August 24, 2020 Print

Certificate of need (CON) laws require healthcare providers to seek regulatory approval before opening or expanding their facilities. Often a lengthy, costly, and unpredictable process, CON laws have decreased quality and access to care, while increasing costs for patients and providers. Since 2016, the Mercatus Center at George Mason University has spearheaded efforts to highlight the failures of these policies. Their work has demonstrated a path to reform for the 37 states with CON laws on the books.

“CON laws require healthcare providers wishing to open or expand a healthcare facility to first prove to a regulatory body that their community needs the services that the facility would provide,” said Matthew Mitchell, director of the Equity Initiative for American Healthcare at the Mercatus Center. “This process allows incumbent businesses to protest the applications of new entrants who are seeking a new certificate of need, effectively allowing those who are already in business to help block potential competitors from building new hospitals, providing new MRI machines, offering new healthcare services, etc. The regulations are typically not designed to assess a provider’s qualifications or safety record.”

The Mercatus Center assembled a team to analyze CON laws throughout the United States, measure their effectiveness, and offer alternative systems that would allow consumers and providers—not the government—to determine the supply of healthcare goods. They then conducted peer-reviewed research projects that addressed each of the fundamental claims that CON law proponents make in their defense. The team was sure to ground their research in the assumptions of CON law advocates to avoid bias and to keep the focus on the data.

“The process for obtaining a CON can take years and can cost tens or even hundreds of thousands of dollars in preparation costs, hindering competition and innovation, and limiting services available to patients in need,” Mitchell continued.

Researchers consistently find that CON laws are associated with fewer hospitals, fewer ambulatory surgical centers, fewer rural hospitals, and greater racial disparities in the provision of care. The findings highlight problems that exist in normal times, but during a pandemic-fueled health crisis—when supply is already stretched thin—such disparities in healthcare availability might mean the difference between life and death for thousands. 

In 2017, Mitchell and fellow Mercatus scholar Thomas Stratmann developed an innovative state-by-state analysis of CON laws and their impact on local healthcare markets. Each state profile shows how certificate of need laws affect healthcare quality, accessibility, and costs. In side-by-side comparisons, they show current outcomes and how these would be different if the state did not have a CON law. Despite well-funded opposition, the Mercatus Center’s research has inspired numerous reform efforts across the country, with 11 state legislatures introducing bills to reform CON laws in the past year alone.

“The outbreak of COVID-19 has highlighted how certificate of need laws leave states vulnerable to hospital bed and equipment shortages, making it more likely that sick Americans will lack access to lifesaving care,” said Daniel M. Rothschild, executive director of the Mercatus Center at George Mason University. “With states reconsidering or temporarily suspending these laws in response to the pandemic, our research findings are more relevant than ever and we are especially grateful to have our work recognized as a finalist this year for the Templeton Freedom Award.”

In Florida, Mitchell was invited to testify in the state house where he briefed legislators on Mercatus research. He explained that without CON laws in Florida, annual per capita healthcare spending would likely be about $240 less, the state would likely have about 100 more hospitals, readmission rates would be lower, and there would be about 6 percent fewer deaths from post-surgery complications. In other words, allowing the market to work in healthcare would not just save money; it would also save lives.

Within a couple of months of Mitchell’s testimony, the Florida House passed a bill to significantly cut CON requirements for general and specialty hospitals and eliminate them entirely for more than a dozen medical procedures. The legislation was signed into law by Governor Ron DeSantis in July 2019.

"Any progress on restoring markets to healthcare is a victory, but what Mercatus has done on certificate of need requirements will have ripple effects across the country,” said Matt Warner, president of Atlas Network. “Patients deserve the efficient provision of medical goods and services. Reintroducing supply and demand to that dynamic process, as Mercatus has helped to do, will no doubt save lives."

Michigan followed suit soon after Florida’s reform effort. The Michigan state regulators had decided to impose a new certificate of need requirement on experimental cell therapy for cancer treatment. The regulatory overreach—established despite a growing body of research that reveals the real costs of CON laws—quickly created a state-wide uproar and caused state legislators to reverse the regulators’ decision. The controversy inspired the introduction of a comprehensive reform package, informed by Mercatus research, that would overhaul the way CON laws restrict healthcare in the state. The package is currently making its way through the state legislature.

The Mercatus Center plans to continue their research on CON regulations and to demonstrate how these laws affect patient access, quality, and cost, highlighting the burdens they pose on patients and providers. With 11 states currently considering legislation to roll back their CON requirements and 22 temporarily suspending them due to the COVID-19 pandemic, Mercatus anticipates further reforms will follow. “There are ongoing discussions in several states, including Alaska, North Carolina, Tennessee, and Georgia,” Mitchell concluded.

The Mercatus Center’s Equity Initiative for American Healthcare won the 2020 North America Liberty Award and is a finalist for the 2020 Templeton Freedom Award.

About Atlas Network’s 2020 Templeton Freedom Award:
Awarded annually since 2004, Atlas Network’s Templeton Freedom Award is named for the late investor and philanthropist Sir John Templeton. This prestigious prize honors Sir John’s legacy by recognizing Atlas Network’s partner organizations for exceptional and innovative contributions to the understanding of free enterprise and the advancement of public policies that encourage prosperity, innovation, and human fulfillment. The Templeton Freedom Award is generously supported by Templeton Religion Trust and will be presented during Atlas Network’s Freedom Dinner on Nov. 12. The winning organization will receive a $100,000 prize, and five additional finalists will receive $20,000 prizes. The finalists for the 2020 Templeton Freedom Award are:

The Templeton Freedom Award is generously sponsored by Templeton Religion Trust.

For media inquiries about the 2020 Templeton Freedom Award, contact AJ Skiera at Aj.Skiera@AtlasNetwork.org or (224)636-3227.                     

About Mercatus Center:
The mission of the Mercatus Center is to generate knowledge and understanding of the institutions that affect the freedom to prosper, and to find sustainable solutions that overcome the barriers preventing individuals from living free, prosperous, and peaceful lives.

About Atlas Network:
Atlas Network increases opportunity and prosperity by strengthening a global network of independent civil society organizations that promote individual freedom and remove barriers to human flourishing.