What Are the Impacts of Certificate-of-Need Laws? A Review of the Evidence.

This study reviews the literature on the impacts of Certificate-of-Need (CON) laws on outcomes related to hospitals. CON laws require the approval of states' health planning agencies for health care providers to engage in regulated actions such as opening or expanding facilities or purchasing equipment. Economic theory suggests that barriers to entry should reduce competition, leading to higher prices, greater per-firm quantity but lower market quantity, and larger net revenues for incumbent providers. However, defenders of CON laws argue that they ensure high quality standards for new entrants, while also offsetting distortions that disadvantage hospitals and put some at risk of closure. The preponderance of available evidence points toward CON laws restricting entry of new competitors, which in turn increases the number of procedures per hospital. At the same time, CON laws also appear to inhibit hospital expansion, and there is little evidence of increased prices or higher hospital profitability. Studies on hospital efficiency and quality of care for procedures performed exclusively at hospitals mostly point to null or negative effects, but evidence on quality is more mixed for services that can be provided outside of hospitals. With that said, there is a need for new research that utilizes the latest tools for identifying causal effects and better accounts for the wide variation in CON laws across states.