DEFINITION of 'Certificate Of Need'

An endorsement required by numerous states before the construction of a new health care facility will be approved. The central idea of Certificate of Need legislation is the assertion that overbuilding and redundancy in health care facilities leads to higher health care costs. Thus to ensure that a new hospital or nursing home is necessary, a state authority conducts a study to determine whether the local demand is sufficient to allow for the construction of a new facility.

BREAKING DOWN 'Certificate Of Need'

Certificate of Need programs have been controversial since their introduction in 1964. Advocates of the programs believe that health care is not a regular economic good and cannot be left to free market. Opponents challenge the assertion that unrestrained construction would lead to higher health care prices. To the contrary, opponents argue that preventing new construction acts as a barrier to competition and keeps prices high.



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