Feds Urge Repeal of Alaska Law on Healthcare Competition

Under the state’s certificate-of-need laws, providers must get state approval for expansion projects or new construction. The FTC says that limits competition and doesn’t benefit consumers.

The Federal Trade Commission weighed in last week on a healthcare policy change being considered by the Alaska legislature, testifying in favor of repealing the state’s certificate-of-need (CON) laws.

The federal government’s vocal opposition to state-level CON laws brings the debate full circle. It was the federal government, after all, that pushed states to enact such policies more than four decades ago, in an effort to keep healthcare costs under control. Now the feds argue the laws don’t work.

Daniel Gilman, attorney advisor for the FTC Office of Policy Planning, told members of the Alaska Senate Committee on Labor & Commerce that the laws were enacted with the laudable goals of reducing healthcare spending and improving access to care.

“However, after considerable experience, it has become apparent that CON laws do not provide the benefits they originally promised. Worse, in operation, CON laws can undermine some of the very policy goals they were originally intended to advance,” Gilman told lawmakers Tuesday via teleconference.

Alaska’s CON laws require a formal review process before certain healthcare facility projects can move forward. The process evaluates whether the plan fits a community’s needs, and it includes an opportunity for public comment.

Gilman said such laws create three big problems: (1) They impose barriers to entry and expansion, which can limit healthcare options in a market and drive costs; (2) they can enable existing organizations to block or delay competition from newcomers; and (3) they can withhold from consumers certain legal remedies following an anticompetitive merger.

Others testified in favor of keeping the laws, arguing that Alaska’s rural populations and unique geography necessitate protections the free market does not provide.

A brief history

In 1964, New York enacted the first CON law program in the nation, according to a report by Matthew D. Mitchell, a senior research fellow and director of the Project for the Study of American Capitalism at the Mercatus Center at George Mason University. A number of other states then followed suit.

In 1974, President Gerald Ford signed the National Health Planning and Resources Development Act, which withheld funding from any state that failed to enact CON laws to regulate healthcare facilities, Mitchell noted. Within the decade, every state except Louisiana had established a CON program in one form or another.

In 1986, however, Congress repealed the federal law, lifting the requirement it had imposed on states. Since then, only 15 states have repealed their laws.

Mitchell, who also testified before the committee via teleconference, said states with CON laws have fewer hospitals and other healthcare facilities than states without such laws, so Alaska would be better off without the policy.

“The data suggest that Alaska without CON would have 45% more rural hospitals than it currently does,” Mitchell told the committee.

But State Sen. Gary Stevens, a Republican, sounded unconvinced.

“That makes absolutely no sense to me,” Stevens said. “Half of our population lives in rural Alaska, half in urban. I can’t imagine 45% more hospitals in rural Alaska.”

Alaska’s unique needs

Becky Hultberg, president and CEO of the Alaska State Hospital and Nursing Home Association, who testified in person in favor of keeping the state’s CON laws, said Mitchell’s numbers might work on paper but not in the real world.

“I think that was a mathematical equation that doesn’t necessarily take into account the geographic realities of this state,” Hultberg said. “And while I appreciate the research that was done, I do not think that it necessarily applies to our market.”

Alaska, which is more than twice the size of Texas, is both the biggest and most sparsely populated state in the country, home to about 750,000 people. (There are more people living in Charlotte, N.C., which is less than 300 square miles, than there are in all of Alaska’s more than 660,000 square miles.)

This low population density, combined with the region’s harsh winters and many islands, exacerbate the challenges of rural healthcare, Hultberg said.

“It was great to hear those perspectives from folks who are in the lower 48,” she said after listening to presentations by a number of experts, advocates, and researchers in other states. “I think their perspectives are perhaps valuable and relevant to a lot of markets, but I want to turn the attention back specifically to Alaska.”

Critics of CON laws say they’re often used by existing healthcare organizations to keep potential competitors at bay, but Hultberg said Alaska’s policies provide a rigorous approval process overseen by state officials, without needing the assent of incumbent organizations in any market.

The FTC’s message

State Senate Majority Leader Peter Micciche, a Republican, asked the FTC’s messenger whether eliminating CON laws might undermine the availability of care provided on a charitable basis.

In reply, Gilman said the existing body of research based on the experiences of the 15 states that have already repealed their CON laws should be enough for Alaska lawmakers to confidently repeal theirs as well.

“In some respects, Alaska is unique, but we do have other states with substantial rural regions, and we do have other large states where many people have concerns about care being delivered in rural areas. Many people have concerns about critical access hospitals and so forth,” Gilman said.

“We have not done a special study about this issue in Alaska, and maybe in some ways that’s missing, but in some ways that’s an advantage,” he continued. “What we have seen nationally is that CON laws, including in rural states, do not improve charity care.”

Gilman addressed the committee at the invitation of State Sen. David Wilson, a Republican, who denounced the CON laws as “a substantial threat for the proper performance of healthcare markets and services,” one which stifles innovation and limits choice.

“Alaskans need and deserve a free market where laws of supply and demand direct production of goods and services,” Wilson said. “The force of competition can help keep price low.”

A vote on the bill had not been scheduled as of Monday morning.

More on CON laws across the country is available from the National Conference of State Legislatures.