Unintended consequences is a thing. ERCowboy wrote on Twitter a while back, “In any complex system, the likelihood of unintended consequences vastly outweighs the predictability of intended ones.” In this healthcare podcast, we’re talking about two state laws where this is apropos: CON (Certificates of Need) laws and then COPA (Certificates of Public Advantage). Turns out, states actually have pretty much power to impact the competitive landscape in their state. They have a lot of levers they can pull. States really can make a difference in terms of improving real competition on value and on cost and quality. So, these two laws are, in a way, their attempt to do so.
For a full transcript of this episode, click here.
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Before we kick into what’s going on here, I think it is important to point out that these laws on their face aren’t an obviously and overtly terrible mistake. This isn’t like equivalent to accidentally putting ChapStick in the dryer.
There were good people who spied a problem and had an idea for how to fix it. I’m reminded of something I read by Nicholas Kristof on a totally different topic, but he wrote, “The central problem is not so much that the effort was unserious as it’s more focused on intentions than on oversight and outcomes.” And that pretty much sums up, I think, the gist of what’s going on here.
And I can say that because here we are in a position to Monday morning quarterback. So, I’ve invited Ann Kempski on the pod to point out what hindsight may reveal about these well-intentioned efforts, the CON and COPA laws.
First up, let’s talk about Certificate of Need laws, or the CONs. Currently, we have 35 states and Washington, DC, that operate CON programs with wide variations by state. The National Conference of State Legislatures has a good overview of each state’s laws. Why did these laws originally get put into effect? They got put into effect to cut down on supply-driven demand that was considered to potentially raise total cost of care—because in healthcare, unlike Econ 101, more supply doesn’t mean lower prices. In the real world, if you have more supply, volume goes up and total cost of care goes up, too.
So, it could be considered good thinking to limit the amount of supply. Except there’s four problems that wind up happening often enough, which is why some states are busy repealing these CON laws. We cover these four problems in the show that follows. Spoiler alert: What happens a lot of times is that the big get bigger. Consolidated entities have an upper hand, and we all know consolidated entities are generally not known for their competitive prices or their desire to rationalize volume.
So, yeah … we dig into this and parse it out into, as I said, four main problems; but this is most commonly where it all winds up (ie, total cost of care does not go down). I have included links that Ann Kempski shared with me, including a statement from the Federal Trade Commission (FTC) and Department of Justice detailing the anticompetitive effects of state CON laws.
There’s also a document written by a former FTC commissioner that highlights how state CON laws can inhibit competition. And then lastly, a systemic review of 90 studies that find the costs of CON laws exceed their benefits.
Okay, so let’s move on to our number two state law that often does not go as planned; and this is the Certificate of Public Advantage, or the COPA, laws. Approximately 19 states have them, and these laws attempt to immunize hospital mergers from antitrust laws by replacing competition with state oversight. The idea here is that a state tells the FTC to stand down and gives their seal of approval to a merger to stop it from getting scrutinized for antitrust violations.
So, like, a big dominant health system gets an okay to buy a rural hospital. Meanwhile, everybody realizes this will lead to a situation where there is a dominant health system and that dominant health system will reduce competition. But the state may choose to do this because … public advantage, as in the “PA” in COPA, Certificate of Public Advantage. But they’ll do this because the state has decided that the public advantage of allowing the possibly problematic anticompetitive merger to move forward, the public advantage is a bigger advantage than having competition. Hmmm … what could go wrong here?
Well, several things that Ann Kempski discusses in the show that follows. The Federal Trade Commission strongly advised the states against enacting these laws. Here is a link to this article that was on the FTC Web site.
I was so thrilled to get the chance to chat with Ann Kempski, who knows so much about these topics. Ann Kempski is an independent healthcare consultant with a background in the labor movement, advocating for healthcare workers and purchasers for many years. Ann Kempski collaborates with clients to strengthen primary care, enhance union health funds, and reduce commercial prices. She often partners with academics from Johns Hopkins to analyze hospital transparency data for insights into market trends.
Before we jump into the episode, we’ve had a loss in our community. We’ve had actually several, one of them being Marshall Allen, another one being Suzanne Delbanco. I know our guest today worked alongside of and really admired Suzanne.
Ann Kempski says: “Suzanne was a kindred spirit and a real inspiration for me and many others. She founded two very influential nonprofit organizations: first, The Leapfrog Group and then, second, Catalyst for Payment Reform, which is dedicated to empowering purchasers to be more effective purchasers in the healthcare marketplace.”
Additional Resources on State Laws and Policies That Promote Hospital Consolidation, Inhibit Competition
Certificate of Public Advantage (COPA) Laws
A recent story from Tennessee highlights the weak oversight and observed in COPA-related hospital mergers.
Competition and Antitrust in Healthcare
“Is There Too Little Antitrust Enforcement in the US Hospital Sector?” by Zarek Brot-Goldberg, Zack Cooper, Stuart Craig, and Lev Klarnet, April 2024
Catalyst for Payment Reform publications and white papers
The Great Reversal: How America Gave Up on Free Markets, by Thomas Philippon, 2019
Also mentioned in this episode are Nicholas Kristof; Marshall Allen; Suzanne Delbanco; Brian Klepper, PhD; and Gloria Sachdev, PharmD.
You can learn more by following Ann on LinkedIn.
Ann Kempski is an independent health policy consultant with 30 years of experience as an analyst, advocate, and strategist advancing health reforms related to coverage, quality, and payment in public programs and commercial insurance. She has served in leadership roles in several organizations, including Kaiser Permanente, SEIU (Service Employees International Union), and the State of Delaware.
Ann currently supports organizations and efforts to strengthen primary care payment and transition away from fee for service, promote competition in commercial healthcare prices and coverage, and expand access to evidence-based behavioral health services. Ann is especially grateful to collaborate with and learn from talented graduate students and faculty at Johns Hopkins Bloomberg School of Public Health on research and policy analysis to understand commercial market and price dynamics and provider behavior. She has an undergraduate degree in economics from the College of William & Mary and a master’s degree in industrial and labor relations from Cornell University.
06:20 Ann remembers Suzanne Delbanco.
06:55 EP224 with Suzanne Delbanco.
07:40 What are state Certificate of Need laws?
08:44 Why are states getting rid of these CON laws?
13:26 Why CON laws are created.
15:43 EP437 with Brian Klepper, PhD.
16:09 What are the conflicts of interest and problems that arise when CON laws are created?
20:55 What happens when states get rid of these CON laws?
24:10 How are Certificate of Public Advantage laws different from CON laws?
27:58 Why does the research show that COPAs don’t usually accomplish their goals?
31:34 What encouraging current events are happening in the realm of COPA laws?
32:08 Gloria Sachdev, PharmD, of Employers’ Forum of Indiana.
Recent past interviews:
Click a guest’s name for their latest RHV episode!
Marshall Allen (tribute), Andreas Mang, Abby Burns and Stacey Richter, David Muhlestein, Luke Slindee, Dr John Lee, Brian Klepper, Elizabeth Mitchell, David Scheinker (Encore! EP363), Dan Mendelson