State certificate-of-need laws for hospitals must go

Over the last month, our economy has come screeching to a halt as most Americans were either ordered or encouraged to stay at home to slow the spread of the coronavirus. These measures are necessary because we must "flatten the curve" to prevent our health care system from overload.

Even Italy, where thousands of COVID-19 patients have died due to inadequate health care infrastructure, proportionately has more hospital capacity than the United States. In fact, U.S. hospital beds have drastically declined from nearly 8 per 1,000 people in 1970 to 2.9 per 1,000 people today. The reason is a little-known policy experiment: certificate-of-need laws.

In 1974, Congress passed a law that encouraged states to enact certificate-of-need laws for capital medical expenses. All but one state did and, as a result, state bureaucrats began determining whether we "need" more hospital beds, more ICU capacity, more testing labs and more medical equipment like ventilators. The idea was that artificial limits on the supply of health care would reduce runaway health care costs and improve access to care.

Except they didn't. Within 10 years, Congress repealed the incentives because the policy was a failure. But today, 36 states still have these laws on the books because of parochialism: state legislatures beholden to powerful local health care interests have defeated many attempts to repeal them.

State certificate-of-need laws vary, but they generally work like this: It is unlawful to build any kind of medical facility or purchase new medical equipment without a certificate of need. To obtain a certificate, a company must apply to the state, a process that can cost millions of dollars and take several years. Yet they still risk being denied.

Certificate-of-need laws aren't just ineffective: Powerful incumbent medical providers use them as a weapon to prevent competition. In many states, large hospital systems have such a stranglehold on the process that most would-be competitors don't even bother to apply. We're forced to rely on those same hospitals while they continuously reduce capacity to widen their profit margins because they aren't subject to market discipline, and monopoly markets tend to supply less than competitive markets.

Certificate-of-need laws are so bad that the U.S. Department of Justice Antitrust Division and the Federal Trade Commission have poured significant resources into advocating their repeal. They've published report after alarming report about these terrible policy favors and tried to convince state legislatures to do the right thing. Unfortunately, these pleas have largely fallen on deaf ears.

As antitrust and competition lawyers who fight anticompetitive abuses by state and local governments, we have long focused on certificate-of-need laws. They are antithetical to the national policy in favor of competition embodied in federal antitrust laws, unnecessarily create state-sponsored monopolies and oligopolies, insulate anticompetitive conduct from both private litigation and federal agency enforcement and prevent remedies even in cases where agencies successfully challenge anticompetitive mergers.

And now these laws have left us woefully unprepared for an unprecedented pandemic. We were forced to take more extreme lockdown measures than we otherwise might have needed, with disastrous economic consequences. And more people will die than otherwise would have.

Certificate-of-need laws must go. States should take responsibility and repeal them entirely. Congress should also act now to pre-empt certificate-of-need laws because they interfere with the proper functioning of health care markets in interstate commerce.

But we shouldn't hold our breath. Certificate-of-need laws unconstitutionally burden interstate commerce and, at least in some instances, irreconcilably conflict with federal antitrust law. Now is the time for the federal courts to recognize that certificate-of-need laws are dangerous and have no redeeming virtue.

Aaron Gott is a Minneapolis-based lawyer and Jarod Bona is CEO, both with Bona Law PC, a boutique antitrust and competition law firm with a nationwide litigation practice, bringing federal antitrust lawsuits against state and local governments.