States curb CON laws to boost bed capacity

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States curb CON laws to boost bed capacity

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States are rolling back Certificate of Need, or CON, laws in the face of growing demand for healthcare and mounting evidence that they might not lower spending.

CON laws often require providers to get regulatory approval for large capital expenditures and projects, like some healthcare facilities. Facility mergers, acquisitions and ownership changes also require CON approval in some states.

The laws aim to control spending by limiting unnecessary facility expansion or duplicative services within an area. Without CON laws, supporters say providers could raise prices to compensate for underutilized hospital beds and services. 

When the COVID-19 pandemic began, some healthcare experts believed states would change or eliminate their CON laws to ensure people could access medical care rather than be turned away due to a lack of available beds.

While some states have repealed or curtailed CON laws in the wake of the pandemic, others are considering doing away with the laws based on evidence that they might not be as effective at lowering healthcare costs as policymakers thought. 

“There is little evidence that [CON laws] restrain spending, increase access, enhance quality, or improve the provision of care to underserved populations,” according to a 2024 study published in the Southern Economic Journal. “In fact, the most common finding is that CON laws undermine each of these goals.”

States curb the use of CON laws

Today, 39 states and Washington, D.C., maintain CON laws, which vary considerably by state, according to the 2024 study. Nursing homes, however, remain subject to CON laws in 34 states.

New Hampshire was the last state to repeal its CON law in 2016, but many states have modified their laws in recent years.

From 2021 to 2023, 21 states updated their CON laws. Most of the changes created new exemptions or additional flexibility for certain providers, such as mental health treatment facilities.

States also implemented CON moratoria during the COVID public health emergency to address widespread hospital bed shortages. In some areas, the shortages were so severe that hospitals used planes, helicopters and ambulances to transport the sickest patients to other hospitals.

Loosening the rules worked in Illinois, experts say. Hospitals in the state usually need to go through a “rigid process,” including a design, safety and construction review, to get new beds approved, according to Juan Morado Jr., partner at law firm Benesch.

However, after the state declared a public health emergency and suspended CON requirements, hospitals “could request beds and get them approved within a couple of days. It was happening in real time,” Morado said. 

Many of those waivers have been extended since, although long-term increases in healthcare spending may be a bigger factor in states curbing their use of CON laws. The CMS recently estimated national health expenditures will increase from 17.3% of gross domestic product in 2022 to 19.7% of gross domestic product by 2032.

CON laws can increase healthcare costs and impede access by limiting the supply of services, including hospital beds, and allowing existing providers to charge higher prices by reducing competition among providers in local healthcare markets, experts say.

Repealing CON laws would allow existing or new providers to add beds, build new facilities and offer more services, all of which could increase competition, lower costs and improve access, according to experts and research. 

That could help hospitals avoid overcrowding during the next pandemic. It could also reduce or eliminate healthcare spending growth “for a couple of years” to help the U.S. address rising costs, said James Bailey, an economics professor at Providence College who researches CON laws. 

“But it’s only one piece of the puzzle,” Bailey said, noting that reducing national healthcare spending significantly would require multiple policy interventions since many factors drive costs. 

States, especially those with growing populations, will probably continue to roll back their CON laws because they often limit bed capacity, Bailey said. 

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