Why Tennessee must reform Certificate-of-Need regulations to improve health care market | Opinion
Despite reforming our Certificate-of-Need (CON) laws twice in the last decade, these unnecessary regulatory burdens in Tennessee continue to raise the cost of our healthcare and reduce its access and quality.
The Volunteer State maintains onerous CON laws on healthcare specialties which few other states regulate. Piecemeal reforms to this outmoded regulatory system are not sufficient when our healthcare is at stake; it is time for our legislators to do some serious spring cleaning in the 2022 legislative session.
Certificate-of-Need laws mandate an extensive and costly approval process for new healthcare facilities and services. CON laws were adopted to control healthcare costs when healthcare operated on a cost-plus reimbursement model.
This model, which incentivized cost inflation and over-prescription, was rightfully abandoned. However, the regulatory structure remained in place in several states, including Tennessee.
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We have reviewed the evidence on CON laws
CON laws are still intact because legislators kowtowed to healthcare providers who benefit from the regulation. The laws allow existing providers to deter and even block potential competitors under the pretense that the new competitors would be duplicating existing services.
The CON framework is essentially nonsense because a market economy already allows consumers to judge whether a new provider is warranted or not. Just as we don’t give McDonald’s a say in whether Five Guys should be allowed to set up shop, we shouldn’t provide incumbent healthcare providers a say in new investments to better meet the needs of Tennesseans.
The kowtowing persists every time reform is attempted here in Tennessee, preventing meaningful improvement to our crony system.
Our new policy paper, “Advancing Certificate-of-Need Reform in Tennessee,” extensively reviews the evidence on certificate-of-need laws, finding that most healthcare services covered by CON laws in Tennessee lack empirical justification. Many states, including our neighbors, have done a much better job at brush hogging these programs, which tend to be as hard to eradicate as kudzu.
The evidence we review finds that CON laws systematically raise healthcare costs, decrease healthcare availability for rural residents, and lower healthcare quality. But, this is precisely what economic theory predicts when you give an industry the cartel-creating power to quell competition. By artificially restricting healthcare capacity, CON laws become particularly burdensome in the face of global pandemics, natural disasters, or acts of terrorism.
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Repeal burdensome legislation in the 2022 session
Eleven states have already moved ahead of Tennessee, pursuing the best reform: comprehensive repeal of their CON laws. Our study, however, reviews a wide range of other possible reforms, including sunset clauses and partial repeal, which have also been implemented successfully in other states.
Certainly, healthcare specialties in Tennessee not extensively regulated by CON laws in other states should be freed of this regulatory burden due to the limited risk that they will be overprescribed. Such specialties include burn care units, linear accelerator radiology, hospice, NICU’s, organ transplants, home health, and PET and MRI scanners.
Tennesseans deserve to enjoy the benefits of market competition, especially when it comes to our healthcare. Despite recent reforms, CON laws continue to compromise our quality of life by rising healthcare costs and reducing access and quality.
Legislators should consider addressing this critical issue in the 2022 legislative session and repeal these burdensome regulations.
Macy Scheck is a Ph.D. research fellow with the Political Economy Research Institute. Daniel J. Smith is the director of the Political Economy Research Institute at Middle Tennessee State University and professor of economics at the Jones College of Business.
This article originally appeared on Nashville Tennessean: Tennessee must reform Certificate-of-Need rules for better health care
