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Certificate-of-Need Laws: Implications for Virginia

February 24, 2015
By Christopher Koopman and Thomas Stratmann

Thirty-six states and the District of Columbia currently limit entry or expansion of health care facilities through certificate-of-need (CON) programs.

stethoscope and insurance docs

Thirty-six states and the District of Columbia currently limit entry or expansion of health care facilities through certificate-of-need (CON) programs. These programs prohibit health care providers from entering new markets or making changes to their existing capacity without first gaining the approval of state regulators. Since 1973, Virginia has been among the states that restrict the supply of health care in this way, with 19 devices and services—including acute hospital beds, magnetic resonance imaging (MRI) scanners, and computed tomography (CT) scanners—requiring a certificate of need from the state before the device may be purchased or the service may be offered.

CON restrictions are in addition to the standard licensing and training requirements for medical professionals, but are neither designed nor intended to ensure public health or ensure that medical professionals have the necessary qualifications to do their jobs. Instead, CON laws are specifically designed to limit the supply of health care, and are traditionally justified with the claim that they reduce and control health care costs. The theory is that by restricting market entry and expansion, states might reduce overinvestment in facilities and equipment. In addition, many states—including Virginia—justify CON programs as a way to cross-subsidize health care for the poor. Under these “charity care” requirements providers that receive a certificate of need are typically required to increase the amount of care they provide to the poor. In effect, these programs intend to create quid pro quo arrangements: state governments restrict competition, increasing the cost of health care for some, and in return medical providers use these contrived profits to increase the care they provide to the poor.

However, these claimed benefits have failed to materialize as intended. Recent research by Thomas Stratmann and Jacob Russ demonstrates that there is no relationship between CON programs and increased access to health care for the poor. There are, however, serious consequences for continuing to enforce CON regulations. In particular, for Virginia these programs could mean approximately 10,800 fewer hospital beds, 41 fewer hospitals offering MRI services, and 58 fewer hospitals offering CT scans. For those seeking quality health care throughout Virginia, this means less competition and fewer choices, without increased access to care for the poor.

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