The Problem:
Thirty-five states have “certificate of need” (CON) laws requiring government approval before healthcare corporations can create, acquire, or expand facilities. Dating back to the 1970s, CON laws were intended to prevent the construction of excess hospital capacity, which was feared would lead to unnecessary spending on redundant services and overcharging on the fewer patients each facility would take under their care. In particular, the 1974 National Health Planning and Resources Development Act withheld federal funding from states that did not adopt CON laws. This law was repealed in 1986, but most states have retained their CON statutes.
CON laws have effectively become tools for legacy hospitals to avoid competition by abusing a regulatory barrier to entry; existing systems can simply fight the regulatory approval, rather than having to compete with a new facility. CON laws also restrict antitrust regulators’ ability to stop a merger or demand a divestment from combining hospitals. For all the same reasons that hospital consolidation is harmful for patient care, CON laws are as well. Research has indicated that CON laws increase overall patient expenditures and elderly mortality.[1]
Similar to COPA laws, federal antitrust regulators have long criticized CON laws as protecting the market power of legacy hospitals.[2]
The Solution:
By repealing CON laws, state legislators can restore competitive pressures to hospital markets, which research shows results in higher quality, more affordable care. Without CON laws, new hospitals could be constructed more easily where either the existing hospital is not providing quality care or where there is no existing hospital.
Notes
[1] Christopher J. Conover and James Bailey, “Certificate of need laws: a systematic review and cost-effectiveness analysis,” BMC Health Services Research, 1-29, August 14, 2020, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7427974/.
[2] Joint Statement of the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice on Certificate-of-Need Laws, January 11, 2016, https://www.ftc.gov/system/files/documents/advocacy_documents/joint-statement-federal-trade-commission-antitrust-division-u.s.department-justice-certificate-need-laws-south-carolina-house-bill-3250/160111ftc-doj-sclaw.pdf.