If you’ve been following the Cardinal Institute’s work for more than a few minutes, then you’ve probably heard the term Certificate of Need laws, a.k.a. CON laws, come up at some point. If you’re like most people, you might not know what that means. It’s not exactly a term taught in school, and it isn’t often spoken about outside of dedicated politico circles. I had never heard of them before I started working with the Cardinal Institute — it didn’t take long to discover just how horrendous they are.
In short, Certificate of Need laws restrict the supply of a given service in a particular area. They can be found in various industries — including the moving industry. However, when most people discuss these laws, they talk about the CON laws regulating the healthcare industry.
Under these Certificate of Need laws, states set up regulatory boards with the authority to restrict healthcare services and technologies. These boards govern the creation of new hospitals, the addition of new hospital beds, the purchase of MRI machines, the opening of nursing homes and addiction treatment centers, and the offering of all kinds of new healthcare services. Anyone who wants to offer a service governed by CON laws must prove a “need” for those new services or healthcare technologies. (Because who wants an overabundance of hospitals, am I right?)
The criteria used to approve these certificates vary significantly between states. As if the idea of having to prove to a government regulatory board that there is a “need” in the market for more health care wasn’t bad enough, the distinction that makes these laws particularly egregious is the “competitors’ veto.”
Incumbent providers who hold certificates can testify against the new provider to show there is no need for additional competition in the healthcare market. Often, when a competitor testifies against a new CON applicant, the CON request is denied. Furthermore, these oversight boards typically don’t even have to give an applicant a reason why they were denied a Certificate of Need. So, in addition to the arduous process, there is little transparency for those involved or those seeking to hold regulatory boards accountable.
Some History of Certificate of Need Laws
Where did these abominations come from? Well, I’m glad you asked. Certificate of Need laws were invented in the 1960s to regulate health care. Proponents claimed these laws would reduce costs and promote equal access to health care. Who could object to lower costs and equal access to care? So, of course, bureaucrats wanted to do anything in their power to make this dream a reality. And who better else to start this trend than the Empire State?
New York was the first state to endorse CON programs in 1964. Less than a decade later, in 1972, Section 1122, part of the Social Security Act of 1935, encouraged a similar program to review large capital expenditures in the states. This new section of the SSA meant that the federal government could withhold Medicare and Medicaid funding for capital expenditures that weren’t pre-approved by central planning agencies.
In 1974, Congress took things a step further and passed the National Health Planning and Resources Development Act, which regulated expenses totaling more than $100,000, bed additions, and service expansions for hospitals and nursing homes. By 1975, 46 states had opted into some form of a review program. By 1980, 49 states had created their own Certificate of Need processes to comply with the Act and receive federal funds. The Development Act dispensed nearly $150 million annually for health planning. However, after years of trying this experiment in Soviet-style central planning, government officials realized that CON laws weren’t achieving their purported aims. In 1987, a bipartisan federal government repealed CON.
This is an exceedingly rare example of the federal government realizing something doesn’t work and getting rid of it. This federal repeal caused many states to eliminate or modify their review programs. In 2016, the Federal Trade Commission and the Department of Justice even co-authored a report that stated, “[I]t is apparent that CON laws can prevent the efficient functioning of health care markets.”
Unfortunately, 35 states and DC still have CON programs of some kind. West Virginia is one of them.
What Are the Effects of Certificate of Need Laws?
In general, Certificate of Need laws restrict the supply of healthcare services offered in a given area. This raises costs and lowers the quantity and quality of care that individuals receive.
Matt Mitchell, Senior Research Fellow and Certificate of Need Research Coordinator at the Knee Regulatory Research Center at West Virginia University, recently published a paper in the Southern Economic Journal comprehensively reviewing the academic literature on CON regulations. Here, he surveys 114 peer-reviewed studies of Certificate of Need laws that include 413 empirical tests. Of the 389 tests with relatively obvious implications, 205, or 53%, associate CON with a “bad” outcome. These bad outcomes include higher spending, diminished access, lower quality, less competition, or diminished care for underserved populations. 140 tests, or 36%, find neutral or insignificant outcomes from CON regulations. Only 44 tests, 11%, associate CON with a “good” outcome such as lower spending or higher quality.
