What is a 'Certificate Of Need'

A Certificate of Need (CON) is an endorsement that numerous states require before approving the construction of a new health-care facility. The central idea of CON legislation is the assertion that overbuilding and redundancy in health-care facilities leads to higher health-care costs.

BREAKING DOWN 'Certificate Of Need'

Certificate of Need (CON) programs are aimed at ensuring that a new hospital or nursing home is necessary, and they require state authorities to determine whether the local demand is sufficient to allow for the new construction.

In 1974, the federal Health Planning Resources Development Act was passed, and subsequently many CON laws went into effect. Most states today have some type of CON law, program or agency. The federal Act required all 50 states to develop agencies and other structures that require proposal and approval before the onset of any major projects requiring significant expense and infrastructure. But individual states were passing versions of these laws much earlier: in 1964, New York became the first state to develop a CON statute. After the 1974 federal Act was passed, states began complying, until every state except Louisiana enacted CON laws. The federal mandate was repealed in 1987 and many states since have discontinued CON programs. As of 2016, 34 states maintain some form of CON program, as do Puerto Rico, the U.S. Virgin Islands and the District of Columbia.

Pros and Cons of Certificate of Need

The National Conference of State Legislatures offers a handy reference to typical arguments for and against Certificate of Need (CON) Laws, some of which are summarized below.

Arguments for CON laws:

  • Health care is not a “typical” economic product.
  • Most health services (like lab tests) are ordered by physicians, not patients. Patients do not shop around as they do for other goods and services.
  • CON programs reign in spending and can re-focus on underserved areas that new medical centers may not serve.
  • CON processes aren’t categorically blocking change but merely calling for scrutiny and assessment, which includes public input.

Arguments against CON laws:

  • CON programs vary state to state, with inconsistent metrics and management.
  • Con programs allow for political influence in deciding whether facilities will be built, which can invite manipulation and abuse.
  • Identifying the “best interests” of a community isn’t always clear; decisions ostensibly made for the greater good could have unintended consequences in the long-term, particularly in an unsteady economy or, for example, in a rapidly gentrifying neighborhood.
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