A certificate of need is a government-mandated permission slip required to: (1) build or expand a healthcare facility; (2) add a medical service; or (3) purchase medical equipment. Certificate of need laws do not address patient health and safety—separate facility licensure laws serve that purpose. The certificate of need process is just an initial hurdle imposed to limit the availability of healthcare.
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In the 1960s, the government was concerned about the rise in healthcare spending. States decided to try limiting the supply of hospitals in an attempt to reduce healthcare costs. The states also hoped this type of central planning would make hospitals more accessible.
In 1964, New York adopted the first healthcare certificate of need law. Then, in 1974, Congress passed the National Health Planning and Resources Development Act (NHPRDA), which threatened that states would be ineligible for certain federal reimbursements if they didn’t adopt certificate of need laws. At the time, every state except Louisiana enacted certificate of need laws.
But certificate of need laws turned out to be an abject policy failure. To its credit, Congress quickly admitted its failure, noting that certificate of need laws “failed to control healthcare costs and were insensitive to community needs.” In 1986, Congress repealed NHPRDA. A dozen states repealed their CON laws.
Certificate of need laws or quasi-certificate of need laws exist in 38 states and Washington, D.C., yet 40% of the country’s population live in states with zero or one certificate of need law. These laws vary from state to state. Some states call certificate of need something else: facility need review in Louisiana and determination of need in Massachusetts.
In Indiana, Montana, and Ohio certificate of need only applies to nursing homes, other states like Kentucky and New York have dozens of certificate of need requirements. Remember, the original purpose for certificate of need laws was to limit capital-intensive projects like hospitals. Even if it weren’t clear that certificate of need laws failed to achieve their goals, applying them to home health agencies, birth centers, or MRI equipment makes no sense.
Federal agencies have continued to disavow certificate of need laws across both republican and democrat administrations.
To get a certificate of need, you must prove that your healthcare facility or service is “needed.” Some states use formulas based on population and past usage data. In those states, if the mechanical formula doesn’t predict need, you’re out of luck. There’s nothing you can do to get a certificate. In states that don’t rely on one-size-fits-all formulas, you may be able provide evidence that your service is needed, but you’ll likely have to hire a consultant to try to prove this.
You will also have to show you meet other requirements. Typically, these relate to your financial solvency and projections about your future operations. These requirements are different in each state. Be sure to check your state’s statutes, regulations, and state health plan. Some states even post completed applications online.
Here’s an example from Kentucky.
It’s different in every state, but the application fee can range from $500 to hundreds of thousands of dollars. It all depends on the size of your project and the laws in your state. Our report contains fee information for each state. And this fee doesn’t include the money you will pay to hire consultants, experts, and/or attorneys to help you complete your application.
In most certificate of need states, once you submit an application, your future competitors can intervene or object to your application. They can argue that you might steal some of their patients or hurt their bottom line and you shouldn’t be allowed to open. Or they can argue that they already serve all the patients in the region and so there isn’t any “need” for a new provider. Healthcare providers shouldn’t be forced to overcome a competitor’s veto.
In many states, even if the agency grants your certificate of need application, your competitors can appeal that decision. The appeals process could keep you in court for years and cost your hundreds of thousands of dollars in attorney’s fees.
Yes. Economists and researchers have been studying certificate of need laws for decades. They have found that:
1. Certificate of need laws increase costs by any metric: per patient; per procedure; and for Medicaid.
2. Certificate of need laws decrease access to care:
a. States with certificate of need laws have fewer:
ii. Rural hospitals;
iii. Ambulatory surgical centers;
iv. Rural ambulatory surgical centers;
v. Dialysis clinics; and
vi. Alcohol and drug abuse facilities
b. Safety-net hospitals in certificate of need states have lower margins than their counterparts in non-certificate of need states.
c. There is no evidence that certificate of need laws increase access to indigent care.
3. States with certificate of need laws have lower quality healthcare.
a. Certificate of need states have higher mortality rates for:
i. Natural death;
iv. Chronic lower repertory disease;
vi. Alzheimer’s; and
b. Certificate of need states have higher readmission rates following heart attack, heart failure, and pneumonia.
At Institute for Justice, we believe everyone deserves access to affordable, quality healthcare services.
Patients and their providers, not government, know when care is needed.
Take IJ clients Dipendra Tiwari and Kishor Sapkota. Both immigrated to the U.S. from Nepal and settled in the sizable Nepalese community in the Louisville area. Over time, they saw that acquaintances needed home health services and couldn’t find any language appropriate care. So, they set out to fill the void and open a home health agency.
But they ran headlong in Kentucky’s certificate of need laws. They were shocked to learn such a law could even exist in the U.S., but it didn’t deter them. As soon as they submitted their application, a $2 billion hospital system, Baptist Health, intervened and asked the state to deny the application. The state listened. In Dipendra’s words, the “big sharks were keeping out the little fish.” And the community lost out on a home health agency that could offer culturally appropriate care.
During litigation, the Kentucky Hospital Association intervened to defend the certificate of need laws. There was no need for a new home health agency the Hospital Association argued because existing home health aides could communicate with Nepali patients through a translation app on their phone.
Except anyone who’s actually cared for an aging parent or grandparent shudders at the thought. What if you needed home health services for your family member and all the aides available only spoke Nepali?
Government should not be in the business of picking winners and losers, especially in an industry as important as healthcare “where the stakes are life or death.”
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