Ivo Vegter: ConCourt strikes down healthcare “Certificate of Need” laws

Key topics:Constitutional Court scraps certificate of need lawsRuling limits state control over private healthcareEvidence shows CON laws raise costs, reduce access.By Ivo Vegter*.The Constitutional Court, at long last, struck down the “certificate of need” provisions of the National Health Act.At the heart of the ANC-led government’s drive to establish a centralised, government-controlled healthcare system is the observation that health services are not distributed fairly across the population.It considers this an affront to the notion of equitable service delivery, and particularly to racial equality.It is not wrong. South Africa inherited massive income disparities and cruel spatial planning from the apartheid government, and much of that inequality persists today.One might, therefore, be sympathetic to the ANC’s desire to subject doctors, dentists and other medical service providers to “certificates of need” (CONs) that control where their services are, and are not, required, given that the objective is to redirect resources that are presently over-supplied in affluent areas to improve service availability in hitherto under-serviced localities.Admirable. Noble. Very good intentions. Sections 36 to 40 of the National Health Act 61 of 2003 provide for such certificates..Overdue ruling.Although these provisions have never been implemented, trade union Solidarity has spent decades in court arguing that they are unconstitutional.Three years ago, the high court ruled that they were, but some farcical bumbling by the sheriff of the court rendered the ruling null and void.It eventually reached the apex court, which last week issued its long-overdue ruling: indeed, the Department of Health (DoH) may not require healthcare providers to apply for a CON that controls where they may and may not hang their shingle, and what services they may provide.The relevant sections were ordered excised from the National Health Act, since there is no reasonable prospect of mere amendments rendering them constitutionally sound.Although lawyers for the DoH repeatedly portrayed these provisions as a “central pillar” of the nascent National Health Insurance (NHI) scheme, a spokesperson for the Department tried to play down the significance of the ruling.He’s wrong. It is very significant. It places clear constitutional limits on the extent to which the government can intervene in the work and business of private individuals, including medical service providers. This will undermine the government’s efforts to centralise planning and control of the healthcare sector as the NHI Act envisages..Would CONs have worked?.The question remains, however: if these provisions had not been unconstitutional, would they have achieved their intended outcomes? And if so, at what cost? Is redistributing private healthcare provision in favour of poorer, under-serviced areas something the government ought to pursue in some other, more legally permissible way?Let’s tackle this from two perspectives. The first is theoretical, and the second empirical.A certificate of need is a permission slip.Before a qualified practitioner may open or expand a practice, they must first satisfy an official that their services are “needed.”Note what this is not. It is not a test of competence – that is what registration and licensure already provide. It is a test of whether the state, surveying a map, judges that one more dentist or doctor in your suburb is warranted.Two gatekeepers now stand between patient and practitioner where one stood before, and the second has nothing to do with whether the practitioner is any good..The practitioner.Begin with the practitioner. They have spent years in training and cleared every professional hurdle the law demands. The certificate tells them this is insufficient: they must also be wanted by the planner.The young doctor who would set up in a town of their choosing, the dentist who would expand their rooms, the specialist returning from abroad – each must now plead their case to a bureaucracy with the power to say no.Incumbents, predictably, do not object. A barrier that keeps competitors out is a gift to those already in practice.This is the oldest pattern in regulation, and George Stigler named it half a century ago: rules sold as public protection are captured by the very interests they ostensibly restrain. The CON is just good old-fashioned regulatory capture..The patient.The patient fares worse still, though the harm is harder to see, because it consists of things that never happen: the practice not opened, the appointment not offered, the price not competed down.The promise is “equitable distribution”. The mechanism is the rationing of supply.Denying a new doctor permission to practise in a well-served area does not conjure one into being in an underserved one; willingness cannot be conscripted by frustrating others.The patient gains no new doctor from the scheme. They merely lose the ones they might have had. And competition, that great unsung friend of the consumer, is precisely what entry restrictions extinguish.It is competition that disciplines the lazy incumbent, rewards the diligent newcomer, and pushes quality up and prices down.Milton Friedman made the case against exactly this kind of entry control in Capitalism and Freedom: restrictions dressed as quality assurance function as cartels, increasing what patients pay and reducing what they can get..The state.Then there’s the public health justification, always the loftiest, but also the first to collapse upon contact with evidence.The premise is that a central authority can calculate how much medical care a population “needs”, and allocate it accordingly. But need is not a figure one can read off a chart. It is revealed