Certificate of need laws con rural patients out of health care

News watchers around the U.S. have likely seen the warnings: without certificate of need (CON) laws, hospitals will be forced to close their doors when for-profit organizations open and cherry pick commercially insured patients, leaving those in rural areas without care. The reality is that even with certificate of need laws in place, rural patients are already without care. States with these laws have 30% fewer rural hospitals and 13% fewer rural ambulatory surgical centers.

CON laws require a state government to approve the establishment or expansion of health care facilities, services, or equipment. These certificates are essentially a government-mandated permission slip that individual health care providers, physician groups, hospitals, and health systems must obtain before they are allowed to care for patients. Essentially, CON laws empower bureaucrats to decide what health care services are offered, instead of that decision being driven by patients’ needs.

Facilities and services regulated under CON laws vary from state to state, but there is significant overlap. In many states, health care professionals or systems that want to open a nursing home, psychiatric or substance abuse treatment facility, birthing center, or ambulatory surgical center must first obtain a certificate of need. The same goes for those seeking to offer MRI, ultrasound, or other diagnostic services. Hospital systems that want to develop or expand neonatal intensive care units or burn units to provide necessary, lifesaving care must first navigate the lengthy CON process before being allowed to legally treat these vulnerable patients.

Certificate of need laws restrict access to health care services by artificially limiting the establishment and expansion of health care facilities. In some cases, CON schemes prevent providers from offering low-cost alternatives to hospital care. For example, CON laws barred an ophthalmologist from performing eye surgeries at his facility in North Carolina, and blocked an aspiring entrepreneur from opening a birthing center in Georgia. In other cases, CON programs stopped construction of hospitals in counties without one. In South Carolina, legal wrangling over certificate of need delayed the opening of a hospital for nearly two decades after the state identified the need for one in York County.

By 1972, more than half of U.S. states had enacted certificate of need laws. In 1974, the federal government coerced the remaining states to implement their own CON laws by threatening to withhold federal funding for health care facilities. But the federal government made a course correction in 1986 and repealed that law after CON laws failed to reduce health care costs. Since then, every presidential administration has implored state governments to repeal their certificate of need laws.

Like many bad policies, certificate of need laws were established with good intentions. Policymakers believed that certificates of need would control health care costs for patients by reducing waste and duplicity.

In practice, however, the aptly named CON laws artificially limit the health care market and drive up costs, effectively conning patients out of access to affordable care. Basic economics says that supply controls do not decrease prices — they actually do the opposite. CON laws negatively affect individuals in cities, suburbs, and beyond by increasing wait times, limiting choices, and inflating costs. In rural communities where the supply of health care is already limited, these controls can lead to life-threatening problems.

Unsurprisingly, the loudest defenders of certificate of need requirements are incumbent providers who benefit greatly from this monopolistic system that crowds out competition.

So far, 12 states have followed the federal government’s guidance to repeal their certificate of need laws. The current legislative session has seen some minor successes. Georgia passed a bill exempting psychiatric and substance abuse inpatient programs, basic prenatal services, birthing centers, and general acute hospitals from the state’s CON process. Likewise, Tennessee passed a bill removing CON requirements for several services as well as medical facilities in counties without an acute care hospital. Both bills follow last year’s massive success in South Carolina which passed a full repeal of certificates of need for virtually all services.

These reforms follow a national trend of states reducing the regulatory burdens of their certificate of need laws: Montana reformed its CON law to cover only long-term care facilities in 2021; Florida eliminated CON requirements for numerous services in 2019; and West Virginia removed CON requirements for birthing centers and all hospital services in 2023 after exempting telehealth, remedial care, imaging services, and ambulatory health facilities in 2017.

Some states, however, continue to drag their heels. In 2023, the Kentucky General Assembly formed a legislative task force to study reforming its certificate of need program. After six months, the task force issued a disappointing one-sentence recommendation for “further study.” Earlier this year, the Mississippi House and Senate passed differing versions of a limited reform bill that would have exempted from its CON law chemical dependency and psychiatric services and birthing centers, but the bill died last month after the two chambers could not agree on the details, leaving in place unnecessary barriers between health care providers and some of Mississippi’s most vulnerable people.

Health care systems in states that have repealed their CON requirements have not fallen apart, as hospital associations had predicted. In actuality, states that have repealed their programs have seen increases in health care investment. Research also shows that safety-net hospitals in states without CON laws had considerably higher margins than safety-net hospitals in states with these laws.

The successes of these reforms have prompted some CON defenders to begin making concessions to their long-standing opposition to repealing these laws. In 2023, for example, the Kentucky Hospital Association proposed CON “modernization” reforms that would “provide flexibility for existing Kentucky hospitals to improve patient service” by allowing existing hospitals to receive expedited CON reviews for several types of services and facilities. These same conveniences, however, would not be extended to other providers that apply for certificates of need. The Georgia Hospital Association recommended similar reforms to allow existing hospitals to add, expand, or relocate services without a certificate of need but leave CON requirements in place for new providers.

Decades after their implementation, the touted benefits of certificate of need laws have not been realized. Instead, the regulations have unnecessarily limited the supply of, and access to, quality health care options for all Americans. The rollback and repeal of CON laws will allow patients and providers to access each other without the unnecessary intrusion of the government.

Maintaining CON regimes at the behest of incumbent providers will only enrich their bottom lines at the expense of the health and safety of rural communities.

Sofia Hamilton is a policy analyst at Americans for Prosperity. Thomas Kimbrell is an investigative analyst at Americans for Prosperity Foundation.