Certificate of Need Laws Are a Protection Racket Dressed Up as Healthcare Policy

What Certificate of Need Laws Actually Do

Certificate of need laws require healthcare providers to get state permission before opening new facilities, buying major equipment, or adding beds, and Thirty eight states plus the District of Columbia still enforce these anti-competitive market restrictions today. They were sold as a way to control costs, but they function as a barrier to entry for competitors.

The Federal Trade Commission has warned for years that certificate of need regulations reduce competition and harm consumers. The antitrust agencies understand what many state legislators refuse to admit. Existing hospitals use the process to block new rivals. Regulators rubber stamp objections dressed up as community need assessments.

The process is expensive and slow. Applicants must prove that a new service is needed, often using data controlled by the very competitors who oppose the application. It is like asking Burger King to approve a new McDonald's. The conflict of interest is obvious to everyone except the officials who administer it.

The result is a market where supply is capped by politics instead of demand. A rural county that needs more imaging machines cannot get them if a nearby hospital objects. An entrepreneur who wants to open a surgery center must hire lawyers and wait years. Patients lose.

These laws date back to a 1974 federal mandate that was repealed in 1986. Washington admitted its mistake and got out of the business. But most states kept the rules because well-connected providers like them. That should tell you everything about who really wins.

The Price Tag Is Measured in Lives and Dollars

Americans spent more than $13,000 per person on healthcare in 2022, according to the Centers for Medicare and Medicaid Services, which is nearly twice the average of other wealthy nations and a sign that something is deeply wrong with our markets. Yet certificate of need states often report higher prices and longer waits for common procedures.

The Kaiser Family Foundation tracks rural hospital closures, and more than 130 rural hospitals have closed since 2010. Many were in states with strict certificate of need regimes. When a facility closes and competitors are blocked from entering, patients drive farther and pay more. Some skip care entirely.

Research from the Mercatus Center has linked certificate of need laws to fewer hospital beds per capita, fewer magnetic resonance imaging machines, and reduced access to care. The data do not support the original cost-control argument. They support the opposite. Restricting supply raises prices.

A 2022 report from the Department of Health and Human Services found that healthcare price growth continues to outpace inflation. Certificate of need laws are not the only cause, but they are a preventable one. Every blocked competitor is one less pressure on prices.

The harm is not evenly distributed. Rural communities and low-income neighborhoods suffer first when supply is artificially limited. A wealthy patient can travel to a certificate of need-free state or pay cash for a procedure. A working family cannot. The law creates two tiers of care.

Small Practices Cannot Survive the Maze

Independent doctors and small clinics face regulatory costs that large hospital systems absorb easily, so a solo practitioner must navigate licensing boards, insurance credentialing, privacy rules, and certificate of need applications that heavily favor established incumbents over innovators. Each layer favors the incumbent with a legal department over the innovator with a good idea.

The National Federation of Independent Business reports that regulatory compliance is consistently one of the top concerns for small business owners. Healthcare providers feel that burden acutely because they operate under both state and federal rules. A family practice that wants to expand must clear hurdles that a major health system can step over.

The American Medical Association reports that physician-owned practices continue to decline as hospitals absorb independent doctors. Younger physicians increasingly choose employment over entrepreneurship. That trend limits access, reduces local accountability, and consolidates power in systems that can afford to play the regulatory game.

And the pandemic exposed the danger. States with certificate of need laws had fewer available beds when demand surged. Governors issued emergency waivers to suspend the rules. If a regulation must be suspended during a crisis, it should not exist in ordinary times.

Telehealth offered a glimpse of what a freer market could do. During the pandemic, relaxed rules let patients consult doctors across state lines and access care from home. Some states made those changes permanent. Others snapped back to the old restrictions. The difference in outcomes is measurable.

Repeal Is the Only Honest Reform

Some states have softened certificate of need requirements for specific services, but that is not enough because partial reform leaves the protection racket intact and the only clean solution is full repeal, as Florida largely accomplished in 2019. Partial reform leaves the protection racket intact.

Florida's experience shows that removing these restrictions increases competition without the catastrophes lobbyists predicted. New facilities opened. Prices moderated. Patients gained options. Other states should study that record instead of recycling talking points from hospital associations.

States that keep certificate of need laws should ask a simple question. Who benefits? The answer is rarely the patient. It is usually the established hospital that faces less competition, the consultants who manage applications, and the politicians who receive their support.

Opponents of repeal will warn that rural hospitals need protection. But protection from what? Competition is not a threat to good providers. It is a threat to providers that have grown complacent under regulatory shelter. The best way to keep a hospital open is to let it serve its community well.

Healthcare reform does not require another trillion dollar federal program. It requires the removal of state laws that prevent providers from competing. Patients deserve choices. Doctors deserve freedom to practice. And small businesses deserve a market that is not rigged against them.