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, which require the approval of states' health planning agencies for health care providers to open or expand facilities or purchase equipment. Economic theory suggests that CON laws should reduce competition, leading to higher prices, larger net revenues for incumbent providers, and weakened incentives to produce efficiently and deliver high quality care. 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 towards 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 favorable for services that can be provided outside of hospitals.