Certificate-of-Need Laws: Frequently Asked Questions

1. What are certificate-of-need (CON) laws?

  • The easiest way to understand CON laws is to think of them as permission slips to compete in a state’s healthcare market. These laws require healthcare providers to obtain approval from state regulators before opening or expanding a healthcare facility or before investing in certain devices or new technologies.
  • The applicant must prove that the community needs the new or expanded service.
  • Existing firms are also invited to challenge the applications of would-be competitors.

2. What is the history of CON laws?

  • In 1964, New York was the first state to establish a CON program, and in the following decade, a number of states enacted similar programs. In 1974, the federal government required states to implement CON programs in order to continue receiving certain federal funds. By 1980, every state except Louisiana had implemented a CON program.
  • In 1986, the federal government repealed the CON mandate, and in the 30 years since, 15 states have repealed their programs.
  • Matthew Mitchell and Christopher Koopman have created a visual history of CON.

3. How were the research questions chosen?

  • The Mercatus Center’s goal has been to test the justifications for maintaining CON laws. Many claims are made about what these laws achieve, though little to no empirical evidence is available to support them.
  • To help provide some clarity on this issue, Mercatus scholars have created the most comprehensive dataset of CON laws to date. It spans 30 years and includes data from every state. 
  • With this dataset, we have tested the most common justifications for CON laws using state-of-the-art techniques.

4. What are the justifications for CON laws?

As Mitchell explains, these laws were enacted under the belief that they would achieve several goals:

  1. Ensure an adequate supply of healthcare resources.
  2. Ensure access to care for rural communities.
  3. Promote high-quality care.
  4. Ensure the provision of charity care for those unable to pay and for other underserved communities.
  5. Encourage the use of hospital substitutes such as ambulatory surgery centers (ASCs).
  6. Restrain the cost of care.

Empirical evidence suggests, however, that CON laws do not necessarily accomplish these goals.

Summary of Research Addressing the Goals of Certificate-of-Need (CON) Laws in Health Care

1. Do CON programs ensure an adequate supply of healthcare resources?No. CON regulation explicitly limits the establishment and expansion of healthcare facilities and is associated with fewer hospitals, ambulatory surgical centers, dialysis clinics, and hospice care facilities. It is also associated with fewer hospital beds and decreased access to medical imaging technologies. Residents of CON states are more likely than residents of non-CON states to leave their counties in search of medical services and CON laws favor incumbent hospitals in the market for services.Ford and Kaserman (1993); Carlson et al. (2010); Stratmann and Russ (2014); Stratmann and Baker (2017); Stratmann and Koopman (2016)
2. Do CON programs ensure access to health care for rural communities?No. CON programs are associated not only with fewer hospitals overall, but also with fewer rural hospitals, rural hospital substitutes, and rural hospice care. Residents of CON states must drive farther to obtain care than residents of non-CON states.

Cutler, Huckman, and Kolstad (2010);

Carlson et al. (2010); Stratmann and Koopman (2016)
3. Do CON programs promote high-quality health care?Most likely not. While early research was mixed, more recent research suggests that deaths from treatable complications following surgery and mortality rates from heart failure, pneumonia, and heart attacks are all statistically significantly higher among hospitals in CON states than hospitals in non-CON states. Also, in states with especially comprehensive CON programs, patients are less likely to rate hospitals highly.Stratmann and Wille (2016)
4. Do CON programs ensure charity care for those unable to pay or for otherwise underserved communities?No. There is no difference in the provision of charity care between states with CON programs and states without them, and CON regulation is associated with greater racial disparities in access to care.DeLia et al. (2009); Stratmann and Russ (2014)
5. Do CON programs encourage appropriate levels of hospital substitutes and healthcare alternatives?No. CON regulations have a disproportionate effect on nonhospital providers of medical imaging services and are associated with 14 percent fewer total ambulatory surgical centers (ASCs).Stratmann and Baker (2017); Stratmann and Koopman (2016)
6. Do CON programs restrain the cost of healthcare services?No. By limiting supply, CON regulations increase per-unit healthcare costs. Even though CON regulations might reduce overall healthcare spending by reducing the quantity of services that patients consume, the balance of evidence suggests that CON laws actually increase total healthcare spending.Bailey (2016); Mitchell (2016)

Source: Matthew D. Mitchell, “Certificate-of-Need Laws: Are They Achieving Their Goals?” (Mercatus on Policy, Mercatus Center at George Mason University, Arlington, VA, 2017).

5. Where do the state-specific estimates come from?

  • All of the state-specific estimates provided are derived from the findings in Mercatus working papers. Because some states have repealed their CON laws while others have not, multivariable regression analysis can be used to compare outcomes of interest in CON and non-CON states. These regressions include control variables to account for other confounding factors that might affect these outcomes. 
  • The advantage of studying the effect of CON laws in a multistate, empirical research study is that the findings can be applied specifically to each state.
  • For example, the findings from James Bailey’s 2016 paper on total per capita healthcare spending can be applied to Alabama in the following way: The state’s total per capita healthcare spending in the period analyzed by Bailey was $6,756.67. Based on his results, if Alabama had no CON law, it is estimated that per capita healthcare spending in the state would likely be approximately $203 lower. Similar estimates can be made for each state and for each variable measured in Mercatus working papers.
  • All of the Mercatus estimates have gone through a rigorous peer-review process. 

For more information on CON laws, please visit our webpage at mercatus.org.