Staff from the Federal Trade Commission (FTC) appeared before the Alaska Senate Committee on Labor and Commerce on February 6, 2018, to present the FTC’s views on certificate-of-need (CON) laws and to support the repeal of such laws in Alaska. CON laws require specific state approval of the need for new facilities before health care providers can open facilities, expand facilities or services or make certain types of expenditures. The FTC staff testified that these laws “raise considerable competitive concerns and generally do not appear to have achieved their intended benefits for health care consumers.”1 The testimony underscores the FTC’s increased focus on state laws that it believes pose unnecessary restrictions on competition and harm consumers.
CON laws can be traced back to the National Health Planning and Resources Development Act of 19742, under which federal funds could be withheld from states that did not adopt CON laws to regulate health care facilities. These laws aimed to reduce the cost of health care and improve access to care by regulating services and facilities to align supply with demand.3 Although the mandate for CON laws was repealed in 1986, such laws continue in some form in more than 30 states, including Alaska.4
The FTC and the US Department of Justice (DOJ) previously issued a joint statement regarding the state senate bill to repeal Alaska’s CON laws.5
In their April 2017 statement, the agencies discussed their examination of CON laws generally and of Alaska’s CON laws specifically, and identified three ways in which they believe CON laws “can prevent the efficient functioning of health care markets” and thereby undermine the laws’ goals: (1) they “create barriers to entry and expansion, limit consumer choice, and stifle innovation”; (2) they can be used by “incumbent firms seeking to thwart or delay entry or expansion by new or existing competitors”; and (3) they “can deny consumers the benefit of an effective remedy following the consummation of an anticompetitive merger.”6 The agencies further expressed their view that “the evidence to date does not suggest that CON laws have generally succeeded in controlling costs or improving quality.”7 The agencies recommended that Alaska move forward with repeal, noting their historical suggestion that “states consider repeal or retrenchment of their CON laws.”8
The FTC staff’s testimony reiterated the agencies’ view that CON laws pose serious problems, and requested that the committee consider the potential benefits “if new facilities and services could enter the market more easily.”9 The FTC went on to state that “[e]ntry and expansion—and often even just the credible threat of entry or expansion—typically restrains health care prices, improves the quality of care, incentivizes innovation, and improves access to care.”10 The FTC further expressed the view that an incumbent firm’s strategic use of CON laws can thwart or delay entry by a competitor, as well as “divert scarce resources away from health care innovation and delivery” while the parties focus and expend resources on the dispute.11 The FTC also asserted that CON laws can limit antitrust enforcers’ ability “to implement effective structural remedies to consummated transactions.”12
The FTC has thus concluded that “CON laws have failed to demonstrate success at delivering on their policy goals over the course of 40-plus years” and reiterated the recommendation that Alaska repeal its CON laws.13
The FTC staff’s testimony underscores the increased focus on state laws it views as unnecessary restrictions on competition and causing harm to consumers. Further, both the FTC staff’s testimony and the April 2017 joint statement were provided at the request of an Alaska state senator, which suggests that the FTC and DOJ are willing to respond to such requests and to speak out against CON laws.
The agencies’ position on CON laws may also be considered in the context of Executive Order 13813, titled “Promoting Healthcare Choice and Competition Across the United States,” which issued on October 12, 2017.14 In addition to addressing alternatives to the Affordable Care Act, the executive order emphasized that the Trump administration would “continue to focus on promoting competition in healthcare markets and limiting excessive consolidation throughout the healthcare system.”15 To that end, the executive order provided that one objective of government rules and guidelines should be to “re-inject competition into healthcare markets by lowering barriers to entry, limiting excessive consolidation, and preventing abuses of market power.”16
The FTC's and DOJ's activities and comments in health care markets will be closely followed to see how and in what ways the administration may seek to pursue its policy goals in this area.