For decades, certificate of need (CON) laws have forced health care providers to ask state governments for permission to open new facilities, expand services, add hospital beds, and make any other investments that improve access to care. In theory, these laws are supposed to control costs, protect access, and improve quality. In reality, they do the exact opposite of this by increasing costs, restricting access to care, and limiting competition.
A recent George Mason Law Review article by economists Matthew Mitchell and Stephen Slivinski offers a lesson for policymakers hesitant to reform these archaic laws: repealing or retrenching CON will not produce the catastrophic consequences critics often warn about. The evidence does not show rising costs, mass hospital closures, or declines in quality. Instead, patients gain access to more affordable care and health care markets are more easily able to respond to demand.
Despite their adverse effects, CON laws are still widespread. According to the article, more than 30 states still maintain CON requirements for at least some health care services or technologies. These rules can apply to hospitals, nursing homes, psychiatric services, surgical centers, cardiac care, medical equipment, home health, dialysis, and much more. This is especially consequential given that health care access depends on supply. When the government makes it harder for providers to expand and invest in new capacity, patients pay the price through increased costs, longer wait times, and lower quality of care.
Nonetheless, supporters of CON laws often argue that these regulations are necessary to contain costs and preserve access to care. In practice, however, the CON process can shield incumbent providers from competition by allowing them to object to new entrants or expansions. These objections trigger expensive and time-consuming proceedings that function as a “competitors’ veto,” making it easier for established providers to preserve market share and keep prices high. This alone should be highly troubling for policymakers, but CON laws become even more indefensible in light of the substantial evidence linking them to worse health outcomes.
Mitchell reviewed 128 studies containing over 450 separate tests assessing the effects of CON laws. Among those with a clear normative implication, the majority were associated with negative outcomes, such as higher spending, less access, and lower quality. The evidence is even stronger when focusing on spending per service, availability of care and services, and access for underserved populations.
The experiences of states that repealed CON laws further weaken the case for maintaining them. As Mitchell and Slivinski note, Pennsylvania’s 1996 repeal was followed by an increase in open-heart surgery programs, shorter travel distances to certain cardiac surgical services, and a decrease in mortality. Research on other states found lower hospital charges and lower real per capita health care spending within five years of repeal.
Florida provides a more recent case study. In 2019, the state eliminated large portions of its CON requirements for hospitals and tertiary services, phasing in additional reforms in 2021. Following the reforms, Florida experienced an increase in hospital construction and planned hospitals. The estimated value of new hospital construction rose from $5 billion in the four years prior to reform to $6.5 billion in the four years after. State data also showed plans to build at least 65 hospitals announced from 2020 to 2022, compared with only 20 hospitals approved from 2016 to 2018. Mitchell and Slivinski also found that Florida experienced a significant rise in the total number of ambulatory surgery centers and hospitals in the years following reform.
The evidence is clear that CON laws are barriers to accessible, affordable, and high-quality care. By restricting competition and limiting investment in new supply, these restrictions make it harder for providers to respond to patient needs. States seeking to expand access and lower costs should move away from burdensome and obsolete CON programs and toward an open and competitive health care system.
Nicholas Huff is a policy intern at Americans for Prosperity.
