By Justin Leventhal, American Consumer Institute
One of the biggest problems in healthcare is too little competition, yet certificate-of-need (CON) laws intentionally limit new providers from entering the market. States often require new providers to justify to regulators a new hospital, surgery center, ambulance provider, or expansion of an existing facility before it can serve patients. Preventing new providers from offering care doesn’t protect patients. It drives up costs and wait times. States should repeal CON laws and let patients’ needs determine how many providers communities need.
CON laws were designed around the idea that limiting healthcare supply would prevent costly excess capacity, such as unnecessary hospital beds, facilities, and medical equipment. In practice, they give regulators and existing providers the opportunity to decide whether new providers should be allowed into the market. The Federal Trade Commission and Department of Justicehave repeatedly concluded that CON laws suppress competition, restrict patient choice, and impede innovation.
The problem is easy to see when a new provider tries to enter a market. In Kentucky, Grace Home Care, a home-health agency planning to serve Louisville’s Nepali-speaking community, sought permission to enter the market with workers who could communicate with patients in their native language. As part of the CON review process, existing providers can oppose an applicant’s entry, and Baptist Health Home Care Louisville did so. Kentucky regulators ultimately determined that there was no need for another provider, blocking both new competition and another option for patients.
Virginia provides another example. A radiology practice seeking to add a second MRI machine to a busy imaging center faced two denials, five years of proceedings, and $175,000 in legal expenses before receiving permission. Those costs do nothing to make an MRI safer or improve its quality, and they certainly do not bring down costs. They simply make it more expensive to expand healthcare capacity, if expansion is allowed at all.
CON laws are not ordinary for health and safety regulations. States with and without CON laws still license facilities, inspect providers, enforce professional standards, and punish unsafe practices. Safety regulations can be enforced without bureaucrats deciding whether another MRI machine, surgery center, or hospital is economically necessary.
CON reviews can estimate utilization and existing capacity. They cannot determine whether patients want a different or better option. Markets discover that information by allowing providers to compete for customers.
Supporters of CON laws argue that controlling capacity keeps hospital costs down, but the evidence gives little reason to believe this. A study of more than 2,100 hospitals found no evidence that CON programs reduced hospital costs and found that more stringent CON regulation was associated with higher costs.
The argument CON laws increase health care quality is not any stronger. Astudy of more than 1.5 million Medicare patients found no significant differences between CON and non-CON states in post-operative mortality metrics, surgical-site infections, or readmissions. Another study found no statistically significant reduction in overall, all-cause mortality from CON laws.
What CON laws do reliably is restrict supply. States that repealed CON requirements for ambulatory surgical centers found that repeal increased the number of centers per capita by 44 to 47 percent statewide and 92 to 112 percent in rural areas. Just as importantly, the researchers found no evidence that repeal caused rural hospitals to close, as proponents contend will happen without them.
Healthcare is already consolidated, expensive, and difficult for consumers to navigate. States should not make those problems worse by requiring potential providers to prove to regulators that consumers need another choice.
Repealing CON laws would not guarantee that every proposed hospital, surgery center, imaging facility, or other provider that wants to enter the healthcare market succeeds. Some will fail due to lack of demand or poor business models just like in other industries. That is precisely how a competitive market is supposed to work. What repealing CON laws will do is give patients lower-cost choices for healthcare. Providers should have to prove there is a need for their services to the patients they serve, not to regulators deciding whether those patients should have the option in the first place.
Justin Leventhal is a senior policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow on X @ConsumerPal.
