Certificate-of-Need Laws Are Strangling Rural Hospitals, and States Must Repeal Them

What are certificate-of-need laws and why do they still exist?

Certificate-of-need laws require healthcare providers to win state approval before opening new facilities, expanding services, or buying major equipment, a rule sold as cost control in the 1970s. Thirty-five states plus the District of Columbia still keep these statutes on the books, and they now function as regulatory moats around existing hospital systems.

The idea seemed sensible half a century ago. In 1974, Congress passed the National Health Planning and Resources Development Act and tied federal health funds to state CON programs. The theory was that limiting supply would cut costs by preventing duplicate services and empty hospital beds.

The federal mandate expired in 1987 under the Omnibus Budget Reconciliation Act, and many states repealed their laws soon after. But 35 states and the District of Columbia kept the boards alive. Today, the Federal Trade Commission and the Department of Justice routinely file comments urging those states to repeal CON restrictions.

Instead of cost control, the laws produce delay. Applicants must hire consultants, gather market data, and survive hearings where incumbent hospitals argue that competition would be redundant. The process can take years and cost hundreds of thousands of dollars before a single patient is treated.

The boards themselves are often stacked with representatives of the very hospitals that stand to lose from new competition. A would-be competitor must prove community need to a panel whose members include executives from the competitor's largest rival. That is not regulation. It is protectionism with a public-health logo.

Who pays the price for CON restrictions?

Patients in CON states face higher prices, longer drives, and fewer choices because incumbent hospitals use the process to block new imaging centers, surgery clinics, and birthing centers. The regulatory tax falls hardest on rural counties where one system already controls every licensed bed.

Rural hospitals have been closing at an alarming rate. The Cecil G. Sheps Center for Health Services Research at the University of North Carolina reports that roughly 150 rural hospitals have shut their doors since 2010. Many of those communities now depend on ambulance rides of an hour or more for emergency care.

The closures are not accidental. CON laws prevent rural entrepreneurs and regional systems from opening smaller, lower-cost facilities that could relieve pressure on the remaining full-service hospital. A freestanding imaging center or outpatient surgery clinic would not bankrupt the incumbent. It might, however, force it to cut prices.

Hospital giants exploit the maneuver. They acquire struggling rural hospitals, then use CON applications to block competitors from entering the same service lines. The result is a polite monopoly dressed up as public planning.

What does the evidence say about repeal?

States that repealed CON laws, such as Indiana in 2019 and Wisconsin in 2011, saw new entrants expand outpatient surgery and imaging capacity without the hospital Armageddon lobbyists predicted. The data show more supply, more price transparency, and no measurable spike in unnecessary procedures.

Indiana's House Enrolled Act 1001, signed in April 2019, eliminated most CON requirements and allowed physicians to build facilities without proving a bureaucrat's definition of need. Wisconsin rolled back most of its program in 2011 under Act 2. Both states still license providers and inspect facilities for safety.

The Federal Trade Commission and the Department of Justice have warned repeatedly that CON restrictions raise prices and reduce quality. The Joint Economic Committee has also published findings showing that non-CON states enjoy more hospital beds per capita and more medical imaging equipment.

Patient outcomes matter more than provider profits. Studies of cardiac surgery and imaging markets show that competition tends to improve survival rates and shorten wait times. The American Hospital Association disagrees, but its members are the ones collecting the monopoly rents.

How should states move forward?

State lawmakers should sunset CON statutes entirely, grandfather existing facilities, and replace the permission-board model with standard licensing and safety inspections. That approach treats healthcare providers like other professionals: free to compete, subject to neutral rules, and accountable through tort law and market reputation.

The repeal should not be gradual. Half-measures allow incumbents to lock in geographic advantages while pretending to welcome reform. A clean sunset with a two-year transition gives existing hospitals time to adjust and new entrants time to prepare business plans.

Small-business owners should pay close attention. CON repeal would open medical markets to physician-owned clinics, mobile imaging services, independent surgery centers, and telehealth hubs. These are precisely the kind of local enterprises that create jobs and drive down prices in every other sector of the economy.

Regulatory reform is not a license to cut corners. States should keep licensing boards, building codes, malpractice liability, and antitrust enforcement. Those tools protect patients without giving politicians the power to decide how many MRI machines a town deserves.

Thirty-five states still cling to a Nixon-era planning fad that has outlived its federal mandate by nearly four decades. It is time to tear down the CON walls and let patients choose their own care.