GUEST COLUMN: By Jaimie Cavanaugh and Daryl James (Institute for Justice)

Alaska hospitals have a problem: The population is aging, and older patients need more care than they can afford. The strain will increase when Alaska Regional Senior Health Clinic closes in Anchorage at the end of February.

Responding to the crisis will require innovation and investment. Yet big hospitals want the opposite. Instead of embracing change, they cling to competition-killing laws that stifle growth through a regulatory tool called a certificate of need or “CON.”

These laws, introduced in Alaska more than 40 years ago, require a government permission slip to enter the market. Before health care providers can expand or improve services, they first must prove to the state’s satisfaction that a need exists. Clearing the CON hurdle can cost as much as $75,000 and add months to any project.

Even after navigating the bureaucratic maze, the final answer can be “no,” which means investors must go away. Spending their own money to open a nursing home, surgery center or imaging practice would be illegal—like keeping a mom-and-pop hardware store away from The Home Depot.

The result is less entrepreneurship, employee mobility and consumer choice. Big hospitals see this as a feature, not a bug. Flipping the laws of economics upside down, they argue that less competition is better for everyone, including Alaska families with aging loved ones.

The most direct path to reform is through legislation. Senate Bill 8, which state Sen. David Wilson introduced in January, would repeal Alaska CON laws and level the playing field.

Their reasoning relates to Medicare rules. Reimbursement rates for the program lag actual costs, and small health care practices cannot always afford to participate. Big hospitals must pick up the slack. Federal rules require the same hospitals to keep their emergency rooms open for everyone—including indigent patients with no ability to pay—resulting in additional losses.

Allowing small practices to serve the highest-paying customers without sharing the Medicare burden is unfair, big hospitals argue. They claim CON laws help keep balance in the system, suggesting the solution to overregulation is more regulation. Yet their arguments fall apart under scrutiny.

When big hospitals claim victim status, they omit key details like the tax breaks and government reimbursements they receive for charity work, bad debt, indigent care and undercompensated service. They also fail to mention the opaque pricing schemes they use to maximize these benefits, while simultaneously siccing collection agencies on cash-strapped families with overdue bills.

The result is not hardship, but generous executive compensation packages and multimillion-dollar net gains. CON laws do not protect patients; they protect the status quo. Federal antitrust agencies sounded the alarm as far back as 2008: “By their very nature, CON laws create barriers to entry and expansion to the detriment of health care competition and consumers.”

Decades of real-world experience confirm the harm. California, Texas and 10 other states—covering 40% of the U.S. population—have survived for years without CON laws. The result in these states is more hospitals and surgery centers per capita, along with more hospital beds, dialysis clinics and hospices.

Alaska could use a similar boost to help with its aging population. Relief could come in the courts, but not likely. Our public interest law firm, the Institute for Justice, has sued to stop CON enforcement in Iowa, Kentucky, Nebraska, North Carolina and Virginia. So far, judges have shown reluctance to intervene. In one case the 6th U.S. Circuit Court of Appeals described CON laws as a “failed experiment,” but affirmed the government’s right to pass and enforce “unjust,” “unfair,” “unwise,” “foolish” and “stupid” laws.

The most direct path to reform is through legislation. Senate Bill 8, which state Sen. David Wilson introduced in January, would repeal Alaska CON laws and level the playing field.

Opposition already has started. Existing health care providers like their CON privileges, but policymakers have an obligation to put Alaska families first. Aging patients stuck in a rigged system have waited long enough for relief.

Jaimie Cavanaugh is the lead author of “Conning the Competition,” a nationwide report on CON laws. She is an attorney and Daryl James is a writer at the Institute for Justice in Arlington, Va.

The views expressed here are those of the authors.

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