Concerns over rising health care costs are nothing new. In 1974, the federal government enacted a Certificate of Need (CON) law in an effort to control costs through government control of health care facilities establishment and expansion. This federal law, based on CON laws already in place in a few states, required all states to enact their own CON laws. In general, CON laws require a health facility to obtain state approval for building a new facility, adding technology, or making capital improvements to an existing facility such as increasing hospital bed capacity or updating operating rooms. The theory was that government central planning would better allocate scarce health care resources, minimize waste, and improve access. Central planning, however, ignored the key market forces of supply and demand. Since little cost savings was realized from the CON laws, Congress repealed the federal CON law in 1986. Many states followed suit and repealed their CON laws. However, there are still CON laws in thirty five (35) states in some form.
CON laws impede competition by limiting the supply of health care services regardless of demand. For example, if more acute care beds are needed, CON laws restrict the ability of the healthcare provider to make those beds available without approval. In a non-CON state if a hospital invests in expanding the number of beds and there is insufficient demand for those beds, it is the hospital that bears the cost burden. CON laws by their very nature create significant barriers to entry for competitors into the health care market that are unrelated to patient safety or health concerns. The costs of complying with the CON laws are significant, often requiring consultants, attorneys and application fees. These administrative costs only increase the cost of healthcare. Administrative burden and costs further discourage innovators and other providers from competing with established healthcare providers. Finally, Americans need healthcare providers to be able to quickly respond to public health crises such as pandemics. CON laws prevent a quick pivot to supplying more intensive care beds or other urgent needs. It is clear that CON laws stifle competition, discourage innovation, increase the costs of healthcare, and do not improve health care accessibility.
Nearly 35 years ago, the federal government recognized that the CON laws were not effective. It is time for states to repeal their own CON laws. CON laws inhibit competition, increase the administrative burden and cost for providers, and do not allow providers to respond quickly or innovatively to health care needs. Without any benefits, the costs of CON laws are too high- it is well past the time for states to abolish the failed CON laws.