The Costly, Anticompetitive Healthcare Policy (Almost) Nobody Has Heard Of

Turn any article into a podcast. Upgrade now to start listening. Members can share articles with friends & family to bypass the paywall. You’re reading Dispatch Markets, a weekly dive into the forces driving economic growth—and those holding it back—featuring Scott Lincicome, Kyla Scanlon, Karl Smith, Marian Tupy, and Adam Ozimek. With the midterms (mercifully) just a few weeks away, affordability remains top of mind for most American voters and politicians. And among U.S. households’ biggest affordability anxieties is healthcare—often ranking ahead of common targets like housing and groceries. As many folks have patiently (pun!) explained, some of this angst is unwarranted: Societies tend to consume more healthcare as they get richer and older (both things America is doing); good ol’ Baumol’s cost disease ensures that the price of a labor-intensive service like health care will grow faster than the prices of industries making more stuff with fewer people; and, as the center-left Brookings Institution noted earlier this year, healthcare spending in the United States has—contra expectations—“permanently slowed thanks in part to technological advances making medical treatments cheaper and more effective.” Yet at least some amount of American worry remains understandable: Along with the simple fact that one’s health is an intensely personal issue, the sticker prices of both hospital services and other medical care services have risen faster than inflation for decades. Meanwhile, an average employer-provided family insurance plan that cost $21,000 a year just six years ago now costs more than $27,000—and, whether you like Obamacare or not (put me in the Not Camp, obviously), now-expired subsidies will likely mean bigger bills for many Americans. CON Game Henry Ford Hospital's main campus in Detroit is undergoing a $2.2 billion expansion. Completion is expected in 2029. (Photo by: Jim West/UCG/Universal Images Group via Getty Images) So, of course, much of Official Washington has rushed to offer solutions, most of which unsurprisingly involve throwing money at stuff. Senate Democrats, for example, spent December 2025 trying to extend the enhanced Affordable Care Act subsidies, and Senate Republicans countered with an offer to deposit $1,500 into consumers’ health savings accounts. The Trump administration, meanwhile, has pushed backdoor drug-price controls and, more recently, a politically suspect “rebate check” for the alleged overpayment of Obamacare “user fees.” Bad ideas have proliferated at the state level, too (e.g., California weighing penalties on providers that exceed state cost-growth targets). Yet there’s another healthcare reform movement underway that’s backed by a mountain of research and could go a decent way toward promoting competition and innovation, tempering costs, and expanding access to essential health services, especially in underserved parts of the country. And all it does is eliminate a common yet little-known state regulation that never should’ve been enacted in the first place: certificate of need (CON). The temporary government ‘fix’ that created a Kafkaesque hospital cartel. State CON laws have been around since the 1960s but really took root a decade later thanks to poorly designed federal policy. In particular, U.S. government planners realized that Medicare’s payment system, which reimbursed providers for the cost of care plus an additional percentage, was perversely encouraging U.S. hospitals to maximize covered expenditures (because higher spending meant higher government payouts), thus inflating healthcare spending by a troublingly excessive amount. Rather than fix Medicare’s broken reimbursement incentives, however, Congress in 1974 opted instead to control supply (naturally) by threatening to withhold federal funds unless states adopted CON programs, which—as explained below—limit new health facilities and services in a covered locality. The (dumb) theory was that, by restricting hospitals’ capital expenditures on things like hospital beds and advanced machines, the government could limit reimbursements to necessary care, thus artificially containing skyrocketing healthcare costs. “If you don’t build it, they won’t come.” The feds wisely abandoned the Medicare reimbursement framework in the mid-1980s, and Congress wisely dropped the CON mandate in 1986. Yet most states kept their CON programs anyway, and many persist to this day. According to a new Cato paper from Steve Slivinski and Matt Mitchell, in fact, a whopping 39 states still require a CON for at least one health-related service or technology—hospital beds, operating rooms, MRI and CT scanners, neonatal intensive care, obstetrics, hospice, home health, dialysis, substance use treatment, and more—and 30 states regulate four or more of these things. By contrast, just 32 percent of Americans live in a state with no healthcare CON requirement at all—even though the federal mandate underlying many of these laws dissolved decades ago. Sigh. So how exactly do CON laws work? As Slivinski and Mitchell explain, the laws require anyone seeking to open or expand a covered medical facility or service to first prove to regulators that the public “needs” the facility or service at issue. In practice, CON regimes are blatantly anticompetitive and discourage both new and expanded healthcare services in several ways. First, in most states a CON application is a contested case: An applicant’s competitors get to weigh in on the application, and their objections trigger quasi-judicial hearings in which an entrant must prove it won’t “duplicate” or otherwise interfere with existing services. This approach thus creates a “competitor's veto” that allows incumbents to block entry into a market by providers who might offer the same services in a better or cheaper way. Some disputes end in settlements where an applicant expressly agrees to stay out of an incumbent’s territory—the kind of deal you’d expect from Fat Tony or Stringer Bell, not people ostensibly trying to improve patients’ access to quality care. Even where incumbents can’t directly slow or block an application, CON laws can discourage them. Planning formulas, for example, instruct regulators to deny applications when services are considered duplicative—literally what competition is supposed to do!