You may never have heard of certificate-of-need (or CON) laws, but if you’ve ever waited for months to see a specialist or received a sky-high hospital bill, these obscure regulations might be responsible. CON laws artificially restrict the number of hospitals and providers, leading to higher prices and making it more difficult for patients to access the care they need.
Despite these adverse effects, most states still have CON laws. That may soon change, however, as the federal government has announced new financial incentives for states to repeal these counterproductive regulations.
CON laws require healthcare providers seeking to open a new facility, expand an existing one, or purchase new equipment to first demonstrate to a state board that the community “needs” more healthcare infrastructure. These bureaucratic hurdles can add years of delay and millions in legal fees to construction projects in the healthcare industry, deterring vital investments that would expand patients’ access to care. And since CON boards are prone to being manipulated to serve the commercial interests of existing providers, small entrepreneurs are particularly vulnerable to having their CON application denied.
In one study, researchers investigated CON laws in six states and discovered a “highly subjective” approval process that “tends to be influenced heavily by political relationships rather than policy objectives.” Another analysis found that providers who make political contributions to state lawmakers who appoint members of CON boards are more likely to have their projects greenlit.
According to Maureen Ohlhausen, a former commissioner of the Federal Trade Commission, CON laws “serve primarily, if not solely, to assist incumbents in fending off competition from new entrants.” It would be comparable to giving McDonald’s the power to veto the construction of a burger joint next door.
Unsurprisingly, research has found that CON laws reduce the number of hospitals and providers, create shortages, and allow the small number of existing healthcare systems to raise prices. During the COVID-19 pandemic, states that maintained CON restrictions were more likely to run out of beds and experienced higher mortality than states that relaxed their CON rules.
Ironically, the federal government once encouraged states to pass CON laws. In 1974, Congress passed the National Health Planning and Resources Development Act, which threatened to withhold federal funds from states that failed to implement a CON program. The hope was that by preventing the construction of duplicative facilities, these laws would help slow the growth of healthcare costs.
States swiftly complied, and by the early 1980s, CON laws were in effect in virtually every corner of the United States.
It soon became clear that CON laws had backfired. Rather than rein in healthcare spending, CON laws contributed to higher costs by stifling competition between providers and fostering monopolies. Recognizing this failure, Congress repealed the federal CON mandate in 1987. In the ensuing decades, more than a dozen states dismantled their CON programs, most recently, Florida, Montana and South Carolina.
While some states have adopted CON reforms, progress has been slow. CON laws endure in 35 states.
A new policy from the federal government may help spur faster progress. The omnibus spending bill passed by Congress in July created a $50 billion fund to support rural health systems. Part of this money will be distributed to states based on technical metrics, including whether the state operates a CON program. States can improve their score — and receive more funding — by repealing their CON laws. This is the first time the federal government has ever offered a financial incentive for states to reform their CON laws.
The evidence is clear that patients are better off without CON laws. Now, state coffers also stand to benefit. Will it be enough?