Yet Another Presidential Administration Calls for Certificate of Need Repeal

For decades, the federal government has urged states to rescind their certificate of need (CON) laws. In fact, every presidential administration since 1987 — from conservative Reagan to progressive Biden — has called for the repeal of these regulations. It seems to be the one thing that can gain bipartisan support at the federal level. And now, for the second time, the Trump administration has joined this chorus of CON critics. 

CON laws require providers to acquire a state government’s approval before establishing or expanding health care facilities, services, or equipment. These certificates are essentially a government-mandated permission slip that health care providers must obtain before they are allowed to care for patients. 

Earlier this year, in a letter to Governor Dan McKee of Rhode Island, the directors of the Federal Trade Commission’s Office of Policy Planning, Bureau of Economics, and Bureau of Competition noted that “promoting competition in the healthcare sector” is one of the agency’s highest priorities — and that can, in part, be achieved through the repeal of state CON laws. As the FTC notes in its letter — and which is evident in the plethora of research on this topic —  CON laws “create barriers to entry and expansion, limit consumer choice, and stifle innovation.” In a time when Americans are living longer but sicker lives, artificially limiting the supply of health care is a recipe for disaster. 

Similarly, the Director of the Center for Medicare and Medicaid Innovation called for changes to states’ CON requirements so patients could “have more choice on where they receive care.” By design, the CON process limits which health care providers can enter the market, thereby limiting competition and the options available to patients. But the drawbacks of CON laws don’t stop at limited patient choice — CON laws are associated with lower patient ratings, higher costs, and worse patient outcomes.  

So why aren’t states taking this guidance to repeal their CON laws? Well, some are. A growing trend of states have repealed or heavily reformed their CON laws in recent years. In 2023, the South Carolina General Assembly boldly passed a full repeal of their CON regulations. But roughly 75% of the states still have these laws on their books. 

Federal strong arming is what got us into this mess in the first place, so some state legislators may be rightfully hesitant to take the advice of federal bureaucrats to slim down their regulatory scheme. In direct defiance of Econ 101, policymakers believed that reducing the supply of health care services would reduce health care spending. In 1974, the federal government heavily encouraged every state to pass a CON law of their own by threatening to withhold funding for their Medicaid and Medicare reimbursements. Within six years, 49 states and DC had implemented CON laws. In 1986, however, the federal government repealed the CON mandate after realizing the program did not meet its intended goal of limiting health care spending. 

Despite the federal government’s admission that CON laws failed to control health care costs, these market-disrupting regulations have persisted. And for that, we can thank those who benefit the most from CON laws: incumbent providers. 

The CON regime heavily favors large health care providers that are already established in the market. Incumbent providers have a so-called “competitor’s veto” that allows them to challenge CON applications and tie up the applicants in costly litigation until they inevitably withdraw from the process or their application is denied. Incumbent providers are, unsurprisingly, the loudest defenders of CON requirements. 

Instead of abiding entrenched business interests, state legislatures ought to listen to the most important opinions when it comes to health care: those of patients. For decades, CON laws have needlessly limited the options available for patients to their detriment. In order to put the needs of patients first, state governments must relinquish their control over their health care markets through the antiquated and misguided certificate of need system.