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Certificates of Need

January 18, 2022
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WRITTEN BY Dr. Ramon Martinez III

Executive Summary 

In 1974, the U.S. Congress passed a provision under the Public Health Service Act (PHSA) requiring states to establish State Health Planning and Development Agencies to design a state health plan and administer the Certificate of Need (CON) programs. CONs provide state governments the approval and coordination framework to determine what services are needed in various communities, and when a service is deemed excessive (e.g., too high in cost, or too underutilized). Since the late 1980’s, 15 states have repealed or scaled back their certificate of need laws. While Missouri law currently dictates 14 areas of oversight (sections § 197.300-366) recent legislation has been proposed to scale back or repeal these laws (HB 1616, SB 727, and SB 890 from the 2022 Legislative Session).  

Highlights 

  • Hospitals and long-term care facilities apply (with fee) for Certificates of Need with state regulatory bodies when seeking to add new services (e.g. specialty treatment centers, increased bed capacity at elderly homes).
  • The applications for certificates take into account the local community need, and can be costly, adding costs to the consumer’s bill. 
  • The effect of CONs on the overall long-term healthcare costs to the consumer are minimal, and CONs can be moderately detrimental to healthcare quality outcomes depending on the measurement used. 
  • States with CON laws can see losses in available services/instruments if a neighboring state has deregulated their CON laws and draws demand out-of-state. 

Limitations 

  • Measures of healthcare quality can vary, affecting the relationships studied between certificate of need laws and quality of care. 
  • While lower immediate costs are realized when certificates of need are repealed, overall higher spending may negate the positive results of repealing a CON law.
  • Studies are mixed regarding the market effect of CONs; some report that CONs stifle the entry of innovative services/facilities, while others indicate that CONs have an anti-trust effect and prevent existing facilities from obtaining exclusive market control.  
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