Rather than protecting big hospitals with Michigan law, please cancel it

Jaimie Cavanaugh and Daryl James
Institute for Justice

Grand Rapids medical entrepreneur Anthony Chang has the technology to save lives.

Using specialized PET scan tracers, his biotech company BAMF Health can pinpoint and treat disease with precision never before possible. A prostate cancer patient from Western Michigan already has seen the results. So have clinical trial participants with Alzheimer’s, Parkinson’s and cardiac disease. Unfortunately, all of these people have had to travel to Europe or Australia for care.

The problem is not lack of federal approval. The U.S. Food and Drug Administration established guidelines for PET drugs in 2017. Chang, who has plans for a flagship biopharmacy at Michigan State University’s Innovation Park, says the real challenge in the United States is outdated infrastructure. Catching up will be difficult in Michigan because of a law that forces health care companies to get special state approval before building facilities, purchasing equipment or offering new services. The legal hurdle, called a “certificate of need” (CON), works like a government permission slip.

“Number one, I think the biggest problem we have over here in Michigan is actually the CON,” Chang told the regulatory board at its June 18 meeting.

The program has nothing to do with public health or safety. Different regulatory agencies license medical professionals and determine what treatments and drugs they can use. The extra bureaucracy focuses instead on the quantity of services available.

Providers cannot simply see a need and fill it—like in nearly every other industry. Instead, they must prove to the government’s satisfaction that the need exists. Big hospitals love the top-down control because it blocks competition. The purported goal is to prevent unnecessary duplication of services, but CON laws also ensure that the health care system remains a step behind.

COVID-19 shows what can go wrong. CON boards, which predict the future based on the past, never foresaw the pandemic coming. Breakthrough innovation represents a second blind spot.

Winning CON approval becomes nearly impossible when someone like Chang shows up with totally new ways of doing things. How do you measure demand for technology before consumers even see it?

Current CON models, for example, assume that pediatric patients cannot use PET scans because children cannot lay still for long periods of time or withstand heavy doses of radiation. What Chang proposes, however, is something 40 times faster with 40 times less radiation than current methods.

“This is a brand new category,” Chang told the CON board.

Beth Nagel, a director at the Michigan Department of Health and Human Services, agreed.

“We really found that it was kind of like, you know, taking a square peg and trying to put it into a round hole,” she told the board.

Instead of taking swift action—because every life counts—the CON board agreed to send the matter to a subcommittee for further study. That’s how bureaucracy works.

The results are often arbitrary and counterproductive. A new nationwide analysis from the nonprofit Institute for Justice reveals a patchwork of CON laws that vary widely from state to state. Michigan is one of only eight jurisdictions that requires CONs in every broad category: hospital beds, beds outside hospitals, equipment, facilities, services and emergency medical transport.

At the other end of the spectrum, 12 states permanently ditched their CON laws long before COVID-19. Another three states—Arizona, Minnesota and Wisconsin—enforce only limited versions. As a result, these 15 jurisdictions went into the pandemic with more hospitals and surgery centers per capita, along with more hospital beds, dialysis clinics and hospice care facilities.

Michigan prefers the status quo. Even after issuing an emergency order that temporarily waived CON requirements early in the pandemic, Gov. Gretchen Whitmer has nominated five new members to keep the 11-person CON board fully staffed. The additions would represent Bronson Healthcare Group, University of Michigan Health System, Henry Ford Hospital, Dearborn Cardiology and a health care consulting firm called Enviah. None of the nominees represents consumers

Rather than rubber-stamping the nominations, the state Senate should take bold action and repeal the CON laws altogether. Pioneers like Chang would benefit, and so would everyone else.

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Jaimie Cavanaugh is an attorney and Daryl James is a writer at the Institute for Justice in Arlington, Va.