Repealing CON Laws Saves Lives
By Sriparna Ghosh, Agnitra Roy Choudhury, and Alicia Plemmons, courtesy of the Mercatus Center
Imagine you have respiratory distress from an underlying non-COVID illness and are taken to the hospital. This hospital is subject to certificate-of-need (CON) laws, which means that there are government-imposed limitations on the number of CT scanners, respirators, and many other long-term acute care services available. This hospital has also been combating a large outbreak of SARS-CoV-2 in the local community, and its resources are stretched to the limit. Because of the CON laws in place, the hospital was unable to acquire additional resources outside of the hospital and instead borrowed from its non-COVID hospital wing to treat COVID patients
How does this affect your chances of survival? If the state were to repeal or suspend these CON laws during the pandemic, how would this affect your chances of recovery? Using mortality and hospital capacity data, we find that states without CON laws between mid-March and late June 2020 had fewer hospital deaths than states with CON laws and that more than half of these lives saved were non-COVID patients.
CON laws, first instituted in New York in 1964 and popularized with the 1974 introduction of the National Health Planning and Resource Development Act, were designed with the intent of keeping healthcare costs low and ensuring access to crucial medical resources by impoverished citizens. These laws often consist of an application and review procedure both for hospital requests to expand resources or services and for nonhospital healthcare services such as ambulance access. In the application, a hospital must prove that its requested expansion would serve an “unmet need of the community.” This means, for example, if CT scanning were available at one hospital, a different hospital within the same city might not be able to also offer this service. The rationale behind the CON requirement is that the hospital with the CT machine would many patients, keeping overhead costs per patient low.
Though there is plenty of research on the questionable legitimacy of these laws, this sort of highly regulated system for limiting expansions can theoretically work when the number of patients is predictable. In reality, however, CON laws not only increase per-unit healthcare costs by limiting the availability of healthcare supply but also affect the quality of health services. Governments would be making the decisions on the healthcare needs of patients rather than hospitals and doctors. States with CON laws not only exhibit shortages of healthcare facilities including hospital beds, imaging facilities, ambulatory surgical centers, dialysis clinics, and hospitals themselves, but also have higher death rates from heart failure and post-operative complications. The effect of CON law restrictions has been amplified during the pandemic, leading to a shortage of approximately 8,000 beds (per 10,000 residents) in a CON law state compared with a shortage of 114 beds (per 10,000 residents) in a non-CON-law state.
The COVID-19 pandemic would not, in any circumstance, be considered predictable, as states saw a surge of thousands of people lined up in ERs who were desperately in need of hospital beds and long-term acute care. Even before the COVID-19 pandemic, researchers had found that states with these laws in place had 99 fewer hospital beds per 100,000 people, and between one and two fewer hospitals with MRI machine capabilities per 500,000 people. That is a substantial difference in medical equipment, especially in light of the ever-increasing numbers of COVID cases we are seeing in the United States.
These laws were not written during a pandemic, nor were they designed to adjust for a high volume of changes in the demand for medical services in a short period of time. The collateral damage of COVID-19 is reflected in the spike of non-COVID-related deaths from chronic lower respiratory disease, pneumonia, influenza, etc. In our research paper “Impact of CON Laws on the Access to Health Care during COVID-19,” we find that the regulatory bottlenecks caused by CON laws may have magnified the drastic impact on mortality for all types of patients, not only those suffering from coronavirus.
Between March 15 and June 30, 2020, the United States experienced roughly 100,000 coronavirus deaths and case rates in the millions. At the onset of the pandemic, 35 states and the District of Columbia maintained some version of CON laws that limited hospital expansions without government permission.
In response to the pandemic, 22 states (during the time period of our study) took steps to repeal or suspend these CON law limitations to allow hospitals to purchase equipment without a lengthy review process. The magnitude of the suspension varied slightly across states, as some repealed the laws for all types of purchasing while others focused primarily on allowing respiratory- and hospital-bed-related expansions. Unfortunately, by the time these states had decided to review these imposed bottlenecks, many hospital systems were already strained.
In our study, we collected time-series weekly data from the CDC on deaths from COVID and other respiratory-related illnesses and federally provided data on hospital and ICU capacity over 15 weeks. We then compared mortality trends for states that always had CON laws, those that never had these restrictions, and states that temporarily repealed or suspended their rules during the pandemic to determine if there were any noticeable differences in deaths related to these regulatory changes. We found that in states with high ICU usage (an indicator of states that are highly affected by COVID), repealing or suspending CON laws saved 28 lives per 100,000 people. Notably, only about 11 of these lives saved were COVID-19 patients. The others were patients with various conditions that use similar long-term acute care equipment, such as respirators—chronic lower respiratory disease, pneumonia or influenza, diabetes, septicemia, Alzheimer’s disease, and other illnesses that may require long-term care.
Borrowing equipment from non-emergency departments seemed like a great idea for dealing with unexpected shortages in ICU and ER equipment, but these decisions may have harmed the non-COVID patients that still required medical attention. It was a way for some hospitals and counties to work around the regulatory hurdles of CON law limitations to acquire equipment that they had not been allowed to stockpile in case of an emergency. More than half the lives saved in states that temporarily repealed these laws were patients who were entirely unconnected with the pandemic. This signals an important lesson on resource allocation: even legislation that is intended for the benefit of many is still subject to unintended consequences.
This finding has crucial policy implications for states. An easy change is to remove these regulatory hurdles and allow hospitals to make their own purchasing decisions. This should include eliminating all the quantity restrictions for medical equipment and services. States should suspend CON laws through the duration of the pandemic and allow hospitals to benefit from the most basic form of price and quantity regulation there is—market competition. With market competition, hospitals can obtain the supplies they need while also keeping costs to patients low enough to satisfy equilibrium with market demand.
This will allow hospitals to take swift and necessary actions to ensure that the largest number of patients, COVID or otherwise, gets to leave the hospital to see their families again, avoiding unnecessary and preventable deaths of thousands of Americans. In the long term, a permanent repeal of CON laws after the pandemic is over would allow healthcare systems to prepare for future emergencies.
CON laws that put arbitrary limits on medical expansions cause resource constraints during demand surges, and they significantly endanger patient welfare and limit the ability of medical staff to save lives. Hospitals should be encouraged to maintain the capacity and equipment they see fit to prepare for high-risk events. Epidemiological experts expect that the current pandemic will be far from our last encounter with SARS-derived pandemic conditions. In fact, it may not even be the last in our lifetimes. A common saying in the medical profession is, “An ounce of prevention is worth a pound of cure.” Repealing CON laws could be an ounce of prevention that saves countless lives as well as billions of dollars in last-minute medical supply scrambles and shortages during emergencies.
Sriparna Ghosh is an assistant professor of economics at the University of Cincinnati, Blue Ash. Her research interests include applied microeconomics, public economics, economics of entrepreneurship, and health economics. Agnitra Roy Choudhury is a visiting assistant professor at Auburn University at Montgomery. His primary research fields are health economics, regulatory economics, labor economics, and applied microeconomics. Alicia Plemmons is an assistant professor in the Department of Economics and Finance at Southern Illinois University, Edwardsville. She is also a research affiliate of the Knee Center for the Study of Occupational Regulation at St. Francis University. Her primary research focuses on understanding how occupational regulation affects underrepresented minority communities and entrepreneurship.