through the choices of millions of individuals. That is knowledge no planner possesses.This was Hayek’s central insight in 1945, and that of Mises before him: the planner cannot know what the market discovers, because the relevant information exists only in dispersed, local, ever-changing form.Even with the most powerful computers, wants and needs cannot be discovered, because they are only revealed once a consumer makes – or fails to make – a choice.A ministry computing the “right” number of doctors is attempting the impossible.Moreover, the attempt does real damage. It constrains capacity, it raises costs, and, in a country already bleeding medical talent, it creates one more reason for scarce professionals to emigrate rather than be told where they may work..It’s been tried before.Here is the point that ought to settle the matter: none of this is speculative, and none of it is new. The CON is recycled central planning, and that experiment has been run repeatedly. And not only in the Soviet Union.The United States made CONs a national requirement in 1974, tying federal money to their adoption; within years nearly every state had one.The federal mandate was repealed in 1987, once it had become clear the laws were not delivering what they had promised. Many states kept them, however, which created an excellent comparative economic laboratory.The verdict of decades of study – including from the government’s own competition and antitrust authorities – is damning: CONs did not lower costs, did not improve quality, and did not improve access. They reduced the supply of care, hitting hardest the rural and underserved communities they were sold to help..Intentions and outcomes.Like here, American CON laws aimed to control costs, prevent “excess capacity”, and steer resources to under-served areas.A significant body of research finds that CONs are associated with higher health spending, not lower, both on a per-patient and per-procedure basis.CON laws harm both patients and taxpayers, who face higher healthcare costs and fewer options. On average, US states with CON laws paid 11% more for healthcare than states without those laws. CON programmes reduced healthcare facilities not only in affluent areas, but across entire affected states, by 30%.Most pertinently, CON laws particularly harm people who live in rural areas. Research shows there is no evidence CON laws increase access to care, and may be limiting access for low-income and rural residents.Systematic reviews also report that CON laws do not systematically improve quality, and may be associated with higher mortality rates for some conditions and patient categories, and worse post-surgical outcomes.In addition, CON processes impose administrative costs and delays, which disproportionately affect smaller or new entrants and favour incumbent or large corporate providers. CON laws tend to encourage market concentration, and have a chilling effect on investment and innovation, slowing adoption of new technology and novel service models.The empirical literature finds that CON laws do have the potential to shift some new practices toward designated underserved areas if approvals are preferential, but that this reallocation effect has not been convincingly documented.A study on CONs by the Federal Trade Commission, pointedly subtitled A Prescription for Higher Costs, concluded: “The majority of studies fail to establish any definitive link between CON laws and lower unit costs.”It strongly recommended its long-held “bipartisan consensus” that state-level CON laws “should be repealed”..Been there, done that.That is the record. CONs have been tried many times, in many places, by governments of various persuasions. However noble the intentions, they failed in every case to achieve those objectives, while reliably producing the opposite.An idea that consistently protects incumbents, thins the ranks of providers, chases skilled personnel abroad, raises prices, reduces quality and worsens access is not a misfired good intention; it is a known failure being proposed again..Incentives.That is not to say there are no good ways for government to intervene in the market to achieve more egalitarian healthcare outcomes. There are, but CONs are not one of them.The empirical research from other countries suggests that complementary incentive‑based tools, such as rural allowances, loan‑forgiveness schemes, infrastructure investments, and improved public‑sector working conditions, are likely to stimulate service availability in underserved areas without shrinking total private‑sector capacity.Even without such incentives, there are plenty professionals who choose to offer services to poorer communities, townships, or rural areas.But if you want more healthcare professionals to make sacrifices in terms of where they live or where they practice, make it worth their while, and at least some will take up the offer. And at least you won’t chase away those who don’t.The honest case for a CON has always rested on a flattering fiction: that someone, somewhere, knows better than patients and practitioners how medicine should be distributed, and that the state not only has the power, but the right, to order its citizens about as if they were mere cogs in a machine.They are not. They are real people, with real preferences, and real alternatives.The court was right to retire the CON provisions. We should resist every temptation to revive them..*Ivo Vegter is a freelance journalist..*This article was originally published by Daily Friend and has been republished with permission..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. 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Ivo Vegter: ConCourt strikes down healthcare “Certificate of Need” laws

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