Policy Documents

Research & Commentary: Certificate of Need Laws

December 27, 2013

Competition among health care providers improves the services they provide and gives consumers more options. Although competition allows for the development of a wide variety of health care services, 35 states have hindered that competition through laws that limit the ability of health care providers to expand their businesses, through an approval process known as Certificate of Need (CON). 

CON laws were first passed in the 1960s by states hoping to slow health care price increases by limiting duplication and promoting consolidation of providers. CON programs require health care providers planning certain types of expansion to receive state approval, generally from the state’s health care agency or a designated CON commission. Such approval is required for a wide range of capital expenditures, including the construction of new hospitals, purchase of major medical technology, or provision of new medical procedures. Unlike other licensing laws, CON laws are generally not based on quantifiable criteria such as experience or education. 

In a study of North Carolina’s CON program, Jon Sanders of the John Locke Foundation found patients and rural communities were negatively affected by CON restrictions, and this was especially true of the poor, elderly, and those with emergencies. Sanders argues state leaders would be more likely to achieve the goal of keeping costs low by repealing North Carolina’s CON law. 

The most commonly cited problem with CON laws is the undue influence they give to competitors during the vetting process. When a new or existing company wants to enter a new market, competitors can use the CON process to attempt to block the potential competition. Joel Allumbaugh, director of the Center for Health Reform Initiatives at the Maine Heritage Policy Center, explains: “The Maine CON law protects incumbents and inhibits innovation. As a result, Maine’s average individual health insurance premiums are 31 percent higher than the national average.” 

The effects of these laws have led many experts to call for their repeal. Although the primary goal of CON programs is to manage health care costs, critics find they actually increase costs for consumers by hindering competition and forcing providers to use older facilities and equipment. State legislators should roll back these unnecessary regulations. 

The following articles examine Certificate of Need laws from multiple perspectives.

Ten Principles of Health Care Policy
http://heartland.org/policy-documents/ten-principles-health-care-policy
This pamphlet in The Heartland Institute’s Legislative Principles series describes the proper role of government in financing and delivering health care and provides reform suggestions to remedy current health care policy problems.

CON Job: State “Certificate of Necessity” Laws Protect Firms, Not Consumers
http://heartland.org/policy-documents/con-job-state-certificate-necessity-laws-protect-firms-not-consumers
Writing in Regulation magazine, Timothy Sandefur of the Pacific Legal Foundation argues certificate of need laws are not intended to protect the public but instead are designed to restrict competition and boost the prices existing companies can charge. 

You Shouldn’t Have to Ask Your Competitors for Permission to Start a Business
http://www.cato.org/blog/you-shouldnt-have-ask-competitors-permission-start-business
Ilya Shapiro of the Cato Institute argues CON laws make it more difficult and expensive for companies to create new jobs, innovative products, and better services. Even more troubling, Shapiro argues, is the use of CON laws by existing businesses to bar newcomers from competing against them.

Certified: The Need to Repeal CON: Counter to Their Intent, Certificate of Need Laws Raise Health Care Costs
http://www.insideronline.org/summary.cfm?id=21036
Jon Sanders of the John Locke Foundation argues CON laws fail to lower health care costs and in many instances actually increase costs. Sanders recommends state leaders honor the intent behind CON—preventing unnecessary increases in health care costs—by repealing CON. 

The Failure of Government Central Planning: Washington's Medical Certificate of Need Program
http://heartland.org/policy-documents/failure-government-central-planning-washingtons-medical-certificate-need-program
Public policy in Washington should focus on ensuring access to affordable, high-quality health care for everyone in the state. The Certificate of Need program fails to advance this fundamental goal, this study by John Barnes of the Washington Policy Center finds. Barnes describes the history of the Certificate of Need concept, summarizes how Washington’s law works, compares its stated goals with actual performance, and presents practical policy recommendations for improving Washington residents’ access to affordable health care. 

Certificate of Need Pits Government Against Private Sector in North Carolina
http://news.heartland.org/newspaper-article/2011/12/06/certificate-need-pits-government-against-private-sector-north-carolina
Sara Burrows of Carolina Journal reports on a new taxpayer-funded cardiac care center that has sparked a public vs. private sector fight over the provision of medical services in North Carolina’s largest county. 

Certificate-of-Need Law Hampers North Carolina Breast Cancer Hospital
http://news.heartland.org/newspaper-article/certificate-need-law-hampers-north-carolina-breast-cancer-hospital
The Heartlander digital magazine reports on a women’s breast cancer hospital in Asheville, North Carolina that has had to resort to begging for a magnetic resonance imaging scanner because of the state’s CON laws: “The certificate-of-need (CON) law makes it impossible for medical providers to build new facilities, expand existing facilities, buy new major medical equipment, or offer new services without first obtaining a ‘determination of need’ from the state Department of Health and Human Services.” 

Certificate-of-Need Laws: It’s Time for Repeal
http://heartland.org/policy-documents/certificate-need-laws-its-time-repeal
The first of a series of annual research papers on certificate of need laws from the John Locke Foundation explains the principles of free markets and applies them to current controversies in North Carolina. 

Certificates of Need: A Bad Idea Whose Time Has Passed
http://heartland.org/policy-documents/certificates-need-bad-idea-whose-time-has-passed
Writing for the James Madison Institute, Peter Doherty argues federal interventions into the market have proved disastrous and the government’s increased spending has been a failure. He writes, “in the past 20 years, many of us have battled to moderate or eliminate the most egregious of these programs and the artificial controls they place on free markets, but despite our successes, vestiges of the past remain.”

Health Care in the States
http://heartland.org/policy-documents/colorado-balance-health-care-states
In this Independence Institute paper, Michael Tanner compares health care reform among states from New York to Hawaii. Because there is no universal model available for states to follow, they are creating their own models of reform. The article examines how these various state policies differ in cost-effectiveness, increasing insurability, and success or failure in providing affordable insurance for all residents.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartland Institute’s Web site at www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org. 

If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Senior Policy Analyst Matthew Glans at 312/377-4000 or mglans@heartland.org.