Beacon Explains: Certificate of Need Laws


November 19, 2015 10:52AM

In the forthcoming legislative session, Tennesseans should expect to see a shift in the conversations about healthcare—away from how to provide basic coverage and towards reforms that can bring access to substantive care for all Tennesseans.

On Monday, I testified before the Senate Commerce and Insurance Committee in a hearing on one of the healthcare reforms expected to gain traction in 2016. Known as “CON” laws to those of us in the policy sphere, certificate of need laws govern how much access patients have to certain treatment services. In short, if a hospital or healthcare facility wishes to expand its capacity, whether that is the number of hospital beds it makes available or the types of imaging it can conduct, the facility must apply to a state board for permission. Why, you ask? Let me try to explain the “reason” behind the madness.

We can thank the feds for the conception of CON laws, which were originally passed by Congress in 1974. The goal was to cut down on healthcare cost inflation. At that time, reimbursements were based on the capacity of a facility to provide care, not the actual amount of care or services being performed. Thus, when these laws failed to have the impact Congress expected, they repealed the certificate of need mandate in 1987, citing that the program did not effectively restrain healthcare costs. Since then, 15 states have voted to scrap their CON programs—but Tennessee isn’t among them.

In fact, Tennessee remains among the states that continue to impose CON laws that limit entry and expansion within our healthcare markets. On average, states with CON programs regulate 14 different services, devices, and procedures. Tennessee’s CON program currently regulates 20 services, devices, and procedures, which is much higher than the national average and tied for the sixth most restrictive in the entire nation.

So why haven’t we tossed these antiquated regulations out with the bathwater? It’s certainly not because they’ve been shown to decrease costs or increase patient care. Early studies of CON programs found that these programs actually fail to control costs. More recently, the Mercatus Center at George Mason University produced the only empirical and comprehensive study on the effectiveness of CON programs as state cost-control measures and found results to be mixed at best. While some findings suggest that CON regulations may have some very limited cost-control effect, others find that strict CON programs like Tennessee’s may actually increase patients’ healthcare costs by as much as 5%. Furthermore, Tennesseans have access to 8,500 fewer hospital beds and over 30 fewer imaging services as a result of our CON laws.



The time has come for Tennessee to join with states that have brought greater healthcare access to more people by repealing their CON laws. The only irrefutable achievement we can directly attribute to CON laws is their successful creation of a robust hospital cartel that restricts competition in the marketplace and decreases the supply of healthcare services. That’s not something to be proud of.

Beacon will publicly release our 2016 healthcare package—which will include CON law reform—at the end of November. Be sure to sign up for our newsletter to be one of the first to receive it.