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AAOS Now

Published 7/1/2016
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Manthan Bhatt

States Working to Dismantle Certificate of Need Laws

Few policies in health care are seen to be as anticompetitive as state-based certificate of need (CON) or certificate of public need (COPN) laws. COPN laws require new healthcare facilities to receive state regulatory approval before building or growing a facility or service. COPN laws were created as a way to limit new or existing healthcare facilities under the assumption held by some that excess capacity directly increases healthcare costs.

While a total of 36 states have COPN laws, 27 of those states have COPN laws that pertain specifically to orthopaedic practices, eg, ambulatory surgical centers (see top sidebar at right). COPN states like Virginia, South Carolina, and Tennessee took steps in reforming their regulations. The Tennessee General Assembly passed significant reform to that state's law in May. COPN laws in Tennessee will no longer regulate the modifying, renovating, or adding to a hospital or healthcare institution, nor the acquisition of most medical equipment.

In 1986, President Ronald Reagan repealed the National Health Planning and Resources Development Act, thus allowing states to repeal COPN programs. Since then, 14 states have repealed their regulations (see bottom sidebar at right).

DOJ and FTC
Renewed interest in repealing COPN laws emerged with the Department of Justice (DOJ) and the Federal Trade Commission's (FTC) support of Republican Gov. Nikki Haley's campaign to reform South Carolina's COPN law. In a joint statement, the FTC and DOJ urged the South Carolina State Legislature to consider repeal or reform of the state's COPN laws. The letter asserts that COPN laws create barriers to expansion, limit consumer choice, and stifle innovation, as well as deny consumers the benefit of an effective remedy for antitrust violations and can facilitate anticompetitive agreements. In addition, the statement asserts that hospitals seeking to thwart or delay entry by new competitors may use COPN laws for their own benefit.

The Mercatus Center, which describes itself as "a non-profit, free market-oriented research, education, and outreach think tank" based at George Mason University, has done several studies on COPN laws. It has found that states with COPN laws have fewer hospitals overall, including fewer rural hospitals, and also have fewer ambulatory surgery centers, including rural ambulatory surgery centers. According to arguments by the Mercatus Center, restricting entry into the market may decrease access to care. Mercatus also argues that hospitals that have a market monopoly have prices that are 15.3 percent higher than hospitals in areas with competition.

Arguments favoring COPN laws appear to have less supporting evidence. According to FTC Commissioner Julie Brill, "Empirical evidence on the success or failure of COPN [laws] to obtain their numerous objectives—in Virginia or beyond—is limited, and we lack evidence on the broader impact of COPN repeal."

COPN advocates say that health care does not function like a free market. The Virginia Hospital & Healthcare Association, for instance, has argued that repealing COPN laws would jeopardize safety net hospitals. The group cites examples from Pennsylvania, which repealed its COPN law over a decade ago. Today, Pennsylvania has 29 fewer general acute care hospitals, but 133 more ambulatory care centers.

As we approach the 2017 state legislative sessions, orthopaedic surgeons and state orthopaedic societies should be aware of the market-changing effects of COPN reforms.

Manthan Bhatt is the state government affairs manager in the AAOS office of government relations. He can be reached at Bhatt@aaos.org

COPN laws on ambulatory surgical centers apply in the following states:

  • Alabama
  • Alaska
  • Connecticut
  • Delaware
  • Georgia
  • Hawaii
  • Iowa
  • Illinois
  • Kentucky
  • Maine
  • Maryland
  • Massachusetts
  • Michigan
  • Mississippi
  • Montana
  • Nevada
  • New Hampshire
  • New York
  • North Carolina
  • Rhode Island
  • South Carolina
  • Tennessee
  • Vermont
  • Virginia
  • Washington
  • West Virginia
  • Washington, D.C.

States that have repealed their COPN regulations:

  • California
  • Colorado
  • Idaho
  • Indiana
  • Kansas
  • Minnesota
  • New Mexico
  • North Dakota
  • Pennsylvania
  • South Dakota
  • Texas
  • Utah
  • Wisconsin
  • Wyoming

Additional Information:
Joint FTC and DOJ statement on COPN laws

Reference:

  1. Kirkner, Richard Mark. Certificate of Need: '70s Remnant Shows Its Age. Managed Care. (Last accessed June 15, 2016)