[Editor’s note: This story originally was published by Real Clear Health.]

By Robert E. Moffit

Real Clear Health

America needs healthy competition. In the healthcare arena, competition expands patient choice, controls cost  and stimulates innovation in the delivery of medical care.  Anti-competitive policies result in market consolidation – meaning  less  competition – especially among  America’s  hospitals.

Consensus on this point transcends Left and Right.  Brookings  Institution scholars  have  observed:  The U.S. healthcare system does not work as well as it could or should. Prices are high and rising, there are serious quality problems, and many characterize the system as rigid and unresponsive, lacking dynamism and innovation. A lack of competition is a major contributor to this dysfunction.

Similarly, Alex Azar, HHS Secretary under Donald Trump,  reported, “Reduced competition among clinicians leads to higher prices for healthcare services, reduces choice, and negatively  impacts overall healthcare quality and the efficient allocation of resources.”

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Among the culprits are certificate-of-need laws  on the books in 35 states  and the District of Columbia.  Not surprisingly, healthcare costs in states with these anti-competitive laws are  11 percent higher  than states that do not.

Under these laws,  hospital officials or medical providers wishing to build, expand or modify a hospital or medical facility must first prove to a state agency that there is a “need” for their proposed action.  Only if the agency agrees do medical providers get a  “certificate of need,”  a government permission slip allowing them to start the project.

Securing a certificate-of-need often requires detailed studies, analyses  and projections which can take months, even years, to complete. Medical providers  must hire lawyers, lobbyists, or consultants to help them with this  arduous  process. It  sometimes ends up costing hundreds of thousands of dollars – and not one cent  funds  patient care.

Academic  studies  show  these laws undercut  market  competition.  The Federal Trade Commission  (FTC)  and the Anti-Trust Division of the Department of Justice  (DOJ), under both Democratic and  Republican administrations, have consistently  concluded  that these laws  are   barriers  to  market entry of new providers, thus  limiting  consumer choice and stifling  innovation.  The  federal  agencies have found that they  neither control  costs nor improve healthcare quality.

Is competition within health care healthy?

The good news is that  in  2019,  10  states, including Florida, Maryland and Virginia, enacted limited reforms.  And, during the last year,  18 states  have  introduced  reform  legislation.

This is progress, but Congress should  encourage states to pursue  more aggressive reforms or repeal.

The reason:  the  cost  of  these  laws is not confined to the residents of the states. They have  a “spill-over” effect  on federal taxpayers  because of  the relationship between state healthcare costs  and  certain  federal healthcare subsidies.

State health insurance premiums  are influenced by a variety of factors, primarily  the cost of delivering medical care. The  Affordable Care Act  (ACA)  provides  subsidies  ($60 billion  in 2021)  to  insurance companies to offset the costs of  persons  eligible for the federally subsidized  ACA  coverage, approximately  90 percent  of all  exchange  enrollees.

The  ACA  subsidy is  benchmarked  to the cost of the “silver plans,” the standard health plans in the  states’ health insurance  exchanges,  the higher the  cost of  the plans, the larger the federal subsidies.  Anti-competitive certificate-of-need laws increase a state’s healthcare costs, thus  imposing unnecessary costs  on  the  federal  taxpayers subsidizing its insurance exchange.

In this same vein, Congress should also  scrutinize  the formulas for  Medicaid and the Children’s  Health Insurance Program subsidies ($433 billion in 2021). Federal taxpayers subsidize between  50 and 78  percent of state Medicaid costs. Under current law, federal  taxpayers  pony up at  least a  dollar for every dollar  a  state spends  on Medicaid.  The higher the state spending, the  bigger  the federal  taxpayers’ tab. It’s open-ended.

While all  state  taxpayers  are  impacted by federal health policy, federal taxpayers, regardless of their residence, can also  absorb the  costs  of  bad  state health policies, including certificate-of-need laws.  It  cannot be ignored.

Congress can start by authorizing  federal actuaries to examine the extent to which these laws, and  other  anti-competitive state  measures,  are  contributing to  excessive  healthcare cost increases  within  the  states.  As  recommended  by the Healthcare Consensus Group, a  group of conservative analysts and economists,  Congress should then consider adjusting the  federal health insurance subsidies going to these  states.

Federal taxpayers should not be required to paper over the  wasteful  costs  incurred by bad state policy decisions. While Congress has no right to  interfere with the formulation of  state health policy,  Congress should  refuse to underwrite anticompetitive  state  practices that drive up healthcare costs and reduce healthcare options for patients.

That’s the fiscally responsible course. It is  also  good  health policy.

Robert E. Moffit is a senior fellow specializing in the study of healthcare and entitlement programs at The Heritage Foundation.

[Editor’s note: This story originally was published by Real Clear Health.]

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