Certificate of Need blocks health care consumers from reaping benefits of competition
Published June 3, 2021
By Mitch Kokai
UNC Health wants to build a new hospital in Research Triangle Park. So does Duke University Health System.
If we substituted the names Saks and Nordstrom, Fresh Market and Whole Foods, or any other top-notch business competitors, potential customers would have reason to celebrate.
Both rivals would scramble for better ways to win consumers’ business. They would devote attention to scouting out convenient locations, putting together the highest-quality products and services, and finding every possible way to offer the best bang for the buck. Both would strive to open quickly — getting an early jump on the competition.
Knowing that the consumer could choose at any time to jump to the other option, both sides would maintain an unrelenting focus on satisfying those who walk through their doors.
Whichever firm wins the next sale, the consumer ultimately wins from the ongoing economic battle.
Alas, those who live and work near RTP will reap no such benefits from the health care competition between UNC and Duke. In fact, it’s unlikely that more than one of the two competitors will have a chance to open a new facility.
Rather than allowing the two regional health care giants to duke it out, state regulators will choose a single provider of new hospital beds in the fast-growing area. History suggests the process could stretch out for years. Money that could be used to buy better equipment or build better facilities will instead pay for lawyers. They will slog through red tape and wage courtroom battles.
It’s all part of the process tied to a government-mandated permission slip: the certificate of need. Without a CON, no one can build a new hospital in the Triangle. Not UNC. Not Duke. Not any other existing hospital operator. And forget about any health care entrepreneur who has yet to enter the market.
North Carolina removes decisions about new health care facilities and major medical equipment from providers and consumers. Instead the state assigns those decisions to a 29-member board. That group, appointed completely by the governor, works alongside bureaucrats at the N.C. Department of Health and Human Services. It’s a clear-cut case of choosing central planning over market forces.
People in one Wake County town know the impact of central planning on access to convenient health care. The News & Observer recently reminded readers that Novant Health first proposed a new Holly Springs hospital in 2008. State regulators rejected that proposal and a follow-up plan in 2011.
UNC Rex Hospital won state permission for a similar proposal the following year. A court battle delayed the project for another couple of years. Then higher-priority items prompted UNC and Rex to push back construction until 2019.
If current plans work out, Holly Springs will get its new hospital in September. That’s 10 years after UNC Rex’s original proposal and 13 years after regulators first rejected Novant Health’s plan.
It’s hard to imagine fast-growing Holly Springs would have been forced to wait more than a decade for its own hospital if the state had not interfered with market forces. Had Novant Health or any other provider started construction in 2008, it’s likely that Holly Springs-area patients would have had more convenient access to hospital care for the better part of the past decade.
UNC Health officials told the N&O they expect to open the new RTP hospital in 2026, if regulators grant approval. Free UNC and Duke today to pursue their competing plans — without the government permission slip — and it’s likely that the timeline for new hospital access would be much shorter.
Some readers are likely to respond: Health care is different. State government needs to play a leading role in safeguarding the public. It’s not the same as people choosing between high-end fashion outlets or grocery stores.
That argument might work, if it were clear that the CON process leads to better access or quality of health care. Evidence suggests otherwise.
Fifteen states operate no CON program. It’s not clear that those states suffer any adverse impacts from eliminating the government permission slip.
Meanwhile, among the states that continue to issue CONs, there’s wide variation in the types of facilities and equipment covered. North Carolina has been ranked No. 5 in the severity of its CON restrictions. No one can cite proof that the enhanced level of government oversight means better health outcomes.
A 2019 state court dispute involving CON actually pointed toward the opposite conclusion. In a fight over a new magnetic resonance imaging machine for Wake County, regulators awarded a CON to Duke Health instead of competitor Raleigh Radiology. The N.C. Court of Appeals defended the state’s decision. But the majority decision in the case included this assessment: “Admittedly, there was evidence that Raleigh’s proposed MRI machine was superior to the machine that Duke would use.”
Rather than allow Duke and Raleigh Radiology to move forward with their competing MRI machines, the state decided instead to choose one provider for every customer. Evidence suggested that the government’s choice would block customers from access to “superior” technology.
It’s hard to defend a government restriction that thwarts competition. That’s especially true when the restriction delays consumer access to potentially life-saving facilities and equipment. The more people know about the certificate of need, the more it appears to be a bad CON game.
Mitch Kokai is senior political analyst for the John Locke Foundation.