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As Economy Reopens, a Push to Rethink Regulations

During the pandemic, most governors have signed executive orders waiving requirements regarding medical licensing and health facilities. Republicans want to shield businesses broadly from civil liability for the spread of COVID-19.

A bar in Los Angeles offers drinks to go. Deregulation advocates want to make the service permanent. (Gary Coronado / Los Angeles Times)
During the coronavirus crisis, businesses have felt the heavy hand of the state, facing restrictions regarding the capacity at which they can operate or even whether they can open.

But regulations have also been loosened in some areas, notably medicine. Nearly every state has waived medical licensing requirements, making it easier for retired or out-of-state physicians to provide treatment, or allowing them to practice telehealth without a prior established relationship with the patient. Twenty-one states have waived or suspended practice agreement regulations for nurse practitioners, which require them to have doctors supervise care and prescriptions.

A number of lawmakers are hoping to extend this approach to a much wider range of commerce, reducing the number of regulations that might stand in the way of businesses fully reopening and prospering. “We’re going to have to clear a path to entrepreneurship and business growth,” says Todd Huston, speaker of the Indiana House.

Shielding businesses from civil liability due to the spread of COVID-19 is a top priority for congressional Republicans. On Monday, the idea was endorsed by 21 Republican state attorneys general. That same day, the Oklahoma Senate passed a bill to shield businesses from COVID-related lawsuits. Similar legislation has been introduced in Kansas.

Sponsors insist that business owners would still be held liable for criminal neglect, but they argue that customers and businesses alike need confidence to return physically to the marketplace. “There needs to be a balance, obviously,” says Jonathan Williams, chief economist for the American Legislative Exchange Council, or ALEC, which brings together state legislators with private companies and associations to craft model legislation.

“Nobody wants to protect bad actors,” Williams continues. “If there’s gross negligence, that’s not what this is about. It’s giving business owners confidence that trial lawyers will not be able to feast on them for real or perceived harm.”

At a time when strict health regulations have saved thousands of lives, some worry that a rush to deregulate could end up doing more harm than good. 

“Some of the lifting of regulations has been appropriate,” says Andy Billig, majority leader of the Washington Senate. “Some of these measures have been important, but I think we need to make sure we’re not making long-term decisions based on a short-term problem, whether it’s medical licensing or other requirements that are appropriate to waive in an emergency.”

But the fact that “a ton” of rules and regulations were swiftly struck leads naturally to the question of why they were on the books to begin with, says Huston, the Indiana speaker. Some legislators and members of Congress are proposing the creation of “reverse sunset commissions,” which would examine whether regulations that have been waived really need to be restored.

“Before we go and put those all back, we need to talk about whether they were necessary to begin with,” Huston says. 

Do We Need Certificates of Need?

Most states have certificate of need laws. These regulate capital expenditures on health-care facilities. The requirements vary by state, but the basic idea is that before you can build a new hospital or clinic, you have to get the department of health to sign off that there will be demand for its services.

“You must prove something that hardly ever exists in any other industry, which is that your competitors don’t have enough capacity and there is an unmet need,” says Lee McGrath, senior legislative counsel at the Institute for Justice, a libertarian public interest law firm. “Your competitors have an opportunity to protest your application.”

New York created the first certificate of need law in 1964. A decade later, the federal government got on board the bandwagon, offering financial incentives to states that passed such laws. Every state but Louisiana did. But over time the feds soured on the idea. Congress repealed funding for certificate of need incentives in 1986.

Since then, about a dozen states have struck their CON laws. In response to COVID-19, two dozen other states have waived or suspended requirements, or are offering certificates of need on an emergency basis. Governors have been particularly sensitive to the need to increase the number of hospital beds.

McGrath hopes more states will move to eliminate certificate of need requirements permanently. “The cause of optimism is that the pretense of health and safety is being revealed as rent seeking,” he says — that is, private interests using government power for their own economic benefit. “The anticompetitive nature of regulations will have a big spotlight shined on it.”

Medical Licensing and Profits

A common complaint against licensing requirements is that they’re put in place not so much to protect the public as to provide barriers to entry. In effect, they can provide incumbents in a particular field a veto, keeping out competitors or making them jump through discouraging hoops.

