Certificate of Need

Certificate of need was designed to hold down health costs by limiting unnecessary proliferation and duplication of health facilities, to improve quality by regionalization of selected types of surgical or other procedures where a volume-quality relationship exists and to improve access to care by preventing competitors from “cream-skimming” paying patients, leaving selected facilities with disproportionately high uncompensated care loads.

CON programs generally establish dollar thresholds for review of proposed projects related to new building or expansion of health services. Some states set different dollar thresholds (generally lower) for long term care facilities than other acute care facilities such as hospitals. In addition the thresholds for equipment generally are lower for equipment such as lithotripters than for capital projects; in the most stringent states, all projects involving equipment of a particular type are reviewed regardless of the size of the project. Likewise, states sometimes draw a distinction between new services as opposed to expansion of existing services. All in all, there is wide variation in the scope and mechanics of CON review across states.

Currently, there are 31 states (including District of Columbia) with CON for both hospitals and nursing homes and another 6 states that have retained CON for nursing homes only (AHPA 2003).

The Duke Center for Health Policy has developed a draft working paper assessing the costs and benefits of certificate of need regulation (pdf). Additional information can be found at the website of the American Health Planning Association (Maine, Connecticut and Vermont require a Certificate-Of-Need), or in the Duke University report listed below.

Evaluation of Certificate of Need (Duke University Center for Health Policy report for the State of , May 2003)

Links

CON and Access

  • Christopher Garmon. Hospital Competition and Charity Care. Washington, DC: Bureau of Economics, Federal Trade Commission, Working Paper No. 285, October 2006. [Full Text (pdf)]
    This paper explores the relationship between competition and hospital charity care by analyzing changes in charity care associated with changes in a hospital’s competitive environment (due to mergers and divestitures), using hospital financial and discharge data from Florida and Texas. Despite the pervasive belief that competition impedes a hospital’s ability to offer services to the uninsured and under-insured, I find no statistically significant evidence that increased competition leads to reductions in charity care. In fact, I find some evidence that reduced competition leads to higher prices for uninsured patients.

CON and Quality

  • David M. Cutler, Robert S. Huckman, Jonathan T. Kols. Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery. NBER Working Paper No. 15214, Issued in August 2009. [Abstract (html)]
    Prior studies suggest that, with elastically supplied inputs, free entry may lead to an inefficiently high number of firms in equilibrium. Under input scarcity, however, the welfare loss from free entry is reduced. Further, free entry may increase use of high-quality inputs, as oligopolistic firms underuse these inputs when entry is constrained. We assess these predictions by examining how the 1996 repeal of certificate-of-need (CON) legislation in Pennsylvania affected the market for cardiac surgery in the state. We show that entry led to a redistribution of surgeries to higher-quality surgeons and that this entry was approximately welfare neutral.
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