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Rural Virginia suffers from medical facility licensing scheme

By   /   February 19, 2016  /   News  /   No Comments

New research shows how people living in rural areas get the short end of the stick when states use anti-competitive licensing laws to control and regulate health care markets.


WRATH OF CON: So-called Certificate of Need laws restrict competition in healthcare markets by requiring providers to obtain government permission slips before adding or expanding facilities and services.

Certificate of Need laws restrict competition in health care markets by requiring providers to obtain government permission before adding or expanding facilities and services. Outpatient surgery centers, which are subject to CON licensing rules in 26 states, can provide needed services in areas where there are no nearby hospitals, but are often blocked from doing so.

Chris Koopman and Thomas Stratmann, economists with the Mercatus Center, a think tank in Virginia, compared the number of outpatient surgery centers per 100,000 residents across multiple states with CON laws and those without them. The licensing rules have resulted in less access to care in those areas than might have happened in a free market, the research shows.

“As barriers to entry, CON programs do not promote access to rural care in the form of rural hospitals,” Koopman and Stratmann conclude in a paper released Thursday. “CON laws are associated with a decrease, not an increase.”

When many states passed CON laws in the 1970s, one of the stated goals was, ironically, to ensure health services for rural areas.

After many decades, these licensing laws are starting to come under scrutiny from state lawmakers.

Virginia is one of several states considering reforms this year. Two bills aiming to scale back the state’s Certificate of Public Need program cleared the state House earlier this week and are awaiting action in the state Senate.

The bill to watch is HB 193, which sets up a three-phase deregulation of COPN for several parts of the state’s health care market, including outpatient surgery facilities. The bill is facing stiff opposition from major hospitals in the state, but narrowly passed the House on Tuesday.

Two Democrats joined 50 of the chamber’s Republican members to pass the bill. Sixteen Republicans and 32 Democrats voted against it.  (Full vote tallies here)

“It’s incredibly important for residents to have access to affordable health care, better health care that will be closer to where they live,” State Del. John O’Bannon, R-Henrico, the bill’s sponsor, told Watchdog.

The other bill contains milder reforms and would leave hospitals under COPN licensing rules. It aims to streamline the licensing process by enacting several changes recommended last year by a legislative study commission. It passed the House 94-4 on Tuesday.

The two bills were referred to the Senate Committee on Education and Health. There is currently no timetable for a Senate vote.

Gov. Terry McAuliffe has not responded to requests from Watchdog regarding his administration’s stance on the two bills.

Without licensing laws to protect their markets, hospitals say, there would be too much competition from those smaller facilities that offer specific services. Because hospitals are legally obligated to care for everyone who comes through their doors, they worry that outpatient medical facilities will skim off patients who can afford to pay for such services, leaving hospitals to care for more patients without good health coverage who may not be able to pay their bills.

READ MORE: Hospitals cry poor in lobbying effort to keep anti-competitive licensing laws

Koopman and Stratmann say the data does not support the concern about “cream-skimming” by ambulatory surgical centers. That’s because CON licensing laws do more than merely prevent hospitals from having to compete with specialized surgical centers. They keep many different health care providers from even trying to get into the market, particularly in rural areas.