Certificate-of-need laws were supposed to help control rising health care costs. Matthew Mitchell of the Mercatus Center examines the record.
In 35 states and the District of Columbia, certificate-of-need (CON) laws require healthcare providers planning to offer or expand certain services to first prove to a state regulator that their community “needs” the particular services in question. These laws are controversial. Many experts question their effectiveness and worry that they undermine competition to the detriment of patients.
Still, proponents of these laws believe that they rein in healthcare spending. A new study from the Mercatus Center at George Mason University provides a comprehensive review of the theoretical and empirical research on the relationship between CON laws and spending. After analyzing the theoretical arguments and reviewing 19 academic studies spanning 40 years, a clear lesson emerges: CON laws restrict competition in health care, driving up the cost of obtaining medical services. …
… The approval process can be time-consuming and expensive, and it offers incumbent providers an opportunity to oppose the entrance of new competitors. However, it was originally hoped that these laws would, among other things, reduce healthcare price inflation. In this brief, I review the basic economic theory of a supply restriction like CON, then summarize four decades of empirical research on the effect of CON on healthcare spending. There is no evidence that CON regulations limit healthcare price inflation and little evidence that they reduce healthcare spending. In fact, the balance of evidence suggests that CON laws are associated with higher per unit costs and higher total healthcare spending.
