The longer you look at U.S. health care, the more cronyism you see. The Mercatus Center reports on Certification of Necessity (CON) laws in health care—specifically in New Hampshire (h/t Ben Domenech). CON laws exist in many fields and require businesses to get state approval before entering a market. We’ve written about a regulation in Kentucky, for example, that forced an entrepreneur who wanted to open a new moving company to demonstrate that his business would fill a real need. Thankfully, a judge recently ruled against that law, but other types of CONs exist nationwide.CONs in health care require health care providers to get permission from the government to offer certain services or purchase certain kinds of equipment. One rationale offered for those laws relied upon the idea that health care CONs would reduce the cost of health care by restricting the supply. But evidence that CONs failed to reduce health care costs persuaded the federal government to abandon them in 1987. Several states, however, among them New Hampshire, still have CON laws on the books:
In particular, in New Hampshire these programs result in approximately 1,300 fewer hospital beds, seven fewer hospitals offering MRI services, and nine fewer hospitals offering computed tomography (CT) scans. For those seeking quality health care in New Hampshire, this means less competition and fewer choices, without increased access to care for the poor. […]Many early studies of CON programs found that these programs fail to reduce investment by hospitals. These early studies also found that the programs fail to control costs. Such findings contributed to the federal repeal of CON requirements. Since then, more recent research into the effectiveness of remaining CON programs as a cost-control measure has been mixed. While some studies find that CON regulations may have some limited cost-control effect, others find that strict CON programs may in fact increase costs by 5 percent. The latter finding is not surprising, given that CON programs restrict competition and reduce the available supply of regulated services.
The cost rationale behind CON is consistent with a lot of health care policy thinking in America these days; it’s the idea that you can reduce costs by imposing top-down discipline on health care providers, whether by price controls or limiting the equipment providers can use. The second way—the way of the CONs—is especially foolish because artificially reducing supply usually raises the cost of goods offered by the select providers who remain. But in truth the only really sustainable way to reduce consumption (and thereby its costs) is to reduce demand, through markets and normal consumer behavior, and to facilitate innovation that makes care cheaper and more efficient. The sooner the wonks realize that, the better.