Do Certificate-of-Needs Laws Improve Health Outcomes?

In most industries, firms that want to enter face no legal restraints.

In health care, however, many new entrants must comply with Certificate-of-Need laws, which require government approval of “creations, acquisitions, or expansions of healthcare facilities.”

Standard economics suggests this will harm patients by limiting supply and raising prices; the claims that such laws maintain quality or reduce costs are self-serving assertions from the incumbent suppliers (see Bootleggers and Baptists).

And new research confirms the standard perspective:

A century ago, only 5 percent of Americans were 65 or older. Today, that figure is about 17 percent, and it is projected to reach 23 percent by 2050. This demographic shift requires expanding health care access, but certificate-of-need (CON) laws restrict the entry and expansion of health care facilities in 35 states. Our research examines the staggered repeal of CON laws for long-term acute care hospitals (LTACs) in 10 states between 1984 and 2018 and finds that repealing CON laws increased the number of LTACs by 69 percent and added an average of 558 certified beds per million elderly residents. Furthermore, when LTACs entered the nursing home market, they decreased the rate at which patients in skilled nursing facilities were rehospitalized by 5.9 percent, the number of patients who fell while in care by 5.3 percent, and the number of patients who were physically restrained to their beds by 13 percent. These findings suggest that LTAC entry relieves pressure on other health care providers, so policymakers should reconsider CON laws for health care facilities.

Exactly.