Interest groups winning protections from governments that cost the public is an old tale. They often follow the classic rule of concentrated benefits, diffuse costs. Like bed bugs, they are difficult to get rid of once established. Difficult, but not impossible. I spoke with Alisdair Whitney, legal counsel at the Institute for Justice, about the institute’s success in repealing Certificate of Need laws in a number of states.

“Certificate of Need is a government-mandated permission slip to start, modify or expand a business in the healthcare industry. Common laws vary from state to state, but a feature of obtaining a Certificate of Need in any one of the 38 states that have this requirement is going through a complicated, expensive and time-consuming process,” Whitney says. “Imagine how crazy it would be for Burger King to have to get state government permission to open up a restaurant and allowing McDonald’s to intervene in the process.”

While Certificate of Need laws decrease competition, limit access and increase prices today, lawmakers intended for them to keep costs down.

“Certificate of Need programs were conceived with this goal of controlling healthcare costs and increasing access to care,” Whitney says. “One of the ideas behind Certificate of Need was a concern that more available healthcare services and providers would lead to higher costs. That medical professionals would encourage patients to consume services that they otherwise would not have chosen.

“In the decades since the first Certificate of Need laws were enacted, they have proven to do the opposite. Costs in Certificate of Need states are skyrocketing, and the availability of healthcare services is completely inadequate.”

Whitney criticizes the laws in both theory and practice. “If you restrict the supply of the service and demand increases, prices will invariably rise. And predictably, we have seen that states with Certificate of Need laws have higher health care costs and fewer medical services per capita,” he says.

The Institute for Justice represented a businessman in court who tried to start a clinic to serve Nepali-speaking refugees living in Kentucky. They were prevented from opening by competing health businesses who intervened in the Certificate of Need process.

They lost that case, but the judge pointed out the problems of the law. “The court noted that Certificate of Need laws seem to be a failed experiment and have outlived their own needs. That is quite the indictment,” he says.

In addition to litigation, Whitney works with legislators to try to end this unnecessary barrier to entry. “We bring them stories of their constituents, the folks who are most affected by this,” Whitney says. “It could be patients, it could be entrepreneurs, it could be people who were waiting 90 minutes for an ambulance to come in the rural part of their state. And we bring research and data to bear and use that to help explain that this is a bad deal. It’s a lose-lose.”

Their efforts to repeal Certificate of Need laws brings out opposition from incumbent providers. They worry that opening up a new hospital in a market that can’t support both will cause both hospitals to close. “The data doesn’t support that,” Whitney says. “We see in Texas and California — two big states with big cities and lots of rural communities and no Certificate of Need laws — that it’s just not happening there.”

Whitney and his colleagues at the Institute for Justice have powerful strategies to win the issue. “We bring research, conviction, and a megaphone for all the people who have been negatively affected by this,” Whitney says.

“We would not be in this fight as an institution if the data and evidence didn’t all point toward the repeal of Certificate of Need as better serving the needs of individual patients, the communities they live in, and the healthcare system as a whole,” Whitney says.

The stories can be more persuasive to the legislators considering Certificate of Need repeal. “It brings attention to the real plight and human costs these laws impose on people and their communities,” Whitney says.

They’ve been successful in places. “Some states have recently enacted some positive changes to their Certificate of Need regimes, including Florida, Montana, New Hampshire and South Carolina,” Whitney says. “There is an inflow of investments in the healthcare community and opportunities for growth, which helps lower costs and raises competition between healthcare service providers, and increases access for patients.”

He talks about Florida’s experience. The fast-growing state added twenty hospitals in the two years prior to changing its Certificate of Need laws. It added 65 hospitals in the two years after.

More may be coming, Whitney says. Legislators in Georgia and Kentucky started task forces to study the issue.

“We are really encouraged by the fact that our efforts seem to be fruitful,” Whitney says. “I’m hopeful that we’re a few years away from some really big and positive changes.”

Check out our conversation at the Overton Window podcast

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