Certificate of Need laws do not work as intended

Access to quality healthcare close to home is important for all Georgians. And while access to care has always been difficult for rural Georgians, it’s recently become an urban concern as well, with the closure of two Wellstar hospitals in Fulton County in 2022. 

Unfortunately, as health systems across the state consolidate and acquire independent physician practices, Georgia continues to maintain a regulatory system that exacerbates the problem by protecting these systems against most competition: certificate of need (CON) laws.

Earlier this year, the Georgia legislature sought to address this issue. Multiple bills were introduced, including one that passed the Senate that would have repealed the CON requirement for new hospitals in rural counties. Despite adjourning for the year without any resolution on this contentious policy debate, both chambers formed study committees to further examine the issue. 

In a recent study we co-authored, we examine the economic and political arguments for and against CON. Our hope is that this research will provide a path forward for lawmakers to repeal a law that currently prevents lower-cost and higher-quality healthcare options in both rural and urban Georgia.

CON laws were encouraged by Congress in 1975 to control skyrocketing healthcare costs at a time when the federal government reimbursed providers on a “cost-plus basis” which incentivized capital expenditures by hospitals. Within a decade however, Congress had abandoned cost-plus reimbursement and also stopped incentivizing states to maintain their CON programs. About a third of states have eliminated their CON programs, but Georgia still requires providers to gain approval from state regulators if they wish to open a new facility or expand existing healthcare services. 

Innovations in technology and delivery are continually moving many procedures out of the hospital setting, yet CON laws prevent most would-be competitors from providing services in these communities. Regulators determine “need” by assessing population data, rather than considering factors such as quality or qualifications. 

There were laudable goals behind the federal CON law, including a desire to contain costs, ensure adequate and equitable access to care, improve the quality of care, and ensure care for underserved populations. Because many states have repealed their CON laws or pared them back significantly, researchers can compare outcomes in these reforming states to those in states like Georgia that have maintained their CON laws. Most of the academic research on CON focuses on the laudable goals first articulated by Congress 50 years ago.  

Unsurprisingly, access is the most studied aspect of CON research, comprising 132 empirical tests across 58 papers. For every test that associates CON laws with better access to healthcare, more than seven associate it with diminished access. 

Research on underserved populations, which are defined as being “located in rural or economically depressed areas,” is particularly applicable to the current discussion on Georgia’s healthcare landscape.  As we note in the study, it isn’t entirely clear how the architects of CON thought that the regulation would ensure care for underserved populations; supply restrictions tend to restrict supply, especially to communities for whom care is marginally profitable. It is not surprising, then, that 80% of the CON studies we reviewed found that CON laws are associated with worse outcomes for underserved populations

Many of the potential providers who are denied or discouraged by the CON process could offer services that meet specific cultural or community needs – whether a cash pay physician’s office that offers MRIs at a fraction of the going rate, or additional birthing centers to provide obstetrical services for low-risk pregnancies. 

Defenders of CON argue that the long-term sustainability of community hospitals depends on maintaining profitable service lines such as imaging and elective surgeries. They believe CON is needed to protect these hospitals from competition for these procedures. Yet our research shows that Georgia has experienced more hospital closures than states with similar rural profiles that have reduced or repealed CON laws. 

The state’s five largest health systems control over half of the state’s hospital beds. Standard economics suggests that as competition is throttled, healthcare costs will tend to rise. And indeed, 70% of the studies we reviewed associate CON laws with higher spending on healthcare services. 

CON laws do not work as intended. Not only do they provide an unnecessary barrier to healthcare innovation and delivery, they also make it harder for communities to replace any healthcare providers they might lose. Given that communities from South Fulton to South Georgia are already medically underserved, they can’t afford to face another obstacle to access and affordability.

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