What We Can Learn From Efforts to Repeal Bad Laws

Bad public policies die hard. So, when they do go away, we should celebrate. But we should also study these policies and the actions that led to their repeal to see how and why they happened. Consider state Certificate of Need (or CON) regulations in healthcare. Long thought to be a permanent fixture of the American healthcare landscape, CON laws are slowly disappearing. That’s great news for patients, providers and payors. These repeals can also provide a roadmap for the elimination of other harmful special interest privileges.

In states with CON laws, providers who wish to open or expand their services must first prove to a regulator that the service in question is “needed.” For example, a home healthcare specialist in Mississippi must show that the state needs more home healthcare agencies before she can start caring for those in her community. Similarly, a substance abuse counselor in Georgia must show that there are enough people suffering from addiction in his community to justify his services there. And a hospital that hopes to open a burn care unit in Hawaii must first prove that the services will not duplicate existing services already being offered. (For more on the real world impact of these laws, read the following four-part series published in Discourse.)

Currently, 39 states, plus Washington, D.C., have at least one CON requirement in healthcare, but many programs are relatively limited. Additionally, 33 states currently impose three or more CON requirements, and they apply to dozens of services and technologies from hospital beds and hospice care to obstetrics and open-heart surgery units.

Originally conceived to restrain unneeded healthcare spending, the federal government encouraged states to adopt these rules in 1975 by threatening to withdraw federal funding from any state without such a program. Yet even after Congress stopped encouraging these laws in 1986, most states retained them. It’s easy to see why: The rules protect well-heeled and politically organized hospitals from competition. The patients and payors who are harmed typically don’t even know that the regulations exist, let alone how they operate. Ironically, the Federal Trade Commission and the U.S. Department of Justice now both consider CON laws to be anti-competitive. But the federal government deserves much of the blame for encouraging these rules in the first place.

There is a warning here: Once granted, special interest privileges are extraordinarily difficult to withdraw, even when the evidence against them is overwhelming. This is especially so when the privilege is regulatory in nature and—like CON laws or many occupational licensing rules—is perceived as obscure, boring or difficult to understand.

Providers can spend years and tens or even hundreds of thousands of dollars attempting to prove that their communities need their services. In most states with these laws, existing providers are allowed to take part in the process, to object to a would-be competitor’s application, and even to sit on the board that makes the decision. Typically, a CON application will be denied if these incumbent providers can convince the regulator that the new service will “duplicate”—i.e., compete with—an existing service. It’s common for a competitor to drop their objection after the entrant agrees not to encroach on their territory. These practices would be clear violations of antitrust laws if they weren’t organized and encouraged by state governments.

CON laws have been exhaustively studied. There have been 128 peer-reviewed academic papers on the topic, and the evidence from this research makes it clear that CON programs don’t work as advertised. By limiting supply and creating local healthcare monopolies, the regulations have demonstrably increased spending rather than reduced it. They also clearly limit patients’ access to healthcare services and may even undermine the quality of care. Indeed, for every one assessment that associates CON laws with a “good” outcome—such as limiting a costly procedure—there are nearly five that associate them with a “bad” outcome, such as higher costs, fewer cancer treatment facilities, higher mortality rates or greater racial disparities in the provision of care.

Still, as I pointed out earlier, there has been a growing and successful effort in many states to eliminate these laws, a movement that can teach us some valuable things going forward. With that in mind, here are five lessons:

First, reformers should “strike while the iron is hot.” When Congress withdrew its support for CON laws in 1986, 11 states immediately eliminated their CON programs. Some even did away with the laws in anticipation of congressional action. At no other time were so many CON programs eliminated or pared back. Those who delayed just gave special interests more time to organize.

Second, if the iron is not hot, reformers should settle in for a multiyear legislative campaign. The most recent CON reform efforts, such as repeals in Florida in 2019 and in South Carolina in 2023, took several years to come to fruition.

Third, crises can be a catalyst for change. When COVID hit, many policymakers were shocked to learn that their states made it illegal for hospitals to add beds without obtaining a CON. About two dozen states temporarily relaxed or suspended their CON requirements and, in many of these states, permanent repeal efforts gained momentum. It also helped that researchers found that those states that relaxed their programs had lower mortality rates.

Fourth, the most successful efforts marshaled a broad coalition of stakeholders, including patients, payors, doctors, researchers and device makers. On their own, each of these groups would have been outmaneuvered by the hospital associations that want to keep CON laws in place. But in Florida, South Carolina and elsewhere, they all spoke up against CON laws and found greater effectiveness in numbers.

Finally, there is some evidence that effective reform efforts can have a snowball effect. In recent years, reform in one state seems to have sparked interest in reform elsewhere. When Florida moved to eliminate most CON requirements in 2019, several other states took notice. In 2021, Montana outdid Florida, eliminating all but two CON requirements. This year, South Carolina outdid them both by eliminating all but one CON requirement. South Carolina’s achievement was especially impressive given that the state had one of the country’s most comprehensive programs, with 18 regulated services and technologies. Now there are viable CON reform or repeal efforts in Kentucky, North Carolina, Georgia, Mississippi, Iowa, Alaska and West Virginia.

So where do we go from here? In the last Republican presidential debate, former governor of South Carolina Nikki Haley talked about the need to get rid of CON laws as a way to “bring competition back to healthcare.” It’s not clear what she wants the federal government to do, but it’s a good sign that the issue has gained the attention of a presidential candidate. Others are pursuing legal challenges. Anastasia Boden, director of the Robert A. Levy Center for Constitutional Studies, recently explained that the 14th Amendment was intended to protect just the sort of economic and civil rights that CON laws violate.

Specifically, its privilege or immunities clause was designed to protect the right to work and compete with others, while its due process clause has been interpreted to do the same. In one fell swoop, the Supreme Court could restore the original meaning of the 14th Amendment, strengthen the civil rights of all Americans, and improve the nation’s deeply flawed healthcare system.

But until that happens, the more traditional route to change runs through your local legislature. And those who wish to travel it can look to a handful of states as guides. South Carolina, Montana and Florida all demonstrate that CON laws can be repealed when a broad and well-organized coalition of stakeholders is armed with the evidence and willing to wage a multiyear campaign. Their successes can also be a model for the elimination of other special interest privileges such as occupational licensure or targeted economic development subsidies.