Many states require medical providers to obtain a “certificate of need” before setting up new facilities, ostensibly to control health care costs and protect consumers by requiring hospitals to see a minimum number of patients for each service they offer. Recent research suggests that the requirement makes medical services more expensive without improving outcomes. 

Starting in the 1960s, the American Hospital Association lobbied states to enact certificate of need (CON) laws. Every state eventually passed CON regulations in response to a 1974 federal law, the Health Planning Resources Development Act. Although the act was repealed in 1987, 36 states and the District of Columbia still require CONs, meaning that planning boards can prevent health service providers from building or expanding facilities, offering new services, or purchasing equipment.

In an October study published online in Medical Care Research and Review, Rice University health care economist Vivian Ho finds that states that deregulated “experienced a 4 percent decrease in the average cost of patient care” overall. She speculates that “the desire to attract more patients in a competitive market leads hospitals to offer higher quality care. It may sound counterintuitive, but recent studies show that higher quality surgery lowers costs because costly hospital complications are avoided when one improves care.” 

Looking at two cardiac procedures (coronary artery bypass grafts and percutaneous coronary interventions), Ho finds that CON regulations do not lower costs per patient or Medicare reimbursements, despite the fact that more hospitals are performing fewer surgeries.