Before a hospital can add beds, before an imaging center can install an MRI, before a surgery center can open its doors—in 35 states, someone must first ask permission from the government. These Certificate of Need (CON) laws require healthcare providers to prove that their community actually needs the proposed facility or service before they can build it.

The logic seems reasonable: prevent wasteful duplication, ensure quality through volume, and protect essential services from cherry-picking competitors. But decades after these laws emerged, a fundamental question persists: do they actually accomplish these goals, or do they simply protect established healthcare systems from competition?

This isn't merely an academic debate. The answer shapes whether patients have access to convenient care, whether healthcare prices remain affordable, and whether innovation can flourish. Understanding how CON laws actually function—versus how they were designed to function—reveals critical lessons about healthcare regulation and unintended consequences.

Certificate of Need laws emerged from a specific moment in American healthcare history. In the 1960s and 1970s, policymakers worried that healthcare was fundamentally different from other markets. The concern: if hospitals competed by acquiring expensive technology and expanding capacity, costs would spiral as each facility tried to outdo competitors with the latest equipment.

The federal government encouraged states to adopt CON programs through the National Health Planning and Resources Development Act of 1974. The theory rested on several assumptions. First, that excess capacity drives up costs because facilities spread fixed expenses across fewer patients. Second, that concentrated volume at fewer facilities improves quality—surgeons who perform more procedures develop greater expertise. Third, that profitable services cross-subsidize unprofitable but essential care.

Under this framework, state health planning agencies would rationally allocate resources, preventing the medical arms race that seemed inevitable in an unregulated market. Existing facilities seeking expansion and new entrants alike would need to demonstrate genuine community need before proceeding.

This regulatory approach reflected broader confidence in health planning during that era. The assumption was that expert planners could determine optimal healthcare capacity better than market forces. Yet even as this framework took hold, the healthcare landscape was already shifting in ways that would challenge every underlying assumption.

Takeaway

CON laws emerged from genuine concerns about healthcare market failures, but their effectiveness depends on assumptions about planning versus markets that deserve ongoing scrutiny as conditions change.

The evidence on CON laws has accumulated over four decades, and the picture that emerges challenges the original policy rationale. Research consistently finds that these regulations reduce healthcare supply without delivering promised benefits. States with CON laws have fewer hospitals, fewer ambulatory surgery centers, and fewer imaging facilities per capita than states without such requirements.

The competition effects are particularly striking. A systematic review of CON research found that these laws are associated with higher healthcare prices—the opposite of their intended effect. When potential competitors cannot enter markets, existing providers face less pressure to control costs or improve efficiency. The very duplication that CON laws sought to prevent might actually serve patients by creating options and competitive pressure.

Quality outcomes present a more complicated picture. While the volume-quality relationship exists for some complex procedures, CON laws don't consistently improve outcomes. Some studies suggest they may actually harm quality by reducing patient choice and shielding facilities from competitive pressure to improve. Rural access—often cited as a key justification—shows mixed evidence, with some research indicating CON laws may actually reduce rural hospital availability.

Perhaps most troubling: the approval process itself creates barriers that favor established players. Large health systems have resources to navigate complex applications and lengthy reviews. Independent physicians or smaller competitors often cannot afford the legal costs and delays involved. The result is a regulatory system that, whatever its intentions, tends to protect incumbent market positions.

Takeaway

Accumulated research suggests CON laws often achieve the opposite of their goals—reducing competition, raising prices, and limiting access without consistently improving quality.

Recognizing these concerns, 15 states have fully repealed their CON laws, while others have significantly narrowed their scope. Yet complete deregulation isn't the only path forward. Thoughtful reform can address legitimate planning concerns while reducing anticompetitive effects.

Some states now exempt certain services from CON review—particularly ambulatory surgery centers and imaging facilities where competition appears most beneficial. Others have streamlined approval processes, reducing the time and cost that deter new entrants. Raising expenditure thresholds means only major projects require review, allowing routine expansions without bureaucratic hurdles.

Alternative approaches can address underlying concerns differently. Quality improvement could rely on outcomes reporting and accreditation rather than limiting market entry. Cross-subsidization concerns could be handled through explicit funding mechanisms rather than protecting profitable service lines from competition. Rural access might benefit more from targeted subsidies than from restricting where urban facilities can locate.

The political economy of reform matters enormously. Existing hospitals are well-organized and politically influential; potential competitors who might enter without CON barriers are diffuse and often don't yet exist. Successful reform typically requires building coalitions among employers, insurers, and patient advocates who bear the costs of reduced competition. States considering reform should examine evidence from states that have already made changes, tracking actual effects on access, quality, and prices.

Takeaway

Reform options range from full repeal to targeted exemptions—but meaningful change requires understanding that incumbent providers have strong incentives to preserve regulatory barriers that protect their market positions.

Certificate of Need laws represent a fascinating case study in regulatory intentions versus outcomes. Designed to control costs and ensure quality, they appear to achieve neither goal consistently while creating barriers that protect established providers from competition.

This doesn't mean all healthcare facility regulation is misguided. But it suggests that regulations designed for a different era deserve ongoing evaluation against current evidence. Markets change, healthcare delivery evolves, and policies that once seemed sensible may outlive their usefulness.

For healthcare professionals and engaged citizens alike, CON laws illustrate a broader principle: good policy requires continuously asking whether regulations accomplish their stated goals—and being willing to change course when evidence suggests otherwise.