Imagine having to go before a government board to obtain a permission slip to open a new business. Your would-be competitors could lobby that board and argue that the government shouldn’t issue said permission slip, killing your business before it ever gets off the ground.
As crazy as it sounds, this dynamic occurs within health care regularly. Planning laws originally created in the 1960s and 1970s stifle competition, increasing health care costs while discouraging quality innovations. Thankfully, some states are taking action, giving customers more choice in ways that can help to thwart hospital monopolies.
State ‘Certificate’ Programs
In health care, the permission slip concept comes via certificates of need (CON). States issue these certificates to allow the creation of new health care facilities (e.g., hospitals, nursing homes, etc.), or the expansion and growth of existing facilities.
As of last April, 35 states and the District of Columbia had some form of certificate of need mandate in place, according to the National Council of State Legislatures. Congress had attempted to require states to enact such measures in a 1974 law, but it subsequently repealed that mandate over a decade later, in 1987.
Big Government Approach
The theory behind CONs holds that the available supply of health care correlates with spending on the same. Expanding the available hospital beds (or MRI machines or whatever) in a given area will encourage people to consume — and perhaps overconsume — additional health care. Or, to quote Field of Dreams, “If you build it, they will come.”
But individuals with a more market-based perspective would beg to differ, noting that flawed incentives within the health care system create their own economic dynamics. By making care “free” or nearly so through myriad programs and generous subsidies, the government encourages additional consumption of health care, requiring yet more heavy-handed government regulation in the form of certificate of need programs as an arbitrary choke on supply.
More to the point: Research has found CON programs to be ineffective at best. Literature reviews conducted by the Mercatus Center have found that these programs raise costs, limit access to care, and lead to deteriorations in quality. It isn’t hard to figure out why: Certificate of need entrenches incumbents — in many cases, big hospitals — eliminating potential sources of competition that can mitigate rising costs and improve quality.
States Taking Action
Thankfully, some states are taking measures to rein in the unwieldy and counterproductive CON framework. Last month, Tennessee eliminated the requirement that new hospitals go before a state commission to receive a certificate of need before they open. That provision, which will take effect in July 2028, passed by broad bipartisan margins of 84-11 in the state House and 28-1 in the state Senate. It came two years after Tennessee removed CON restrictions on satellite emergency rooms, while making it easier to open hospitals in rural counties without one.
And whereas the federal government had pushed states to enact CON restrictions in the 1970s, this time Washington has helped promote state deregulation. An article on the recent action in Tennessee noted that the “effort was boosted by a demand from President Donald Trump’s administration.” With states’ applications for the Rural Health Transformation Grants included in last year’s budget reconciliation bill receiving additional points based on the repeal of their CON laws, the Trump administration is leveraging federal dollars to move state health policy in a positive direction.
On a philosophical level, no entity should have its existence made contingent on approval from a government board. And as a practical matter, such restrictions have proven ineffective and undermined the goal of affordable, readily accessible health care. It’s time for all states to follow in the steps of Tennessee and scale back their certificate of need programs. Better yet, they should repeal these statutes and end the CON games once and for all.
