State CON Laws Drive up Health Care Costs

January 17, 2014

State CON laws drive up costs, restrict health care access and should be abolished, says Jordan Bruneau, a research analyst for the Foundation for Economic Education.

  • Thirty-six states and Washington, D.C., require that health care providers seeking to offer or expand their services obtain what are known as Certificates of Need (CON).
  • These permits will not be issued unless a state health-planning agency decides that there is, in fact, a need for a particular health service.

A retired optometrist in North Carolina, Dr. William Padgett, has tried for more than 10 years to bring an elderly care facility to Beaufort County, North Carolina. Senior citizens in the area, he says, have found it difficult to find a suitable long-term care facility, and Dr. Padgett has received commitments from assisted living companies to open facilities in Beaufort. However, he has been unable to get a CON permit.

CON permits derive from a 1974 law -- the National Health Planning Resources and Development Act -- that was an attempt to keep health care costs down by preventing maldistribution of health care resources. That law was repealed 12 years later when it did nothing to reduce health care costs. While some states also repealed their laws, the majority of states kept them on the books.

  • The idea behind the CON permit idea -- that preventing economic activity from expanding beyond need will keep costs down and prevent excess supply -- has been discredited, as barriers to entry (like CON permits) actually increase prices.
  • In fact, health care costs in CON states are 11 percent higher than in non-CON states.

Why have states retained these laws? Often, state health planning boards are under the influence of health care establishments that want to keep out new entrants that would bring competition.

Source: Jordan Bruneau, "The Great Health Care CON," Foundation for Economic Education, January 15, 2014.

 

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