Certificate-of-Need Laws Mean Fewer Services for Patients

NCPA February 5, 2015

Thirty-five states (including Hawaii, which has 49 different CON laws, 3rd highest in USA) have certificate-of-need (CON) laws, which limit the entry and expansion of new health care facilities. In a new study from the Mercatus Center, Christopher Koopman and Thomas Stratmann explain why these laws don't work.

Why would states prevent the entry of new health care providers? In general, say the authors, policymakers believed CON laws would control health care costs by reducing overinvestment in health care facilities.

In 14 states, policymakers created "charity care" requirements. They believed that they could better provide health care for the poor by limiting the number of facilities in an area. States would give health care providers a certificate to construct a new facility or expand, in exchange for the provider increasing care for its poor residents. The expectation was that by essentially creating health care monopolies, providers with CONs could charge higher prices than they would otherwise face in a competitive market, creating greater profits. With those profits, states expected providers to cover losses from providing uncompensated care to low-income residents. As Koopman and Stratmann put it: "In effect, those who can pay are charged higher prices to subsidize those who cannot."

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Has it worked? No, say Koopman and Stratmann - they haven't increased charity care. They have, however, resulted in fewer facilities and equipment:

• On average, the United States has 362 hospital beds per 100,000 people. CON states have 99 fewer beds.
• On average in the United States, there are six hospitals offering MRIs for every 500,000 people. In CON states, 2.5 fewer hospitals per 500,000 residents offer MRI services.
• Similarly, there are generally nine hospitals per 500,000 people that offer CT scans in the United States, but that figure is 37 percent lower in CON states.

In short, certificate-of-need laws merely decrease the supply of health care services by limiting competition, resulting in fewer choices and options for patients.

Source: Christopher Koopman and Thomas Stratmann, "Certificate-of-Need Laws: Implications for New Hampshire," Mercatus Center, February 4, 2015.