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Barriers to entry in the healthcare markets: Winners and Losers from certificate-of-need laws

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  • Baker, Matthew C.
  • Stratmann, Thomas

Abstract

In states with Certificate of Need (CON) laws, medical services providers must file an application and demonstrate community need before being permitted to start or expand a service. We examine CON laws for magnetic resonance imaging (MRI), computed tomography (CT), and positron emission tomography (PET) scanners to test the hypothesis that the approval process favors established incumbent hospitals over new hospital entrants and nonhospital providers. Using Medicare claims data in 2013, we find that states with CON laws have 20 to 33% fewer providers, depending on the type of scanners to which the laws apply. As a result, residents of CON law states are 3.4–5.3 percentage points more likely to travel outside their home county to obtain imaging services than residents of non-CON states. In addition, there is a notable shift in the type of provider: CON laws are associated with 27–53% fewer scans by nonhospital providers per beneficiary, 23 to 70% fewer by new hospitals, but 6 to 21% more scans in older hospitals.

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  • Baker, Matthew C. & Stratmann, Thomas, 2021. "Barriers to entry in the healthcare markets: Winners and Losers from certificate-of-need laws," Socio-Economic Planning Sciences, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:soceps:v:77:y:2021:i:c:s0038012120308442
    DOI: 10.1016/j.seps.2020.101007
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    2. Shishir Shakya & Christine Bretschneider Fries, 2023. "Impacts of Certificate-of-need State Laws on Substance Abuse Treatment Facilities and Services," Working Papers 23-08, Department of Economics, Appalachian State University.
    3. Thomas Stratmann, 2022. "The Effects of Certificate-of-Need Laws on the Quality of Hospital Medical Services," JRFM, MDPI, vol. 15(6), pages 1-29, June.

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    Keywords

    Barriers to entry; Certificate-of-need laws; Medical imaging services; Health care; Healthcare; Medicare;
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    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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