How Crony Capitalism In North Carolina Impacts Medical Costs To Patients

I am a member of an organization called the Coastal Carolina Taxpayers Association (CCTA). The CCTA is essentially a watchdog organization that supports the U.S. Constitution and the concept of free markets. One of the things that has come across the radar of the CCTA lately is the requirement for a Certificate of Need (CON) to build a heath care facility in North Carolina. The bureaucracy surrounding the requirement for a CON prevents competition, innovation, and results in high health care costs for North Carolina residents.

Forbes Magazine posted an article on this subject in December 2014.

The article reported:

Under the existing statute, medical providers often times must ask permission from “The SHCC,” the governor-appointed State Health Coordinating Council, to build or expand an existing health care facility, offer new services, or update major medical equipment. For more on the history and flawed reasoning behind CON laws, see my previous post on the issue here.

The article also reported the state legislature’s desire to change the status quo:

As 2015 approaches, North Carolina legislators have plans to disrupt the health care status quo. Reforming the state’s Certificate of Need (CON) law will hopefully ignite some competition within the health care sector and help to reduce costs for patients.

Approval for another ambulatory surgery center (ASC), a gamma knife, or even a hospital bed is determined in part by a data-driven formula that produces the annual state Medical Facilities Plan, a 450-page inventory that accounts for all types of health care settings and services delivered across the state. North Carolina has one of the most micromanaged CON programs in the country. The SHCC regulates over 25 services, and it can take years for new and established health facilities to break ground. My colleague, economist Dr. Roy Cordato, compares the entire CON with Chinese restaurants:

The commission might have a formula that would look at data regarding how many Chinese restaurants exist per 100,000 or 50,000 or 25,000 in population; how many of those are strictly take-out restaurants and how many are eat-in or ‘sit-down’ restaurants…if it is determined that the community does ‘need’ one more Chinese restaurant…it may not be able to offer take-out service if there are already ‘enough’ take-out restaurants in the area.

The methodology behind the State Medical Facilities Plan may have good intentions, such as preventing underused facilities and incentivize better health care access in underserved areas, but unhealthy limits on competition lets incumbent providers inflate health care costs.

The free market works. Competition lowers prices and promotes innovation. I hope that the North Carolina legislature will follow through on its desire to do away with the Certificate of Need. The Certificate of Need is another example of government interference in the free market that hurts the consumer.