Examining Certificate-of-Need Laws in the Context of the Rural Health Crisis

July 29, 2020

Rural communities face greater challenges than their urban counterparts in accessing healthcare, especially the long distances involved in reaching medical providers. The situation is exacerbated by government-imposed restrictions on the provision of new medical services, often through state certificate-of-need (CON) laws. 

In “Examining Certificate-of-Need Laws in the Context of the Rural Health Crisis,” Thomas Stratmann and Matthew Baker compare healthcare outcomes and common measures of wasteful spending in rural states with and without CON laws. Reforming CON laws would encourage competitive forces to drive innovation in rural states to provide cost-effective services to rural communities. 

What Are CON Laws and How Do They Hurt Rural Communities?

A primary justification for CON laws was to reduce the risk of price increases after expensive duplication of ser­vices. In practice, however, CON laws block medical providers from offering new or expanded services in rural areas. They require that facilities intending to increase bed and building capacity prove the new services are “needed” before obtaining authorization from the state’s health department. 

Consequently, Americans living in rural areas find it harder to access care. They have to travel longer distances, wait longer for appointments, and pay more for care. Residents of rural states, on average, spend more and use more healthcare services in CON states compared to non-CON states. Rural residents in CON states have higher levels of the following:

  • Medicare spending per beneficiary
  • Hospital readmission rates 
  • Ambulance utilization
  • Emergency room utilization

CON Law Reform—What It Can Bring, How to Get It

Because the outcomes of CON laws are the reverse of expressed goals, their repeal may help bridge the gap of 13 percent fewer hospitals per capita between rural states with CON laws and those without CON laws. It may also lower per capita medical spending observed in rural states with CON laws, closing the gap between these states and those without CON laws. 

While wholesale repeal may be politically unfeasible in some jurisdictions, other steps can be taken, such as phased or partial repeal of the most egregious CON laws. Transparency can also help—that is, transparency about which CON applications are opposed by incumbent providers, the financial ties of CON board members, and which board members work in the industry and may thus see new applicants as competitors.

Key Takeaway

Decades of research have questioned the value of CON laws for public health. However, the current rural health crisis may provide the political will to finally address this barrier to healthcare infrastructure. Reducing the regulatory bur­den on providers attempting to serve underserved rural communities can allow for development of both more and novel methods of healthcare for those populations, potentially increasing access and lowering per capita costs.

Certificate-Of-Need Laws 2017: How CON Laws Affect Spending, Access, and Quality across the States

August 29, 2017

Mercatus released a new version of this map in 2020. To view it, click here

Thirty-five states and the District of Columbia currently impose certificate-of-need (CON) restrictions on the provision of healthcare. These rules require providers to first seek permission before they may open or expand their practices or purchase certain devices or new technologies. The applicant must prove that the community “needs” the new or expanded service, and existing providers are invited to challenge a would-be competitor’s application.

Decades of research by health economists, regulatory economists, and antitrust lawyers shows CON laws fail to achieve their expressed goals, limit supply, and undermine competition.

Until now, there has been no systematic way to demonstrate how CON laws correlate with characteristics of local healthcare markets. We offer an easy-to-navigate, comprehensive resource that shows how CON laws correlate with healthcare market factors on a state-by-state basis. We also provide more context for how these laws affect providers and patients in particular states. States on the map colored in blue have CON laws while states in grey do not. Click on the map above to access more in-depth information on each state with CON laws in a downloadable PDF.

Each state profile includes the following:

  1. The most up-to-date account of the healthcare services regulated through CON by each state
  2. How CON laws affect hospital quality based on numerous indicators such as mortality and readmission rates 
  3. How CON laws affect total healthcare and physician spending
  4. How CON laws affect the availability of medical imaging services 
  5. How CON laws affect access to healthcare facilities

Finally, a Frequently Asked Questions document to serve as a resource for readers, showing how we derived our state-specific estimates, a brief survey of our research and that of others, and an explanation for how we formulated our research questions.

For more information on certificate-of-need laws, see our research, testimonies, videos, and charts at mercatus.org/tags/healthcare-favoritism.