Many states have a hospital regulatory regime called certificate of need, in which new health care facilities must apply for permission from the government for their existence and “prove” that the existing health care service providers in the geographic region can’t service the existing population. But researchers say that certificate of need regulations lead to artificially constricted supply and a pseudo-monopoly – and that some of the justifications for these regulations fall short.
Virginia has some of the strictest certificate of need (CON) laws in the country, justified by incumbent providers claiming that their regulatory advantages allow them to serve customers better, as well as provide charity care to the least vulnerable. But some providers in Virginia have recently instituted stricter regulations on who qualifies for charity care within their service areas, while at the same time raising prices because, they argue, they have to absorb the costs of the charity care.
“The primary justification for certificate of need laws is that it allows incumbent hospitals and providers to cover the cost of charity care,” Christopher Koopman, senior research fellow at the Mercatus Center at George Mason University, told Watchdog.org. “The idea being that giving them a monopoly or a quasi-monopoly gives them the ability to charge paying customers more, and then use those excess profits to cover the cost of nonpayer care.”
In Fairfax County, incumbent provider Inova made changes to its charity care policies without approval from the Health Care Advisory Board – approval that has been required under agreements between the incumbent provider and the board. Inova recently put charity care eligibility restrictions in place based on geography and residency.
As the HCAB meeting summary says:
“[Inova representative] Mr. Magenheimer acknowledged that the changes Inova proposed to its charity care policy should have been presented to the Board of Supervisors for approval, per the requirements of Inova’s lease agreement with the County. … It was pointed out that the lease agreement does not allow for eligibility determinations based on nationality. Residency or citizenship requirements are questionable under those parameters.”
Regardless of the “questionable” distinction, Inova pushed forward with the residency restrictions for charity care. Representatives for the HCAB’s chair told Watchdog.org that the legality of this was unclear.
Over the past two years, Inova relaxed its income requirements for charity care — to up to 400 percent of the federal poverty line — then used that expansion as justification to raise prices for paying customers. Then, at the end of 2016, Inova said that its expanded income eligibility was more expensive than previously thought — requiring yet another price hike, and the need to “re-evaluate” the income expansion.
So the incumbent health provider, granted a quasi-monopoly by Virginia’s certificate of need laws, was able to raise prices by citing its expansion of charity care benefits, then raise prices again while citing the need to re-evaluate its charity care policies because it was too expensive.
“There is no relationship between the presence of a certificate of need law and any increase in charity care,” Koopman told Watchdog.org. “Certificate of need laws are a very clunky, awkward, inefficient attempt to cover the cost of nonpayer care.”
As Watchdog.org has reported in the past, certificate of need laws have been found to be anticompetitive and result in worse health outcomes for patients. From Florida to Vermont to other states with CON laws, studies show that the regulations decrease Americans’ access to health services, including hospitals, private practices and emergency rooms. CON laws have shown little ability to decrease costs of services or improve quality, either. And they give political power to incumbent health providers – particularly large chains – that can be used to shut down the potential expansion of competitors.