The number of occupations that require licensing has exploded in recent decades. Some have dubious health or safety benefits, such as those that are only regulated by a small minority of states. Eyebrow threading is a commonly cited example.

Even in the health field itself, there is clear jockeying for competitive advantage. Disputes between practitioners — what optometrists are allowed to do, versus ophthalmologists, for example — are common. “What’s the demarcation between the foot (which podiatrists can treat) and the ankle (which they can’t)?” the Texas Supreme Court asked in a 2015 ruling. The answer to that question matters a lot to orthopedists as well as podiatrists.

“When you have a regulation in place for several decades, the public justification is health and safety, of course, but most of the reason it exists is protectionism, rent seeking-type behavior,” says Jarrett Dieterle, resident senior fellow at R Street Institute, a free-market think tank.

Given the nature of outbreaks, when hot spots can occur anywhere, Dieterle says it makes sense to allow nurses to practice if they’re licensed in another state, to allow skilled labor to go where it’s most needed. (ALEC has drafted model legislation that would waive tax reporting and withholding requirements for out-of-state workers who relocate in response to disasters.)

“Any time there’s a shock and you’re really forced to think about what most benefits health and safety,” Dieterle says, “the laws that have no real benefit but are just benefiting some group, those are the ones you get rid of first and need to think about whether they should be removed permanently.”

A Good Time for a Drink

Dieterle is the author of Give Me Liberty and Give Me a Drink!, a forthcoming book that examines alcohol restriction laws (and provides cocktail recipes). Unsurprisingly, he supports executive orders that have lifted restrictions on off-site liquor sales in response to COVID-19.

To-go cocktails were once mainly limited to tourist destinations such as New Orleans and Las Vegas, but suddenly are common around the country, helping bars and restaurants stay afloat when they can’t open their doors. “From what I hear from Texans, we may just let this keep on going forever,” Gov. Greg Abbott tweeted last month.

Dieterle anticipates that objections will be raised against easing up on alcohol sales permanently, particularly when it comes to delivery. He argues that delivery companies such as Amazon and Instacart have identification systems in place that will arguably be more effective than ID checks at corner stores. Every high school kid knows which stores won’t check or don’t squint too hard at fake IDs.

He notes that even in the midst of the pandemic, Kentucky legislators took the time last month to pass a bill allowing direct shipping by wineries, breweries and distilleries. “Why can I get every product delivered to my door in two days,” Dieterle says, “but I can’t get alcohol?”

In any debate over regulation, there will be concerns about going too far and failing to protect consumers. It’s not hard to imagine that meatpacking plants — famously the subject of early waves of regulations during the Progressive Era following the 1905 publication of Upton Sinclair’s novel The Jungle — could come under greater state scrutiny, given COVID-19 outbreaks.

Congress is debating proposals that would shield health-care providers from liability for coronavirus exposure, which hospitals and physicians argue is needed to return to performing elective procedures. North Carolina passed a similar law earlier this month, but critics argued it went too far, maintaining penalties against criminal negligence but specifically exempting resource or staffing shortages as forms of negligence.

On Tuesday, Georgia Gov. Brian Kemp issued an executive order that superseded an earlier one, meant to clear up a COVID-triggered backlog, which allowed teen drivers to get their licenses without having to take road tests.

Permanent Waivers

Certainly, before the pandemic, getting rid of unnecessary regulations had been a priority for a long list of governors including Charlie Baker of Massachusetts, Chris Sununu of New Hampshire and Jared Polis of Colorado, as well as the Trump administration. The bulk of COVID-related deregulation has been the result of executive orders, with governors acting through their broad emergency powers. 

Making such changes permanent will require, in many instances, legislative action. With sessions suspended in some states and legislators everywhere concerned with the health response and dire budget situations, it’s not clear how much bandwidth will be left for potentially heated fights over licensing and regulation.

Williams, the ALEC executive vice president, notes that many legislators are small business owners themselves. They won’t want to see companies stay on the sidelines, afraid to reopen due to liability concerns.

Last year, Arizona became the first state to pass a law offering universal recognition of out-of-state licenses for new residents. “States were already thinking of emulating that model,” Dieterle says, “and the demand will be even greater in the future.”

Alan Greenblatt is the editor of Governing. He can be found on Twitter at @AlanGreenblatt.
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