Virginia is one of 36 states with certificate of need licensing laws for healthcare providers, remnants of the 1960s and 1970s that effectively create self-perpetuating medical cartels in the states where they exist.
In the Old Dominion, the state Board of Health must approve all new medical facilities and services, as well as major expansions of existing facilities.
Nineteen separate medical devices and services, including such common procedures as MRIs and CT scans, require a certificate of need (CON) before they can be made available to the public.
The argument in support of CONs is straightforward. The restrictions on competition fostered by such laws provide a way for hospitals to collect more money from some patients, in order to subsidize care for those who can't afford it — a kind of backdoor socialism in which the private sector takes on the role of redistributor of income.
But research by Chris Coopman and Thomas Stratmann at the Fairfax, Va.-based Mercatus Center at George Mason University, a free-market think tank, debunks the theory that CONs provide a boost to charity care. At the same time, they show the real-world effects of restricting competition. In a recent research report, they write that Virginia CONs "could mean approximately 10,800 fewer hospital beds, 41 fewer hospitals offering MRI services, and 58 fewer hospitals offering CT scans."
Here's why those numbers matter: The U.S. average for MRIs is six hospitals per 500,000 population. In Virginia, the ratio is almost twice as high. If you need an MRI in Virginia, you're likely to have to wait longer, travel further and pay more.
Certificate of need laws — or certificate of public need (COPN) as they are ironically known in Virginia — aid the seemingly paradoxical phenomenon of a not-for-profit corporation practicing crony capitalism.
As Watchdog.org reporter Eric Boehm reported in the Wall Street Journal this week, when Tennessee-based for-profit medical giant Hospital Corporation of America proposed moving onto the Virginia turf of Inova Health Systems, Inova sent out mailings and bought newspaper ads that portrayed HCA as a carpet-bagging mega-corporation, in contrast to Inova's supposedly benign nonprofit status.
Inova is hardly a shrinking violet — or a charity case. It posted $2.7 billion in operating revenue in 2014, and reports filed with the IRS show that more than 100 company executives earn in excess of $500,000 a year.
The general consensus in the medical community is that Inova provides excellent care. But so does HCA.
And, according to the Kaiser Family Foundation, the cost of healthcare in the 36 states with certificate of need laws is 11 percent higher than in states that don't have them.
Restricting competition to boost your own bottom line is as base as it gets — especially if you're using special pleading with the government to keep competition away.
State-level CON laws are so widespread because of the federal government. Falsely believing the regulations would help lower healthcare costs, the federal government required states to pass CON laws in the late 1970s as a condition of receiving federal Medicaid dollars. A decade later, Washington realized its error and now encourages states to repeal those laws, but that's difficult to do with entrenched hospitals standing in opposition.
The Mercatus Center's Koopman says established providers and hospitals have a lot to gain from CON laws.
"In many instances, they create a quasi-monopoly," he told Watchdog. "In essence, it's a government guarantee that no one will compete with you until you get notice and an opportunity to challenge that person's entry into that market."
Lawmakers in Richmond have taken notice.
"COPN laws limit competition, which means fewer choices and higher costs for Virginia families," Del. John O'Bannon, R-Henrico, told Watchdog.org. "Reforming COPN is the best way to improve access for patients, expand healthcare services and keep costs under control."
O'Bannon and two of his colleagues have introduced legislation to trim the power of the state Board of Health to manipulate the medical care marketplace. Predictably, Inova opposes the deregulation effort.
But a mounting pile of evidence suggests that certificate of need laws have outlived their usefulness, if they ever had any to begin with. It's time to scrap these vestiges of a bygone era and turn competition loose on the healthcare system.
John Bicknell is executive editor of Watchdog.org. He lives in Haymarket, Va. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.