Why Many Substance Use Treatment Facilities Don’t Take Insurance

According to the latest data, about one in four facilities doesn’t accept private insurance or Medicaid, and more than half don’t accept Medicare. This makes substance use treatment something of an outlier, since 91% of all US health spending is paid for through insurance. Still, there are many reasons to prefer being paid in cash: insurance might reimburse at low rates, impose administrative hassles, and generally try to tell you how to run things.

Providers generally put up with the hassles of insurance because they see the alternative as not getting paid. But if demand for their services gets high enough that they can stay busy with patients paying cash, they will often try going cash-only. Some try to generate high demand by providing excellent service. Sometimes high demand comes from a growing health crisis, as with opioids.

Demand can also be high relative to supply because supply is restricted. US health care is full of supply restrictions, but in this case I wondered if Certificate of Need laws were playing a role. As we’ve written about previously, CON laws require health care providers in 34 states to get the permission of a government board to certify their “economic necessity” before they can open or expand. But there’s a lot of variation from state to state in what types of services are covered by this requirement; acute hospital beds and long-term care beds are most common. 23 states require substance use treatment facilities to obtain a CON before opening or expanding.

States with Substance Use–Treatment CON Laws in 2020. Created using data from Mitchell, Philpot, and McBirney

How do these laws affect substance use treatment? We didn’t really know- only one academic article had studied substance use CON, finding it led to fewer facilities in CON states. But I’ve studied other types of CON, so I joined forces with Cornell substance use researcher Thanh Lu and my student Patrick Vogt to investigate. The resulting article, “Certificate-of-need laws and substance use treatment“, was just published at Substance Abuse Treatment, Prevention, and Policy. Here’s the quick summary:

We find that CON laws have no statistically significant effect on the number of facilities, beds, or clients and no significant effect on the acceptance of Medicare. However, they reduce the acceptance of private insurance by a statistically significant 6.0%.

Overall I was surprised that CON didn’t significantly affect most of the outcomes we looked at, and appears to be far from the main reason that treatment facilities don’t take insurance. Still, repealing substance use CON would be a simple way to improve access to substance use treatment, particularly since CON doesn’t appear to bring much in the way of offsetting benefits.

Going forward I aim to investigate how these laws affect health outcomes like overdose rates, and to dig more into the text of state laws and regulations to determine exactly what is covered by substance use CON in different states. As the article explains, we identified several errors in the official data sources we were using. This makes me worry there are more errors we didn’t catch, and there are certainly things the sources just don’t specify, like in which states the laws apply to outpatient facilities. So I hope we (or someone else) will have even better work to share in the future, but for now this article is as good as it gets, and we share our data here.

South Carolina Certificate of Need Repeal

The South Carolina Senate just voted 35-6 to repeal its Certificate of Need laws, which required hospitals and many other health care providers to get the permission of a state board before opening or expanding. The bill still needs to make it through the house, and these sorts of legislative fights often turn into a years-long slog, but the vote count in the senate makes me wonder if it might simply pass this year. That would make South Carolina the first state in the Southeast to fully repeal their CON laws, although Florida dramatically shrunk their CON requirements in 2019.

Source: Mercatus Center at George Mason University

This seems like good news; here at EWED we’re previously written about some of the costs of CON. I’ve written several academic papers measuring the effects of CON, finding for instance that it leads to higher health care spending. I aimed to summarize the academic literature on CON in an accessible way in this article focused on CON in North Carolina.

CON makes for strange bedfellows. Generally the main supporter of CON is the state hospital association, while the laws are opposed by economists, libertarians, Federal antitrust regulators, doctors trying to grow their practices, and most normal people who actually know they exist. CON has persisted in most states because the hospitals are especially powerful in state politics and because CON is a bigger issue for them than for most groups that oppose it. But whenever the issue becomes salient, the widespread desire for change has a real chance to overcome one special interest group fighting for the status quo. Covid may have provided that spark, as people saw full hospitals and wondered why state governments were making it harder to add hospital beds.

Certificate of Need and Mental Health

Most US states require hospitals and other healthcare providers to obtain a “Certificate of Need” (CON) from a state board before they are allowed to open or expand. These laws seem to be one reason why healthcare is often so expensive and hard to find. I’ve written a lot about them, partly because I think they are bad policies that could get repealed if more people knew about them, and partly because so many aspects of them are unstudied.

States vary widely in the specific services or equipment their CON laws target- nursing homes, dialysis clinics, MRIs, et c. One of the most important types of CON law that remained unstudied was CON for psychiatric services. I set out to change this and, with Eleanor Lewin, wrote an article on them just published in the Journal of Mental Health Policy and Economics.

We compare the state of psychiatric care in states with and without CON, and find that psychiatric CON is associated with fewer psychiatric hospitals and beds, and a lower likelihood of those hospitals accepting Medicare.

Together with the existing evidence on CON (which I tried to sum up recently here), this suggests that more states should consider repealing their CON laws and letting doctors and patients, rather than state boards, decide what facilities are “economically necessary”.