New research from the Virginia-based Mercatus Center indicates that schemes to ration health care services through certificate-of-need requirements — such as those imposed in Michigan — increase the difficulty of getting access to health care services while doing nothing to reduce their costs.

A CON law restricts the ability of health care providers to expand or open new facilities, or to acquire powerful diagnostic tools. Providers must first get permission from a government commission. Some members of that commission may represent the incumbent facilities against which the new entrant would like to compete.

CON laws supposedly help keep medical costs low by avoiding overinvestment in facilities and expensive technologies. A second rationale offered in their defense is that they help the poor by requiring providers to provide charity care as a condition of obtaining the required approval.

Among other restrictions, Michigan’s law requires existing or would-be providers to get permission for new or even replacement imaging equipment used to take CT, MRI, or PET images. The multistep CON process requires applicants file a letter of intent, an application, plus additional requested information and then wait 45 to 150 days, depending on the type of review. They must also pay fees that range from $3,000 to $15,000, based on the cost of the project.

The Mercatus research found that CON laws negatively affect independent providers of imaging services. These businesses may be kept out of the imaging market by having their application denied, or because they assume this will happen and don’t bother to apply in the first place.

Hospitals, meanwhile, have several advantages over their would-be competitors in obtaining the required certificates. Not surprisingly, when CON laws exist, hospitals dominate the market for imaging services. They are more politically popular than independent providers and can absorb application costs more easily, making it possible for them to acquire enough equipment to perform as many scans as hospitals in states without CON laws. Hospital associations also have the financial resources to mount lengthy legal challenges to keep anti-competitive regulation in place.

CON laws play no positive role in public health or health care provider quality. They also don’t help the poor, because while providers who get the required permissions are supposed to increase charity care, the logic of cross-subsidization is ineffective at making them do so. The law is effective at one thing, though, and that is shrinking the pool of services available to all Michigan residents.

Congress repealed federal CON laws in 1987, after which many states rolled back their own versions. The Federal Trade Commission has since issued official statements calling for the repeal of all state CON laws. The commission says that they prevent efficiently functioning health care markets and can harm consumers by posing barriers to expanding the supply of providers. As a result, they put limits on consumer choice and inhibit innovation.

Michigan’s Legislature should repeal the CON scheme altogether. If the Mercatus report does not lead to its abolition, at the least it shows that the scheme does not live up to its own logic.

In a state that would like to see its health care services sector become a magnet for consumers in other states and nations, it makes much more sense to allow the forces of supply and demand to optimize the availability of health care tools, services and innovations for all of us.

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