Markets Wired

At the request of Governor Sarah Palin and the Alaska Department of Health and Social Services, the Federal Trade Commission has submitted written testimony to the Standing Committee on Health, Education, and Social Services of the state’s House of Representatives concerning health care competition, Alaska’s certificate of need (CON) laws, and House Bill 337 (H.B. 337), which would modify or repeal certain aspects of the state’s CON requirements.

According to the testimony, Alaska’s current CON law – which H.B. 337 seeks to modify – is among the most stringent of such laws in the United States. Accordingly, it creates a barrier to entry for a very broad range of health care service providers, including small health care entities that may be ill-equipped to overcome it. The Commission believes that “both the breadth of Alaska’s CON law and its low threshold are of special concern, as they may work to the detriment of Alaska health care consumers.” If adequate evidence develops to support more narrow policy priorities, the testimony states, “Alaska should consider regulations narrowly tailored to meet those priorities, while minimizing the general costs to Alaska health care consumers.”

Alaska House Bill 337

Alaska H.B. 337 seeks to modify the state’s current CON law, which requires a CON for any type of health care facility construction or improvement of $1 million or more, adjusted, or the for establishment of a nursing home facility independent of that cost threshold. Accordingly, the current law places significant regulatory burdens on the development or improvement of a very broad class of health care facilities. The Commission testimony further states that Alaska’s CON threshold itself may be of a special burden to the state’s health care spending, as such low thresholds have been seen to increase costs, relative to higher thresholds. H.B. 337 would modify or repeal many of the state’s statutory CON requirements.

The Commission Testimony

The FTC’s testimony makes three main points: First, excessive barriers to entry in health
care markets – regulatory or otherwise – can tend to suppress competition on qualitative aspects of health care as well as price. Policymakers should consider the extent to which regulations drafted to address cost containment may have an impact on entry and competition, which should be counted among the costs and benefits of any such regulations. That is a particular problem with CON laws, which do not generally contain costs.

Second, when new firms threaten to enter a market, incumbent firms may seek to deter or prevent that new competition. Overbroad and over-restrictive CON laws are not just barriers to entry because of the administrative costs they impose directly, but because they may offer incumbent providers additional opportunities to slow or halt the entry of competitors, independent of market demand of additional services.

Third, Alaska’s current CON law is among the most stringent CON regimes in the country, and creates barriers to entry for a broad range of health care service providers that may be unable to overcome it.

The Commission vote approving the submission of the testimony with the Alaska House of Representatives was 5-0. They were formally submitted on February 14, 2008.

Copies of the testimony can be found as a link to this press release on the FTC’s Web site. The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.