Thirty-five states and the District of Columbia currently have some form of certificate of need (CON) requirement under which specified healthcare organizations—including hospitals, outpatient facilities, and long-term care facilities—must secure approval from a state regulatory agency before undertaking major capital expenditures or program expansions.
Depending on each state’s CON program, hospitals looking to add beds, increase their physical footprint, or purchase equipment may not be able to until they can demonstrate the need to a certifying authority. CONs may also be required for mergers or acquisitions.
Background
Supporters of CONs often justify them on the basis of Roemer’s law—the idea posited by Milton Roemer and colleagues in 1959 that “hospital beds that are built tend to be used.” Proponents say CONs regulate growth, prevent duplicative services, limit use, and restrict excess healthcare expenditures.New York adopted the first CON program in in 1964 to reduce healthcare spending and direct care to underserved communities. The model was federally adopted a decade later with the passage of the National Health Planning and Resources Development Act of 1974, which required states to establish certificate of need programs in order to be eligible for certain federal funding.
Every state except for Louisiana implemented CONs before Congress eventually repealed the requirement in 1986.
In Practice
The CON programs still in existence vary widely. In Massachusetts, for example, CONs are required for hospitals or clinics, long-term care facilities, clinical laboratories, and public medical institutions, including those for the developmentally disabled or mentally ill. In contrast, Oklahoma’s CON requirements are specific to long-term care facilities, specialized facilities for developmentally disabled clients, hospital-based skilled nursing units, and psychiatric or chemical dependency facilities.
Twenty-five states have CONs for acute-care hospitals. In some states, CONs are required before a licensed healthcare facility can purchase new equipment such as a CT scanner, MRI machine, or PET scanner.
In granting a CON, a state might consider projected population growth and corresponding need, financial capacity, community impact, and anticipated healthcare costs.
CON programs allow states to exercise leverage for directing care to underserved areas and populations. For example, a state seeking a CON might require a hospital to implement a financial assistance program.
The Debate
Since their inception, stakeholders have disagreed as to whether CONs achieve their stated goals and if they do so fairly.
The American Medical Association (AMA) opposes CON laws as a threat to “physicians’ freedom to practice medicine and promote the business of medicine.” Free-market groups, including the Mercatus Center and the Cato Institute, echo this concern and contend that the programs are inherently anticompetitive and ultimately increase healthcare costs.
Critics also fault the CON process for sometimes allowing incumbent programs to provide input during the decision-making process.
In testimony before the Alaska Senate Labor and Commerce Committee, Hearing on Repeal of Certificate of Need Program in 2017, Thomas Stratmann, Senior Research Fellow, University Professor of Economics and Law, George Mason University, likened the influence competitors can exercise in opposing an expansion of services as “akin to McDonalds needing permission from Burger King to open a restaurant in Alaska.”
Maureen K. Ohlhausen, a former commissioner of the Federal Trade Commission, is among those who argue that even if CONs were appropriate when they were originally implemented, the “cost plus” payment model that might have justified it is no longer in effect.
In 2018, the Department of Health and Human Services (HHS) joined the Treasury and the Department of Labor to call upon states “to repeal or scale back certificate of need laws and encourage the development of value-based payment models.”
Supporters of CONs contend that they are an important way to direct resources to communities that might not otherwise have them. A 2019 study found that CON laws are associated with a 32 percent decrease in market concentration.
In response to free-market critics, the Urban Institute has asserted that CONs can be “procompetitive” by “preventing predatory behavior of established hospital systems.”
The Future
In 2018, HHS joined the Treasury and the Department of Labor in calling upon states “to repeal or scale back certificate of need laws and encourage the development of value-based payment models.” It remains to be seen how many states will heed the call.