Minnesota must lift its hospital moratorium

In our new Policy Briefing ‘Minnesota must lift its hospital moratorium,’ we explain why state policymakers should repeal this law that restricts hospital capacity for no good reason.

This law, which replaced similar “Certificate of Need” laws in 1984, prohibits the building of new hospitals as well as “any erection, building, alteration, reconstruction, modernization, improvement, extension, lease or other acquisition by or on behalf of a hospital that increases bed capacity of a hospital.” Whenever hospitals or provider groups propose an exception to the moratorium, the Minnesota Legislature requires the Department of Health to conduct a “public interest review.”

The moratorium exists, in theory, to prevent medical providers from over-investing in capacity which, it is argued, would drive up prices, raise health care costs, and restrict access to these services for the poor. It has been successful in its explicitly stated proximate aim of restricting the expansion of hospitals. In the 20 years from 1984 through 2004, 16 exceptions were granted, permitting just 94 additional licensed beds in the state. (Between 1996 and 2016, the number of licensed beds in Minnesota actually fell by 921 while the population increased by 810,000).

But the policy has failed in its ultimate aim of easing and protecting health care access for the poor. A study by economists Thomas Stratmann and Jacob W. Russ found no evidence that Certificate of Need regulations — which function much like our state’s moratorium — increase indigent care. But they do find evidence that the regulations limit the provision of medical services. Consequently, the price of medical care is likely higher under such policies while the poorest Americans see no increase in the availability of care.

There is, in addition, evidence that states which have removed these rules have more hospitals and more ambulatory surgery centers per capita, more hospital beds, dialysis clinics, and hospice care facilities. Patients in these states are more likely to utilize medical imaging technologies and are less likely to leave their communities in search of care.

Though advocates of these policies sometimes claim that the rules protect rural facilities, states without them have more rural hospitals and more rural ambulatory surgery centers than states with them.

This policy seems, on the face of it, absurd, so why do we have it? The answer is the power of vested interests.

Support for the moratorium comes from the hospitals which already have licensed beds. With further supply restricted, these become more valuable. Many hospitals have strategically “banked” beds, allowing them to circumvent the review process so that, in 2016, while there were 16,262 licensed beds in Minnesota, only 11,484 were actually available.

Gov. Walz temporarily suspended some aspects of the moratorium during the pandemic. But if this is good policy in bad times, how can it be bad policy in good times? The health care of ordinary Minnesotans should come before vested interests. As the pandemic has shown, Minnesota should abolish its moratorium on hospital construction.