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During the onset of the COVID-19 pandemic in the United States, states struggled in part because the disease caused demand for hospital beds to outstrip supply. Around one month into the pandemic, in New York City, for example, only about 300 intensive care unit (“ICU”) beds remained available. States reacted by creating more medical facilities, and New York City mobilized public and private hospitals to create more beds and ICUs. The sudden spike in demand for medical care brought into question existing certificate of need laws.

Certificate of need (“CON”) laws require anyone who wants to construct a new healthcare facility to obtain permission from the state first. The state often requires that the applicant pay a fee and establish that there is a public need. Many states also allow interested parties to object to the new facility. New York passed the first certificate of needs of law in the mid-1960s. The idea behind these laws was to allow states, instead of the market, determine whether there is a public need for additional medical facilities. In normal times, perhaps the idea of states restraining the spread of medical facilities may make sense. However, these laws hampered states’ responses to the Covid-19 pandemic.

Many policymakers recognized this, and twenty-five jurisdictions suspended their CON laws to allow healthcare facilities to quickly respond to COVID-19. Some jurisdictions, such as Tennessee, broadly suspended CON requirements for the duration of the emergency, while others, such as the District of Columbia, provided for an expedited process. However, this begs the question of whether states should re-implement CON laws after the pandemic (assuming there is an end in sight!). Even before COVID-19, many states, such as California and Texas, already repealed significant aspects of their CON laws. In 1986, the federal government repealed its CON mandate, recognizing it as a barrier to entry for new hospitals, and by 1990, eleven states, including California, dropped their CON mandate. More recently, Florida repealed large portions of their CON law in 2019 for general hospitals to expand the medical infrastructure and hopefully increase access to healthcare.

The arguments in favor of repealing CON laws focus on increased access to healthcare. The requirements of CON laws erect a procedural barrier that stifles the construction of new hospitals. As an administrative matter, some states levy fees proportional to construction costs with no limit and require applicants to wait months for an answer. Also, in thirty-four jurisdictions, competitors can object to an application, which triggers an administrative trial. More fundamentally, CON laws require a potential provider to establish that there is a public need for a hospital. Repealing CON laws would remove the rigmarole potential providers go through. This would allow providers to freely respond to organic demand and construct new facilities where it makes the most sense instead of relying on the government to determine where there is a public need. This would particularly benefit rural areas, a demographic already underserved by healthcare facilities. Empirical research from the Mercatus Center at George  Mason University shows that states without significant CON law requirements actually have more hospitals in rural areas than CON states. One possible explanation for why this is the case is that because, in spite of CON laws’ purpose to increase hospital construction in areas where there is a public need, the barriers these laws erect actually decrease the feasibility of constructing medical facilities in rural areas. 

Some federal agencies have joined in the criticism of CON laws. In 2015, the Federal Trade Commission stated that “it is now apparent that CON laws can prevent the efficient functioning of health care markets” because they “create barriers to entry and expansion” and, through the objection process, competitor providers use CON laws to “thwart or delay entry.” The Federal Department of Health and Human Services also currently encourages states to do away with CON laws, too. They emphasize that the barrier to entry that CON laws impose on potential healthcare providers decreases access to healthcare. In the end, all the criticism boils down to a simple economic issue: CON laws erect a barrier to entry, which gives competitors the ability to further impede market entry. It’s a basic principle of economics that stifling market entry discourages innovation and distorts supply and demand. Judge Justin Walker, of the Western District of Kentucky, succinctly framed the issue by questioning what would have happened “if Michigan told Henry Ford he couldn’t build a Model T factory because the market had enough Buicks.” The COVID-19 pandemic thrust onto states a hospital supply crisis, and many states realized that the repeal of CON laws made sense. Perhaps the time is ripe to do away with these economically illogical laws.

Suggested Citation: Blaine Fix, Running Out of Beds: How COVID-19 Demonstrates the Need to Repeal State Certificate of Need Laws, Cornell J.L. & Pub. Pol’y: The Issue Spotter (Mar. 29, 2021), http://jlpp.org/blogzine/running-out-of-beds-how-covid-19-demonstrates-the-need-to-repeal-state-certificate-of-need-laws/.