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Getting Conned by COVID-19 CON Laws

How Iowa prevented a hospital from expanding... during a pandemic

March 1, 2021

Throughout the past year, COVID-19 put a strain on hospital capacity across the country. Although the number of new cases have been falling, hospitals and healthcare professionals are still feeling the pressure. Nevertheless, policymakers in Iowa have shown that they haven’t learned anything from COVID-19.

Recently, the state’s Health Facilities Council voted against a new campus proposed by University of Iowa Hospital (UIHC). The additional facility would have allowed the hospital to provide care for more patients. Even though UIHC takes 1400 transfer patients from other hospitals each month, space constraints force them to turn away an additional 200. The new facility would help end that.

Despite the problems of the past year, not everyone was on board. Namely, UIHC’s competitors. Leaders of other hospitals called the expansion unnecessary and a threat to their business. Rather than expanding to meet the demand that UIHC faces, the competitors said that UIHC should send the extra patients to them, which would help their bottom line. The Health Facilities Council is appointed by the governor to review applications to expand healthcare services in the state. Ultimately, they were convinced by the other hospitals’ arguments and denied the request.

In the U.S., we have long suffered from access to care issues. We are suffering from a physician shortage which is only expected to grow over the coming decades. We are on the verge of a national nursing shortage, despite the massive growth in the profession. Across the nation, we have healthcare shortage areas, where people lack access to the necessary primary care.

COVID-19 brought this issue to the forefront for many. Long waits and shortages of healthcare professionals became nightly news that drove fear. Remember the pictures of overwhelmed Lombardy hospitals a year ago?

In fact, in November a lack of health resources to deal with the fall/winter wave of COVID was a constant worry in Iowa. Luckily, they were not completely overwhelmed and unable to provide care to patients.

Unfortunately, even before COVID-19 fades into a distant memory like the 1958 flu pandemic, Iowa refuses to learn the lessons of COVID. We should not be placing arbitrary restrictions on expanding healthcare services. In three months’ time, Iowa’s healthcare system went from “going to collapse, no question,” to business-as-usual rent-seeking. Patients suffer from a healthcare system where competitors limit capacity.

Iowa is not alone; 35 other states have similar laws that restrict competition, called certificate of need (CON) laws. CON laws require anyone who wants to offer a new medical service, or expand an existing one, to apply to a state board and demonstrate its necessity. This covers things like opening a new center, expanding the number of beds, buying new machines, and offering new services. The state board determines whether these needs are already met. Because no one responds to consumer needs better than an unaccountable state board.

CON laws were introduced to lower healthcare costs by preventing duplicative services. The theory was that having many people offering the same service would drive up costs. By preventing this, CON laws would ensure access to care and reduce costs. Specifically, rural areas were supposed to benefit.

Congress required states to pass CON laws in 1974 in order to receive certain health-related funding. Realizing their mistake, Congress removed the requirement in 1987, but most states kept the law on the books.

In practice, CON laws give hospitals veto power over their competitors. Unsurprisingly, hospitals use this to restrain their competition from expanding. One of UICH’s most outspoken opponents in the CON hearing was Mercy Iowa City. Their director said, “This project, in my view, is completely unnecessary. It’s bad for our physician group, bad for the community hospitals that we serve, and bad for the patients in our local community.”

He is right. Having a competitor expand is bad for Mercy Iowa City, which has been forced to lay off employees due to the pandemic.

Imagine if Ford, GM, and Chrysler could testify to a regulatory board to prevent Tesla from making cars, forcing Elon Musk to go through a long and expensive process to show a need for electric cars before he could sell them. Odds are it would have been blocked, and we would likely see the long-established automakers making far fewer electric cars today.

Research consistently shows the detrimental effects of CON laws. They restrict access to care. CON laws are associated with 131 fewer hospital beds per 100,000 residents. They also reduce the number of MRI machines by 2 per 500,000 and CT scans by 37 percent. Rural areas bear the cost of all this. Not only are there fewer health facilities in rural areas, but residents in states with CON laws are also forced to drive farther to obtain care and are more likely to cross state lines to do so.

There is no evidence of improvement in care. In fact, we find the opposite. Patients have a higher mortality rate following heart attacks, heart failure, and pneumonia in states that limit care through CON laws. If that was not bad enough, healthcare costs more in CON law states. These states have a higher cost per procedure and a higher spending per person than states that allow competition.

Not only do CON laws fail to achieve their goals, they actively worsen each area they are meant to improve.

CON laws embody a failed policy that only causes harm to patients while protecting industry insiders. After suffering through a health crisis that threatened to overwhelm our healthcare system, state officials should be making it easier and removing unnecessary roadblocks to expand our healthcare capacity, not standing in the way.

Conor Norris is a research analyst at the Knee Center for the Study of Occupational Regulation at Saint Francis University. He graduated from George Mason University with an MA in economics.

Conor Norris is a Catalyst Policy Fellow and a Research Analyst with the Knee Center for the Study of Occupational Regulation (CSOR) at Saint Francis University. His areas of interest include occupational licensing and health care scope of practice laws, monetary policy, and long-run growth. Conor is an alumnus of the Mercatus Center MA Fellowship at George Mason University, where he received his MA in economics in 2018. He interned at the Cato Institute in 2017 in the Center for Monetary and Financial Alternatives. He loves reading good history books and bad puns and is still bitter that the Star Wars expanded universe is no longer cannon. Conor grew up in Williamsport, Pennsylvania and after spending two years in Arlington, Virginia, he now lives in Altoona, PA.
Catalyst articles by Conor Norris