U.S. Departments of Health and Human Services, Treasury, and Labor Call to Eliminate Certificate of Need Laws

In a 119-page report titled “Reforming America’s Healthcare System through Choice and Competition,” issued on December 3, 2018, Secretaries Alex Azar (Health and Human Services), Steve Mnuchin (Treasury), and Alexander Acosta (Labor) recommend that states “consider repeal of Certificate of Need (CON) statutes or, at a minimum, significantly scale back the scope of their CON regimes.” The recommendation could have a widespread impact: 38 states currently maintain CON laws, with varying processes and requirements. While critics of CON laws have long complained that such laws have the effect of limiting free-market competition for health care services, proponents of CON laws argue that the health care market is unique and not likely to see the same benefits that more competitive markets enjoy.

In addition to the above, the report also provides the following CON-related commentary:

• The evidence to date . . . suggests that CON laws are frequently costly barriers to entry for healthcare providers rather than successful tools for controlling costs or improving healthcare quality.
• CON regimes impose the legal and regulatory costs of preparing an application, then seeing that application through an often-lengthy approval process and potential third-party challenges. As a result, healthcare providers must spend resources on administrative processes rather than on constructing healthcare facilities or delivering healthcare services.
• [A]vailable evidence suggests that CON laws have failed to produce cost savings, higher quality healthcare, or greater access to care, whether in underserved communities or in underserved areas.
• The best empirical evidence suggests that greater competition incentivizes providers to become more efficient. Recent work shows that hospitals faced with a more competitive environment have better management practices. Consistent with this is evidence suggesting that repealing or narrowing CON laws can reduce the per-patient cost of healthcare.
• Not only may CON laws impose costly barriers to provider entry, but by interfering with market forces that normally determine the supply of facilities and services, they can suppress supply, misallocate resources, and shield incumbent healthcare providers from competition from new entrants.

Elimination of a CON program in any one state—to say nothing of the potential elimination of multiple CON programs across the country—could have a significant impact on the healthcare industry. CON laws apply not only to hospitals and skilled nursing facilities, but also (in some states) to home health agencies, hospices, ambulance providers, birthing centers, kidney diseases treatment centers, ambulatory surgical centers, cardiac catheterization services, diagnostic imaging services, organ and tissue transplant services—the list goes on and on. Given the breadth of coverage, it is important for those in the healthcare industry to monitor any federal or state-level changes to or commentary on CON laws.