Certificate of Need (CON) laws require individuals who wish to expand or start a new healthcare business to first to apply to state regulators to prove that there is a “need” for their services and to allow existing businesses to protest the entry of any new competitor. While many states have repealed their CON laws, 35 states and the District of Columbia with CON regulations governing their healthcare sectors.

Can you identify which of the following statements about Certificate of Need laws is false? 

A. Certificate of Need laws often raise healthcare costs.
B. Certificate of Need laws harm the ability of states to navigate healthcare crises.
C. Certificate of Need laws increase access to healthcare in rural communities.

Let’s take these statements one at a time:

A. Truth!  Defenders of CON laws often claim they contain healthcare costs when, in reality, CON laws often contribute to their rise. Because demand for healthcare services is generally price inelastic (meaning that people looking for healthcare are inclined to purchase it, no matter the cost), research has repeatedly shown that CON laws are likely to increase its price. According to the Department of Justice and the Federal Trade Commission, CON laws have “generally failed in their intended purpose of containing costs.” In fact, research suggests that CON laws have the unintended consequence of raising healthcare spending by 3-4% overall and Medicare spending by 7%.

B. TRUTH!  Certificate-of-Need laws create expensive and time-consuming regulatory barriers to entry and impede the flexibility needed to respond to a healthcare emergency. Recognizing this, and in an effort to provide their healthcare sector with more flexibility to combat coronavirus, 22 states suspended their CON laws in response to COVID-19. These barriers to entry have no grounding in health or safety and serve only to delay and make market entry more costly—such regulations have no place in ordinary circumstances and directly impede the ability of states to respond quickly to healthcare emergencies.

C. LIE! There is no evidence that CON laws increase access to healthcare for people living in rural areas, and studies establish that CON laws decrease the number of hospitals overall. Research from the Mercatus Center shows that states with CON regulations have 30% fewer hospitals per 100,000 residents, including in less-populated areas. Rural states also had 13% fewer ambulatory surgical centers. Further, people who live in CON states must drive longer distances to access healthcare than people who live in non-CON states. 

Bottom line:  Certificate-of-Need laws impose enormous costs on new innovation in the healthcare industry. After extensive investigation, the Department of Justice and the Federal Trade Commission have both condemned these laws noting they “create barriers to entry and expansion to the detriment of health care competition and consumers … undercut consumer choice, stifle innovation, and weaken markets’ ability to contain health care costs.” CON laws also hamstring the ability of states quickly to respond to emergency situations. Such laws are bad for consumers and should be repealed. For more information, check out IWF’s Legal Policy Focus on Certificate-of-Need laws.