What Is a Certificate of Need (CON)?

A certificate of need (CON) is a legal document that is required in order to construct a new healthcare facility. As of April 2020, CONs are required in 35 U.S. states.

Key Takeaways

  • Certificates of need are legal documents used to regulate the American healthcare system.
  • Certificate of need require new healthcare infrastructure to be approved by regional governments.
  • While most states have certificate of need laws in place, there is considerable variation in their terms and conditions.

How Certificates of Need (CONs) Work

In order to obtain a CON, developers of healthcare facilities must apply to the local governmental authorities by making the case for why the community in question would benefit from that new development. However, the exact criteria used to determine whether an application is approved can differ widely between states.

Critics of the CON program contend that the system poses an unnecessary barrier to entry in the healthcare market, effectively protecting established health facilities from competition.

The earliest CON laws appeared in the mid-1960s, with New York adopting the first such statute in 1964. In 1974, the Federal Health Planning Resources Development Act was passed, and subsequently, many CON laws went into effect. Today, most states have some form of CON law, program, or agency in place.

Traditionally, advocates for the CON framework have contended that the systems help prevent unnecessary spending on healthcare infrastructure and services, and that they can help states to direct such infrastructure toward underserved regions. Critics, on the other hand, argue that the CON framework protects the interests of established facilities. These critics also contend that, by allowing political influence to decide which facilities can be built, the CON system invites corruption, manipulation, and abuse.

Example of a Certificate of Need (CON)

Michaela is an entrepreneur based in Illinois. Recently, she has become interested in creating high-quality, long-term care facilities for elderly patients. To begin developing a business plan, she surveys the market to understand whether any particular customer areas or geographic regions may be underserved by the current providers.

After conducting her market study, Michaela identified a specific region in which the local health care facilities seemed inadequate to meet the existing and expected future demand. She therefore began drafting plans to construct a new facility in order to serve those customers. 

To her surprise, however, Michaela discovered that her new project would require authorization by the Illinois Health Facilities & Services Review Board. This is because Illinois is one of 35 states with CON laws. In the case of Illinois, the specific CON law in question has been in place since 1974 and regulates the construction of a wide range of health care facilities, including long-term care facilities, hospitals, birthing centers, and dialysis centers.

Because of these laws, there is no guarantee that Michaela will be able to develop her new health care service, even if she and her backers are convinced that the new project would likely succeed and be of value to its customers.