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Certificate-of-Need Laws and Hospital Quality

September 27, 2016
By Thomas Stratmann and David Wille

Thomas Stratmann and David Wille of the Mercatus Center at George Mason University challenge the notion that CON laws improve hospital quality.

We investigate the effect of certificate-of-need (CON) laws on the quality of hospitals. As of 2015, 36 states and the District of Columbia required healthcare providers to seek approval from a state’s healthcare regulator before making any major capital expenditures. These requirements restrict entry into the healthcare market. Therefore, incumbent medical providers in states with CON laws may face fewer competitive pressures. Hospital service quality is one important margin on which hospitals compete. In this paper, we test the hypothesis that hospitals in states with CON laws provide lower-quality services than hospitals in states without CON laws. Our results do not allow us to reject the hypothesis that CON hospitals deliver lower-quality care than non-CON hospitals. Nor do our results show that hospital quality is higher in CON states. Our overall results suggest that CON regulations lead to lower-quality care for some measures of quality and have little or no effect on other measures of quality. The results are largely robust to a variety of alternative samples and quality measures.