The most studied aspect of CON is how these laws affect patient access to care. 97% of studies that examine this topic show that CON laws decrease individuals’ access to health care and exacerbate racial disparities in access to care.
A Kaiser Family Foundation study found that states with CON laws have 11% higher costs in health care than states without these policies. Additionally, researchers with the Mercatus Center at George Mason University found a 5.5% higher mortality rate, 30% fewer hospitals per 100,000 residents, fewer hospital beds (131 fewer per 100,000), fewer MRI machines, and less access to CT scans in states with CON laws.
The Knee Center at West Virginia University recently hosted a conference dedicated to new research into Certificate of Need laws. Researchers presented findings that CON laws reduce wages
for healthcare workers by 1.4% and that physicians in CON states earn 5% less than physicians in states without CON laws. So, it appears that those increased healthcare costs experienced by patients aren’t going to pay the actual healthcare workers. On top of all that, researchers also found preliminary evidence that campaign contributions influence the CON approval process.
I’ll leave you to imagine what that extra money is paying for. (My guess would be higher administration costs and lobbying to keep CONs in place.) *See the definition of Rent Seeking.
In summary, people often think CON laws are a healthcare regulation that deals with health-related concerns, meaning that medical care providers should inform decisions about CON. But CON laws are an example of centralized planning and entrenched special interests. You don’t need a medical degree to see that CON laws are one big con. They don’t help your average person receive better care or even help actual healthcare providers earn a better living. They simply help big medical conglomerates, politicians, and others who ride their coattails.
Are Any States Repealing These Laws?
Recently, there has been growing awareness of the problems associated with Certificate of Need laws. States like New Hampshire, Montana, Florida, and South Carolina have all taken action to eliminate CON laws
According to the National Conference of State Legislatures, in 2016, New Hampshire was the most recent state to repeal its CON program completely. In 2019, Florida repealed all CON laws except those for long-term care facilities. In 2021, Montana revised their CON program to only include oversight of long-term care facilities and swing beds. Most recently, in 2023, South Carolina removed all CONs except:
• Those that relate to nursing homes,
• The construction or other establishment of a hospital, and
• A change in the existing bed complement of a hospital through
the addition of one or more beds or a change in the classification of licensure of one or more beds.
Where Do CON Laws Stand in West Virginia?
In 2023, West Virginia exempted hospitals performing hospital services and birthing centers from CON oversight. This is a step in the right direction, but it’s still not far enough. This year, during the 2024 West Virginia Legislative Session, legislators passed a bill out of the House Health and Human Resources Committee to repeal all Certificate of Need laws in West Virginia except for the nursing home CON. This is the furthest a full or nearly total repeal bill has made it in the West Virginia Legislature.
According to polling conducted by the Zoldak Agency and commissioned by the Cardinal Institute in 2022, 58% of likely voters reported being concerned about their ability to access health care in the future. 60% said they would support a bill to repeal Certificate of Need laws.
58% of likely voters reported being concerned about their ability to access health care in the future. 60% said they would support a bill to repeal Certificate of Need laws.
As we look forward to election season, we can only hope that a change in elected and appointed officials will bring with it a renewed sense of urgency to remove the shackles of CON laws from health care in the Mountain State and unleash much-needed competition and innovation.
For example, Berkeley County’s population has increased by 19% over the past ten years, and the eastern panhandle’s population is expected to continue growing by 1.0% annually. We must help health care keep pace with this growth and allow providers to meet the existing needs of West Virginians in all regions of the state.
We can’t build a West Virginia Miracle that doesn’t include access to quality health care for all Mountaineers. CON laws are standing in the way. It’s time to remove these unnecessary barriers. Our
future depends on it.
