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A Voice from Fly-Over Country
February 26, 2009

Certificate of Need: An Opportunity for Greed
by Robert L. Hale

The Governor Blagojevich story provides insight into how seemingly well-intended legislation paves the way for corruption, payoffs, and extortion by government officials.

While the media focus of the Blagojevich indictment was on the alleged selling of a U.S. Senate seat, it pales in comparison to what the indictment should have us to focus on — the rarely discussed Certificate of Need.

The indictment talked extensively about the state’s Certificate of Need process and how those controlling it used it to enrich themselves, extort money, deny the public meaningful competition, and make goods and services less available and more costly.

The Certificate of Need, often referred to as “CON,” is aptly nicknamed. The CON is used to obstruct the normal flow of decision-making and risk-taking by business. The CON, as shown in the Blagojevich indictment, is not used to prohibit duplication of services and facilities the government deems unnecessary. Rather, it is used to extort concessions from individuals and businesses as a condition of doing legitimate business. This process is widely used around the country at the city, county, and state levels.

The CON is a classic example of good intentions gone awry. It highlights the lack of common sense and critical thinking that fills the minds of far too many elected officials trying to “do good” while demonstrating their lack of understanding of how to manage and govern. The CON illustrates how sly, slick, and greedy public officials cloak tools of extortion in the mantle of public care, concern, and altruism.

In its simplest form, the CON is a tool to ration goods and/or services on the theory that doing so will lower the cost of goods and services. For example, limiting the provision of goods or services like hospitals, nursing home beds, or MRI machines will somehow make these services less costly. In practice, the only thing the CON does is increase the cost of goods and services and make them less available.

Economics 101 teaches that limiting supply increases cost. Politics 101 teaches that being able to condition a business’s ability to engage in legitimate activities creates a wonderful mechanism to extort concessions, including money, unrelated to legitimate governmental interests. While this sounds cynical, it is simply the reality of how government in America has evolved.

The CON is a favorite tool of existing businesses. They encourage elected officials to enact the process and then use it to limit competition. The result is higher prices and fewer options.

In Illinois, the government controls whether hospitals can be built through its CON process. As the Blagojevich indictment demonstrated, this process was not used to decide if there was need; it was used to extort money as a condition of permitting the hospital to be built.

Those who wonder why medical services are so costly need look no further than the CON process. It does not do anything but make medical services less available and more costly. On paper the process may sound viable, but in practice it simply does not work.

Not all jurisdictions use the CON to extort political payoffs in the classic sense. More often, the process is used to force those wishing to build, obtain equipment, or provide services to throw in other concessions as a condition of obtaining government permission to move forward with a project. The cost of these “throw-ins” is passed on to an unsuspecting public in the form of higher prices.

These other concessions are often things that a particular elected official or special interest pressure group want, but that they are unable to obtain without forcing a legitimate business entity to do something in exchange for being permitted to engage in otherwise legitimate business activity.

If we want to begin cleaning up corrupt government, a sure way to start is to abolish the CON process everywhere. Of course, if we do, we must be prepared to listen to the cries of special interest groups and officials who seek illegitimate concessions and ill-gotten campaign contributions and graft.

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A Voice from Fly-Over Country is copyright © 2009 by Robert L. Hale and the Fitzgerald Griffin Foundation. All rights reserved.

Robert L. Hale received his J.D. in law from Gonzaga University Law School in Spokane, Washington. He is founder and director of a non-profit public interest law firm. For more than three decades he has been involved in drafting proposed laws and counseling elected officials in ways to remove burdensome and unnecessary rules and regulations.

See a complete biographical sketch.

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