Why Certificate-of-Need Laws Haven’t Delivered on Their Promise
For decades, certificate-of-need (CON) laws were justified as a tool to guide health care investment, prevent unnecessary duplication, restrain excess capacity, and protect access to essential services. The intent was orderly planning. The reality has been something very different.
When you strip away the procedural complexity, CON laws function as a barrier to entry. They make it harder for new facilities, new competitors, and new care models to enter the market. Once that dynamic takes hold, the downstream effects on access, pricing, utilization patterns, and innovation become predictable.
What CON Was Supposed to Do
The theory behind CON was straightforward.
Limit duplicative capacity. Prevent overbuilding that might “induce” unnecessary utilization. Preserve cross-subsidies. Support community priorities. Direct capital toward services the public needs.
Those goals still matter. The mechanism did not achieve them.
What CON Does Instead
Because CON restricts who can open or expand a facility, incumbents gain a structural advantage. They face fewer rivals, fewer substitutes, and less pressure to innovate. The result:
- Reduced supply of lower-cost settings, like ASCs and independent imaging centers
- Slower diffusion of better workflows, technology, and staffing models
- Consolidation favored over competition, as acquiring a competitor becomes easier than building one
- Higher unit prices in markets where alternatives cannot enter
This pattern is not theoretical. It has repeated across state after state. Restricted entry. Limited contestability. Higher prices and fewer options.
Why the Stated Goals Don’t Match the Outcomes
Avoiding duplication
Healthy competition looks like duplication on paper. Multiple imaging centers or multiple surgery centers give clinicians and patients options and give payers leverage. Suppressing that dynamic raises costs; it does not reduce them.
Preventing unnecessary utilization
Proponents argue that limiting capacity prevents overuse by avoiding facilities that “fill themselves.” But unnecessary utilization rarely originates from physical capacity. It comes from clinical decision-making, referral pathways, payment incentives, and practice culture.
CON does not influence those levers. Instead, it blocks lower-cost capacity while preserving higher-cost hospital-based capacity already in place. The result is not less use. It is the same use at a higher price point.
Preserving cross-subsidies
If certain services require support, targeted public funding, not blocking market entry, is the direct and defensible tool. CON tries to preserve margins indirectly, reinforcing pricing gaps without improving access.
Protecting rural hospitals
Restricting new facilities in urban or suburban areas does not keep a rural obstetrics unit open. Rural access requires tailored solutions such as global budgets, targeted subsidies, or service-specific grants. CON is a blunt proxy for a nuanced problem.
In practice, CON laws have not safeguarded essential services. They have restricted the very forms of competition that lower costs, enhance access, and improve availability.
Why This Matters
Markets function best when providers can enter, expand, and experiment with new models of care. ASCs, home-based alternatives, and free-standing imaging centers are examples of innovations that grow faster in states without CON.
Restrict entry and those models arrive later, scale slower, and remain concentrated in fewer hands. Patients wait longer, travel further, and face higher bills. Health plans confront narrower networks and higher contracted rates. Policymakers lose visibility into what investment patterns would look like under open competition.
The system becomes both more expensive and less adaptive.
What Should Happen Next
The cleanest path is repeal. Allow supply to respond to demand. Allow competition to discipline pricing. Allow innovation to move without an approval gatekeeper.
But if a state keeps CON, a simple countermeasure supports its original intent: site-neutral payment.
Pay the same amount for the same service regardless of whether it is delivered in a hospital outpatient department, an ASC, or an independent clinic. Until CON is removed, site-neutral payment prevents the pricing distortions that CON makes possible.
The Bottom Line
CON laws were built with admirable intentions. They have not delivered on them.
Instead of stewarding access, restraining unnecessary utilization, and improving affordability, they have limited competition, slowed innovation, and raised the underlying cost structure of care.
Reevaluating CON is not about ideology. It is about aligning policy with observable outcomes. And ensuring that investment, care models, and pricing reflect patient needs—not procedural barriers.