—or when existing capacity utilization (e.g., beds being used) sits below a certain threshold that incumbents control (thus giving them another way to influence the application review). Just the process itself can be a significant barrier to entry: Applications can take months or even years to prepare, costing potential providers a fortune in both consulting fees and forgone profits. As the maps above show, my home state of North Carolina unfortunately remains one of the biggest users of CON regulations and thus provides some useful and depressing examples of how this all shakes out in the real world. In February 2025, for example, North Carolina regulators ruled on nine applications covering Wake County, home to Raleigh and one of the fastest-growing metro areas in the country. Anticipating this obvious demand growth, applicants asked for 246 acute care beds and 13 operating rooms, but the state approved just 70 and four, respectively. Every approved bed went to an existing hospital, while all three proposed new hospitals were denied—including ones in Wake Forest, Garner, and Knightdale, where population growth is the strongest. One of the denied applications was from Novant, a system that’s been trying to enter the market since 2008 yet keeps getting boxed out in CON disputes led by incumbents like UNC Health. To top it all off: Within a year, the state quietly admitted it had significantly underestimated Wake County’s hospital bed needs. Approvals aren’t the only problem. UNC Health’s $280 million hospital project in Research Triangle Park was approved in 2021 but has been stuck in CON litigation (filed by Duke, of course), hasn’t advanced past planning documents, and is now scheduled to open in 2032 rather than 2026. But this isn’t just a basketball rivalry: In February 2024, both Duke and UNC teamed up to litigate rival incumbent WakeMed's approvals for a patient tower and for nine beds at its Cary hospital. “It's delaying patient care even more,” one local health executive exclaimed. Hospitals here will even spend years fighting in court over a single MRI machine—in a metro area with more than 2 million people. This is anticompetitive insanity—and it’s certainly not limited to the Tar Heel State. Even the federal government agrees: Across four decades and both political parties, the Justice Department’s Antitrust Division and the Federal Trade Commission have urged CON law repeal in comment letters to Illinois, South Carolina, Virginia, Alaska, and others. As a 2023 DOJ letter to Alaska legislators put it, CON laws have “created barriers to entry and expansion, suppressing cost-effective, innovative, and higher-quality healthcare options.” They’re right. The evidence shows clear harms. Defenders of CON laws claim they help patients and maintain local healthcare services—especially in rural areas—by ensuring sufficient demand for facilities that must stay open 24/7 regardless of whether any actual patients show up. As Slivinski and Mitchell document, however, this justification collapses under a mountain of research. Because CON laws vary across states and have changed over time, they’re among the most heavily studied U.S. health regulations. Mitchell’s review in the Southern Economic Journal cataloged 128 studies containing 458 statistical tests. Of the 448 tests with a clear finding, more than half tied CON to a bad health outcome—higher spending, reduced access to care, or lower quality—while only 12 percent documented the opposite: Among the most lopsided results are those that assess CON laws’ effects on spending per service (60 percent higher versus just 7 percent lower), availability of services (80 percent less versus just 7 percent more), and underserved populations (88 harmful versus zero beneficial). Indeed, rural communities—often said to be protected by CON laws—are among the hardest hit: CON laws don’t just mean fewer hospitals, either—they mean fewer health services overall. States without a service-level CON have about 24 percent more ICU capacity per capita, 50 percent more neonatal ICU capacity, 16 percent more obstetric services, and 37 percent more surgical ICU capacity. They also have around twice as many home health agencies, hospice providers, and hospitals with MRI capability. Repeal of CON laws, meanwhile, has overwhelmingly translated into better health outcomes: More rigorous causal work points in the same direction (i.e., against CON). One recent study examined the five states that repealed hospital CON between 1995 and 2016 and found repeal caused a substantial increase in both rural and urban hospitals. Another study found similar post-repeal gains for ambulatory surgery centers, both statewide and in rural areas, and no evidence of rural hospital closures caused by CON repeal—a scare story commonly told by the laws’ backers. Separate work on long-term acute care hospitals found repeal in 10 states increased facilities by 69 percent and added an average of 558 beds per million elderly patients, thus improving various health outcomes among this population. If these studies don’t convince you of CON laws’ harms, consider instead what happened during the pandemic. When COVID-19 first hit and ICU demand skyrocketed, one of the first things states did was nix various CON restrictions. For example, 13 states suspended requirements for facility construction or expansion, while six more expedited approval processes. The Institute for Justice documented that 24 states and D.C. suspended or loosened their CON programs during the same period, leading to the obvious question of what “needs” these laws were serving in the first place. Subsequent research confirmed that states suspending or repealing their CON laws saw lower mortality from COVID and related conditions, relative to CON states that didn’t embrace reform. Faced with an emergency, states concluded within days that their own healthcare policies were the problem. The episode speaks volumes. This affects prices, too. As we should expect, anticompetitive regulations that reduce the supply of health services inevitably mean