannibalizing the economy are rationing and innovation. I’ll take innovation, thank you. Repealing CON is a necessary condition to creating an entrepreneurial, innovation-driven healthcare system, the first step in a long march.