Health Care

Vermont’s laws increase health care costs, say analysts

UVM Medical Center
Construction on the University of Vermont Miller building in July. Photo courtesy of the University of Vermont Medical Center

Vermont has the most restrictive laws in the country governing whether new health care facilities can start up and whether existing facilities can buy new equipment, according to researchers at George Mason University in Virginia.

The laws are so restrictive that Vermonters are spending more on health care than they would spend without the laws, lowering Vermonters’ access to care, and lowering the quality of the care they do receive, the researchers say.

George Mason University is known for publishing economic research that supports libertarian viewpoints. The university’s Mercatus Center, which performed the study, was founded and remains funded by the oil billionaire Koch brothers.

The university’s researchers made profiles of every state and the District of Columbia evaluating the effects of its regulations through the certificate of need, or CON, process. Vermont, one of just 35 states to have CON laws, ranked last in the review.

The average number of regulated procedures within the CON laws is 17, according to Matt Mitchell, an economist at George Mason University. But Vermont has laws affecting 30 procedures—more than any other state or the District of Columbia.

“If you’re a hospital, it’s a great thing, because what it means is it limits the entry of competitors,” Mitchell said. “So typically hospital associations are in favor of certificate of need laws.”

The Federal Trade Commission, which enforces federal antitrust laws in the health care industry, has warned various states about CON laws. In April, the commission said CON laws “limit consumer choice and stifle innovation” while allowing incumbent firms to “thwart or delay entry by new competitors.”

Vermont has comprehensive requirements saying companies need to get CONs from the Green Mountain Care Board whether they are seeking to buy helicopters for their hospital, open a new substance abuse treatment center, or open an outpatient surgical center, according to Mitchell.

Existing health care facilities also must get CONs from the Green Mountain Care Board to build new hospital wings, or to buy MRI machines, CT scanners and ultrasound machines, among other things, according to Mitchell.

Most recently, a group of independent doctors seeking to build an independent surgical center in Colchester fought against hospital groups for two years to get a CON.

Started in the 1970s, CON laws were designed to control hospital costs and prevent overbuilding of health care infrastructure. However, the university’s researchers say the CON laws prevent competition, lower health care quality, and increase health care costs.

Without CON laws in place, Vermont could lower health care spending by $228 per person, according to the study. That number includes $68 per person in projected savings on physician spending.

Vermont would also have lower rates of mortality from heart attacks, heart failure and pneumonia, the study said, while the rate of post-surgery complications would drop 5 percent.

“What you find is they do not achieve the goals that they claim to achieve, but if anything, they seem to make matters worse,” Mitchell said. “For example, in states that have CON laws, health care spending tends to be higher. Access to care is more limited.”

“The findings are not particularly surprising from an economist’s perspective,” Mitchell said. “We have decades of evidence that restrictions on supply tend to benefit incumbent providers and tend to be anticompetitive with worse outcomes for consumers.”

Mitchell pointed to “economics 101” and the basic concept of supply and demand curves: when supply goes down, the price goes up.

“Anything that’s going to limit the supply curve, that’s a leftward shift in the supply curve,” he said. “That raises prices, so it’s sort of just amazing that anyone could think that this would lower prices.”

Mitchell said proponents of CON laws don’t say the laws lower unit prices for procedures, but total expenditures a person’s health care per year.

Earlier this year, the Vermont Association of Hospitals and Health Systems, which fought the CON application of an independent surgical center, made similar arguments. So did Rep. Jessica Brumsted, D-Shelburne, who is married to the CEO of the state’s largest hospital.

But even arguments about total expenditures don’t hold water, Mitchell said. He said he’s looked at 30 years of studies on CON laws and found no evidence that total expenditures on health care go down as a result of CON laws. Even if they did, that may not be a good idea, he said.

“You could restrict the supply of MRI machines so that nobody in the state gets an MRI machine, and of course your per-person cost of MRI machines would go down,” Mitchell said, but “we think they help medical professionals figure out what’s wrong with you.”

Kevin Mullin
Kevin Mullin, the chair of the Green Mountain Care Board, speaks at Rutland Regional Medical Center. File photo by Erin Mansfield/VTDigger
Kevin Mullin, the chair of the Green Mountain Care Board, which enforces CON laws in Vermont, said usual market dynamics do not apply to health care. That’s in part because of the out-of-pocket costs people pay for insurance, he said.

“The problem with the health care world is that it’s not like any place else because you never get true equilibrium,” Mullin said. “Wherever (patients) go it’s going to be the same out of their pocket. Because of that you never get any true supply-demand equation that creates equilibrium pricing.”

In other cases, Mullin said, patients only experience the demand side “because when you get sick all you care about is getting the highest quality you can. It doesn’t matter if you may not need that MRI.” He added: “Those are the problems with health care and that’s why you need regulation.”

At the same time, Mullin said health care facilities should not have to go through the CON process to replace their boilers. That happened in the case of Southwestern Vermont Medical Center in Bennington because the hospital’s boiler replacement project was expensive enough to trigger CON review.

Jeff Tieman, the CEO of the Vermont Association of Hospitals and Health Systems, agreed that hospitals should not have to go through the CON process to replace their boilers. One way to fix that would be to increase the financial threshold that triggers CON review, he said.

“We’re always working to make sure that that process is optimized, and so various proposals to change it, just to make it more effective, and maybe a little less burdensome,” Tieman said.

“There are some changes that could be made, and we’re always in discussions about that,” he said.

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Erin Mansfield

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