This one’s been rattling around in my head for a while, so bear with me.
Here in Tennessee (and in about three dozen other states), if a hospital wants to add beds, open a new facility, or buy a piece of expensive equipment like an MRI machine, they can’t just do it. They have to ask the state for permission first. It’s called a Certificate of Need, or CON for short. The more I read about it, the more I think it’s backwards.
Wait, You Need Permission to Build a Hospital?
The idea got started back in the 1960s and 70s. The thinking was that if hospitals could build wherever they wanted, they’d overbuild and duplicate services, and the cost of all those empty beds and unused machines would get passed along to patients. So states set up CON boards, and if you want to expand or build, you have to prove there’s a “need” for it, usually to a board made up of people connected to the existing hospitals and health systems in the area.
That means existing hospitals often get a seat at the table when a new competitor applies to build nearby. I don’t think I need to spell out how that usually goes.
The Basic Economics
I’m no economist, but one thing has always stuck with me from the one econ class I took decades ago: when supply goes up relative to demand, prices tend to come down. It’s about as close to a law of nature as economics gets.
In most industries, if a company sees demand somewhere, they can just open up shop, and the competition usually benefits the customer. In health care, under CON laws, the existing players get real influence over whether a new competitor is even allowed to exist. That’s not really a free market.
A few things worth noting:
- States with CON laws tend to have fewer hospitals and hospital beds per capita than states without them.
- Multiple studies have found CON states have higher, not lower, health care costs than non-CON states.
- Rural areas, which CON laws are supposed to help protect, are often hit hardest, since CON laws make it harder for a new provider to step in when a struggling rural hospital closes.
“But Won’t Hospitals Overbuild?”
Maybe some would. But that’s true of every industry, and we don’t usually solve it by requiring businesses to get permission from their competitors before expanding. If a hospital overbuilds, it bears the cost of that decision. That’s how markets are supposed to work, without a state board picking winners and losers ahead of time.
Given how much capacity we actually need right now, overbuilding doesn’t feel like the risk to worry about. ER wait times are bad. Specialist appointments can take months to get. Rural hospitals keep closing. Meanwhile, hospital systems that would like to expand or build a new facility often can’t, because the people who already have a facility nearby get to object.
A Fair Point on the Other Side
Health care isn’t quite like opening a new coffee shop. There’s a reasonable argument that duplicated high-end equipment, like every hospital in town having its own MRI sitting half-idle, can drive up costs in some cases. That’s worth taking seriously. But the answer probably shouldn’t be letting existing hospitals vote on whether a competitor gets to open at all. There are better ways to address genuine overcapacity concerns.
Where I Land
When the people who already have market share get to decide whether new market share is allowed to exist, it shouldn’t surprise anyone that very little new market share gets approved. That’s not a flaw in the system. That’s the system working as designed, just not for the benefit of patients.
If we want more hospital beds, shorter ER waits, and lower costs, the fix probably isn’t more paperwork and more permission-asking. It’s letting supply respond to demand the way it does in most of the rest of the economy.
Anyway, that’s my two cents.