higher prices for American patients. Past research has shown, for example, that healthcare costs are substantially higher in CON states than in non-CON states. The aforementioned study of ambulatory surgery centers (ASCs) shows one way that CON laws keep costs high: by keeping people in the expensive hospitals that dominate CON states. In particular, it found that the massive expansion in outpatient surgeries between 1980 and today—from 16 percent of surgeries at a few hundred surgery centers nationwide to roughly 80 percent across 6,000 outpatient facilities—has been one of the genuine cost-containment successes of the past half-century. For example, Medicare reimburses $2,900 for a knee arthroscopy performed in a hospital outpatient department compared to only $1,650 for the same procedure in an ASC. Unfortunately, the study shows that CON laws have slowed the deployment of ASCs, forcing patients to have relatively minor procedures in hospitals, where the same operation can carry a five-figure facility fee. A similar problem arises for mobile imaging and scanner services that many CON laws block, thus making rural residents drive many miles to get expensive hospital services that could be offered for less in a parking lot down the street. Higher costs show up in individual cases, too, as these examples from North Carolina demonstrate. In New Bern an ophthalmologist has been fighting CON since 2020 because he’s been forced to send his patients to a nearby hospital where the fees are roughly three times what he could charge in his own accredited surgical suite (which the state won’t let him open!). Here in nearby Raleigh, an ophthalmologist told the Triangle Business Journal that his self-pay cataract patients were delaying surgery for years rather than pay hospital prices. In Asheville, a patient who was quoted more than $9,000 for meniscus surgery postponed it, shopped around, and paid less than a third of that at an unaffiliated outpatient center. This is what CON laws do. Whom the rules actually serve. CON laws don’t actually help patients or rural areas and haven’t been required by federal law since the 1980s. Yet they persist for the all-too-common and obvious reason: They enrich powerful and well-funded hospital systems that lobby like crazy to maintain their protection racket. By design, CON hands incumbent hospitals a captive revenue stream by suppressing competition across a region—a stream worth tens of millions of dollars each year. Thus, when North Carolina paired Medicaid expansion with modest CON reform in 2023, the state hospital association complained that the latter amendments would cost its members more than $700 million a year (while bizarrely also claiming that repeal would raise costs rather than lower them). That’s money coming right out of consumers’ and insurers’ pockets, and it’d surely be less if the law let smaller, cheaper alternatives flourish. As Slivinski and Mitchell note, the expectation of windfall profits arising from captive consumers and a lack of competition is why incumbent providers typically oppose CON deregulation or elimination—and, at the very least, implicit evidence that these regulations raise patient costs. Reform is coming. Frankly, even the best arguments for CON laws never really made much sense. Even leaving the research aside, if states want to ensure a baseline level of healthcare supply or access, they could either subsidize hospitals directly or simply require private providers to provide charitable care instead of creating a Rube Goldbergian protection racket rife with litigation, costly distortions, and bad incentives. Fortunately, states seem to have figured this out and are starting to reform their CON laws. South Carolina repealed most of its CON system in 2023, Montana has pared back its regime, and Tennessee began phasing out CON for acute care hospitals in April 2026. (Tennessee also replaced CON with a licensure regime that requires hospitals to treat Medicaid patients and provide comparable charity care. No state-enforced monopoly needed!) Nearly half of the states with CON laws have told the federal government they intend to narrow or eliminate them, and an appeals court here in North Carolina is now weighing the already-trimmed (but still far too onerous) version of our CON system. This is good news. As already noted, research shows that reforms generate rapid benefits, and anecdotes back that up. After North Carolina enacted its reforms over the last year, for example, physicians who’d never seriously contemplated expansion began filing paperwork to do so. More supply means not only more access to care, but more competitive pressure on expensive hospital systems, forcing them to lower costs, improve quality, and/or innovate. Of course, even if every state fully repeals its CON system, American healthcare won’t be cheap or perfect. Yet, in the middle of a national debate about healthcare affordability—where seemingly every proposal is expensive, contested, and convoluted—repealing CON is an obvious move with documented benefits. The only victims would be well-connected hospitals that these antiquated laws unfairly enrich at patients’ expense. More supply makes care cheaper—by making more of it exist. In dozens of states, however, that move requires a permission slip—one signed by the only person who’d suffer from it. Markets FTW (Larry Reese/Houston Chronicle via Getty Images) This week we celebrated the 37th anniversary of the most important grocery store trip in world history: Soviet leader Boris Yeltin’s impromptu trip to a small, Houston-area Randall’s market. To a communist accustomed to bread lines, the common American grocery store was so mind-blowing that it catalyzed Yeltsin exit from the Communist Party and his abandonment of the Soviet economic model. Happy Yeltsin Supermarket Day! Chart of the Week Worth Your Time Disclaimer: The opinions expressed above do not necessarily reflect those of the presenting sponsor. Scott Lincicome is an author of the Dispatch Markets newsletter, vice president of general economics and trade at the Cato Institute, and a visiting lecturer at Duke University Law School. He wrote the Capitolism newsletter at The Dispatch from 2020 through 2026.