Debate Desk
Do Certificate-of-Need Laws Protect Patients From Wasteful Care?
Certificate-of-need laws make new hospitals and clinics ask rivals for permission, which protects incumbents more than patients.
The claim
Defenders of these laws say that unchecked building of hospitals and equipment leads to duplication and higher costs, and that states need to plan for community needs and protect safety-net hospitals from cherry-picking competitors.
The answer in three points
- In a certificate-of-need state, a hospital or clinic that wishes to build, add beds or buy a scanner must show a state board that the community needs it. Existing providers, who are the competitors, often participate in the review and can oppose it. Asking rivals for permission is a way to protect them.
- The expectation that fewer facilities would lower costs has not been borne out. Studies find that these laws are associated with fewer facilities and, in many cases, higher prices and less access, especially in rural areas.
- Repeal brings competition, and states that have relaxed them have not seen collapse. Other safeguards, such as licensing and quality standards, protect patients without a veto for competitors.
When a hospital must ask its rivals for permission to expand, the incentives are plain to see. A new competitor threatens an old one, and the old one has the lawyers, the lobbyists and the seat at the table. Patients who would benefit from a new clinic or a second scanner have no seat at all. States that have loosened these laws have given patients a voice by letting the market respond.
The numbers
- The National Health Planning and Resources Development Act of 1974 encouraged states to adopt certificate-of-need programs, and Congress repealed the federal mandate in 1986, according to the Congressional Research Service.
- The Mercatus Center, among others, has found that a majority of states still maintain certificate-of-need programs of varying scope.
- The Federal Trade Commission and the Department of Justice have repeatedly advised states that these laws can reduce competition and raise prices, according to joint statements and advocacy letters.
What they will say next
"Without these laws, hospitals would open only in wealthy areas." Evidence from states without them shows more facilities, including in rural areas. Where the profit is thin, direct subsidies can serve those communities.
"We need planning to avoid duplication." Duplication of services is a cost, and so is the lack of choice. Planners often lack better information than patients and doctors do.
"The laws protect charity care." The same goal can be pursued by requiring charity care from all providers, not by limiting entry.
"Equipment would be overused." Insurers and patients with a stake in price can limit overuse, and doctors respond to incentives.
Opening the door to new providers is the best way to improve service and lower prices.
"Rural hospitals need protection from big chains." Rural hospitals often struggle for reasons of low volume and payment rules, and certificate-of-need laws do not appear to solve those problems. Targeted payments and telehealth help more than a ban on competitors.