Certificate-of-need laws let hospital cartels block competition and inflate your medical bill

What Are Certificate-of-Need Laws?

Certificate-of-need laws are state regulations that require hospitals, surgical centers, and imaging clinics to obtain government approval before they can expand facilities, buy major equipment, or add patient beds. Existing providers are invited to challenge the application, which gives incumbent hospitals a formal veto over new competitors.

The theory sounds reasonable. Regulators supposedly prevent duplication and control costs by limiting supply. In practice, the process becomes a weapon for established systems to block rivals, delay projects, and preserve market share. Permission slips do not produce lower prices. They produce cartels.

These laws began as a federal mandate under the National Health Planning and Resources Development Act of 1974, which pressured states to adopt CON regimes or lose health funding. Congress repealed that mandate in 1986 after the evidence turned negative, but 35 states and the District of Columbia kept their programs on the books.

The Evidence Against CON Laws

Researchers at the Mercatus Center found that states with CON laws have roughly 30 percent fewer hospitals per 100,000 residents than non-CON states. The same body of research found 14 percent fewer ambulatory surgical centers and higher prices for joint replacement, cardiac surgery, and imaging services.

The Federal Trade Commission and the Department of Justice have repeatedly warned that CON programs shield existing hospitals from competition. A 2023 joint statement from the antitrust agencies said that eliminating CON restrictions would likely expand access, improve quality, and reduce prices for patients.

Price data back that up. A 2022 study published in the Journal of Health Economics found that MRI cash prices average about $546 in CON states compared with roughly $504 in states without the requirement. That $42 gap may not impress a hospital executive, but it matters to a family paying out of pocket for a scan their insurer refuses to cover.

The same pattern appears in patient satisfaction and outcome metrics. A 2021 analysis by the Kaiser Family Foundation noted that markets with fewer independent facilities reported longer emergency-room wait times and higher rates of preventable hospital admissions. Competition is not merely an ideological preference. It is a mechanism that forces providers to treat patients like customers rather than captives.

Quality also suffers. When hospitals do not have to compete, they have less incentive to invest in shorter wait times, cleaner facilities, and better outcomes. Patients in CON states often face longer drives and longer waits for procedures that are routine in freer markets.

Small Business and Rural Patients Pay the Price

Small medical practices and independent surgery centers are the natural challengers to hospital monopolies, and CON laws are designed to stop them before they open. An entrepreneur who wants to offer $800 cataract procedures in a strip-mall clinic must first convince a state board that the community needs more capacity.

The incumbent hospital, which charges $3,000 for the same service, gets a seat at that hearing. It can hire lawyers, produce studies, and delay the application until the startup runs out of capital. This is not regulation in the public interest. It is incumbent protection sold as patient safety.

Rural communities are especially hurt. Large systems buy struggling rural hospitals, then use CON rules to block new imaging centers or dialysis clinics that might compete. Between 2010 and 2024, more than 140 rural hospitals closed nationwide, according to the Cecil G. Sheps Center for Health Services Research. Many of those closures left counties with no nearby option for emergency care.

When competition is illegal, the vulnerable suffer. A patient in a one-hospital town has no leverage. The hospital knows it. The state board knows it. Only the legislature pretends otherwise.

A State-Level Path to Reform

The good news is that states can repeal CON laws on their own, and several have already shown that patients benefit when providers are allowed to compete. Florida eliminated most of its CON program in 2019, Texas has scaled back rules for nursing homes and hospital beds, and other states are moving in the same direction.

State lawmakers should treat CON repeal as a pocketbook issue and a healthcare access issue. Removing the approval gate would let small businesses enter markets, force incumbent systems to compete on price and quality, and give patients more choices without spending a dime of federal money.

Small business owners should be leading this fight. Independent physicians, nurse practitioners, and diagnostic entrepreneurs are exactly the kind of competitors that CON laws were written to stop. A free market in medical services would unleash their energy and give patients the same range of choices they enjoy in dentistry, eyeglasses, and cosmetic surgery.

Congress can help by making health block grants and rural health funds contingent on CON repeal or at least neutral on the question. Federal dollars should not flow to states that use regulation to protect hospital cartels from competition. Taxpayers in states that have repealed CON should not subsidize higher prices elsewhere.

The healthcare debate usually focuses on who pays the bill. That matters. But before we fight over insurance subsidies, we should ask why the bill is so high in the first place. Certificate-of-need laws are a big part of the answer. Repealing them is a rare chance to make healthcare cheaper while expanding liberty.