Most people that have worked in the healthcare industry for a while, particularly those that work in healthcare administration, are familiar with certificate of need laws. A Certificate of Need (CON) is a permit, issued by a state government agency, that is required before approval can be given for the establishment or modification of a health care facility or service in a particular geographical location.
The theory for the creation of the CON, of which New York state was the first to require one back in 1964, goes like this: The state regulatory authority must ensure that the local demand for a new healthcare facility or service is sufficient, because overbuilding or redundancy of these services or facilities, such as having too many hospitals serving a particular population, can lead to higher healthcare costs.
By 1974, Congress developed a healthcare planning law that required states to develop CON legislation in order to be eligible for certain federal funding. In the years that followed, all states except for Louisiana passed CON legislation. However, after Congress repealed the federal mandate in 1986, states began repealing their CON laws. In recent years, there have been efforts in several different state legislatures to repeal the CON laws. In 2011, and 2016, Wisconsin and New Hampshire, respectively, repealed their states’ CON laws, bringing the total number of states that have repealed their CON requirements to 15. Currently, 35 states plus the District of Columbia still retain CON restrictions.
Opponents of certificate of need laws say that the requirements are unduly burdensome upon those wishing to expand their facilities or enter the healthcare market in a given location and say that the laws violate the very essence of free enterprise. They argue that the CON restrictions decrease the availability of healthcare by limiting competition and entry into the healthcare marketplace. CON opponents also claim that by restricting new construction, these laws actually contribute to higher healthcare costs and the potential for political influence peddling. Furthermore, they say that states without CON laws have lower per-unit healthcare costs, and that patients in those states spend less overall on healthcare.
Proponents of keeping CON legislation intact stress that the laws keep healthcare costs down and ensure that care will be given to patients in underserved areas that might not necessarily get it from new medical facilities. Some even say that the free enterprise system doesn’t apply in the same way for healthcare regulation as it does in other markets and industries since the government sets the rates and the insurers pay the bills. In a letter posted by the South Carolina Hospital Association on its website back in 2012 when there was talk of the South Carolina state legislature repealing that state’s CON laws, the Association argued that the real purpose for a CON is to “promote healthcare cost containment, prevent unnecessary duplication of healthcare facilities and services, guide the establishment of healthcare facilities and services that will best serve healthcare needs, and insure that high quality services are provided in healthcare facilities.” Some proponents say that if the government has a say in regulating the cost of healthcare in ways such as setting reimbursement rates for Medicare and Medicaid, then its not a stretch to argue that the government could also regulate costs by determining the need for new facilities in given areas and for particular types of facilities.
