Certificate of Need (CON)

VII. Key Issues: Regulation & Reform >> B. Health Care Regulation >> Health Facilities Regulation >> Certificate of Need (CON) (lasts updated 2.20.16)

Overview

Certificate of need was designed to hold down health costs by limiting unnecessary proliferation and duplication of health facilities, to improve quality by regionalization of selected types of surgical or other procedures where a volume-quality relationship exists and to improve access to care by preventing competitors from “cream-skimming” paying patients, leaving selected facilities with disproportionately high uncompensated care loads.

CON programs generally establish dollar thresholds for review of proposed projects related to new building or expansion of health services. Some states set different dollar thresholds (generally lower) for long term care facilities than other acute care facilities such as hospitals. In addition the thresholds for equipment generally are lower for equipment such as lithotripters than for capital projects; in the most stringent states, all projects involving equipment of a particular type are reviewed regardless of the size of the project. Likewise, states sometimes draw a distinction between new services as opposed to expansion of existing services. All in all, there is wide variation in the scope and mechanics of CON review across states.

Currently, there are 31 states (including District of Columbia) with CON for both hospitals and nursing homes and another 6 states that have retained CON for nursing homes only (AHPA 2003).

The Duke Center for Health Policy and Inequalities Research has developed a draft working paper assessing the costs and benefits of certificate of need regulation (pdf). Additional information can be found at the website of the American Health Planning Association (Maine, Connecticut and Vermont require a Certificate-Of-Need), or in the Duke University report listed below.

Evaluation of Certificate of Need (Duke University Center for Health Policy report for the State of , May 2003)

Links

CON and Access

  • Christopher Garmon. Hospital Competition and Charity Care. Washington, DC: Bureau of Economics, Federal Trade Commission, Working Paper No. 285, October 2006. [Full Text (pdf)]
    This paper explores the relationship between competition and hospital charity care by analyzing changes in charity care associated with changes in a hospital’s competitive environment (due to mergers and divestitures), using hospital financial and discharge data from Florida and Texas. Despite the pervasive belief that competition impedes a hospital’s ability to offer services to the uninsured and under-insured, I find no statistically significant evidence that increased competition leads to reductions in charity care. In fact, I find some evidence that reduced competition leads to higher prices for uninsured patients.
  • Stratmann, Thomas and Matthew C. Baker. Are Certificate-of-Need Laws Barriers to Entry? How They Affect Access to MRI, CT, and PET Scans. Mercatus Center, Jan 12, 2016.
    • CON Regulations Have a Negative Effect on Nonhospital Providers. The association of a CON regulation with nonhospital providers is substantial, ranging from −34 percent to −65 percent utilization for MRI, CT, and PET scans. Nonhospital providers in CON states experience significant decreases in the utilization of imaging services compared to hospital providers.
    • CON Regulations Have No Effect on Hospitals, Thus Increasing Their Market Share. CON regulation has no measurable effect on hospitals’ utilization of imaging services. The volume of services provided in hospitals is not affected by CON regulation. This may explain why hospital providers have a stronger market presence in CON states than in non-CON states.
    • Consumers Are Driven to Seek Imaging Services in Non-CON States. 
      • CON regulations are associated with 3.93 percent more MRI scans, 3.52 percent more CT scans, and 8.13 percent more PET scans occurring out of state.
      • CON regulations may have a negative effect on consumers because patients living in CON states have to travel out of state more often than patients living in non-CON states. This propensity for traveling out of state to obtain medical services might be attributable to any of several factors: higher costs, a smaller selection of services, or restricted access to care.
  • Stratmann, Thomas and Christopher Koopman. Entry Regulation and Rural Health Care: Certificate-of-Need Laws, Ambulatory Surgical Centers, and Community Hospitals. Mercatus Center, February 18, 2016.
    • CON Programs Are Associated with Fewer Hospitals
      • The presence of a CON program is associated with 30 percent fewer hospitals per 100,000 residents across the entire state.
      • The presence of a CON program is also associated with 30 percent fewer rural hospitals per 100,000 rural residents.
    • ASC-Specific CON Programs Are Effective Barriers to Entry for ASCs
      • The presence of an ASC-specific CON is correlated with 14 percent fewer total ASCs per 100,000 residents.
      • The presence of an ASC-specific CON is associated with 13 percent fewer rural ASCs per 100,000 rural residents.
    • Conclusion: The data do not support the cream-skimming hypothesis as a justification for CON programs. ASC-specific CON laws serve as effective barriers to entry for ASCs, both in rural areas and throughout the state. However, as barriers to entry, CON programs do not promote access to rural care in the form of rural hospitals. CON laws are associated with a decrease, not an increase, in the number of hospitals, rural or otherwise. Policymakers seeking to protect access to rural care should not use CON programs to achieve their goals.
  • Stratmann, Thomas and Jake Russ. Do Certificate-of-Need Laws Increase Indigent Care? Mercatus Center, July 15, 2014.
    • A CON regulation that requires charitable care by the provider does not statistically corre­late with an increase in uncompensated care.
    • Medicaid patients may have higher patient costs and lower reimbursement rates. There is lit­tle evidence of CON regulations providing a cross-subsidy for Medicaid patients.
    • An increase in uncompensated care may not represent a true increase in indigent care. If reg­ulators focus on uncompensated care to measure the provision of medical services to indigent people, they may incentivize hospitals to provide unnecessary, billable services to the same number of patients, increasing costs but not the level of care for indigent people.

CON and Quality

  • David M. Cutler, Robert S. Huckman, Jonathan T. Kols. Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery. NBER Working Paper No. 15214, Issued in August 2009. [Abstract (html)]
    Prior studies suggest that, with elastically supplied inputs, free entry may lead to an inefficiently high number of firms in equilibrium. Under input scarcity, however, the welfare loss from free entry is reduced. Further, free entry may increase use of high-quality inputs, as oligopolistic firms underuse these inputs when entry is constrained. We assess these predictions by examining how the 1996 repeal of certificate-of-need (CON) legislation in Pennsylvania affected the market for cardiac surgery in the state. We show that entry led to a redistribution of surgeries to higher-quality surgeons and that this entry was approximately welfare neutral.

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