Markets Wired

At the request of Florida Governor Charlie Crist, the Federal Trade Commission has submitted written testimony on health care competition, Florida’s certificate of need (CON) laws, and Florida Senate Bill 2326 (S.B. 2326) to the Florida Governor and State Senate.

S.B. 2326 would eliminate certificate of need requirements for many categories of Florida health care providers. In particular, subject to certain exceptions, S.B. 2326 would eliminate CON requirements for the establishment of hospitals in general, as well as special CON requirements for acute care hospitals in “low growth” counties and for osteopathic hospitals. At the same time, the bill would leave general licensing requirements for hospitals and other health care facilities in place and would impose certain new licensing requirements within the state.

According to the testimony, CON laws, such as the one in place in Florida, can be a barrier to entry, to the detriment of competition and health care consumers. The Commission therefore generally supports the repeal of such laws, and steps, such as those taken by S.B. 2326, to reduce significantly the scope of CON laws. The agency’s conclusions are based in part on a 2004 report jointly issued by the FTC and the U.S. Department of Justice entitled, “Improving Health Care: A Dose of Competition.” As noted in the report, “[t]he agencies believe that, on balance, CON programs are not successful in containing health care costs, and that they pose serious anticompetitive risks that usually outweigh their purported economic benefits.”

The Commission Testimony

Florida’s current CON law – as it deals with health care facilities in general – appears to be among the broadest in the nation. With certain exceptions, it requires a CON for the establishment of health care facilities generally, the establishment of tertiary health services, and any increase in acute care beds in any hospital in a “low growth” county. In doing so, it places significant regulatory burdens on the development or improvement of a very broad class of health care facilities that otherwise might develop dynamically in response to market needs. The scope of current Florida law, “thus stands in contrast not only to the laws of those states that have eliminated their CON requirements altogether, but the laws of the many states that have more limited CON requirements,” the testimony states.

The FTC’s testimony makes three main points: First, excessive barriers to entry in health
care markets – regulatory or otherwise – may 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. The effect on entry and competition 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, 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, Florida’s current CON law is among the broadest in the United States. The bill’s elimination of CON requirements for many hospital facilities would thus reduce barriers to entry for a wide range of important health care facilities, while leaving Florida’s general licensing requirements for hospital facilities intact.

The Commission vote approving the submission of the testimony with the Florida State Senate was 5-0.

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.

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