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 The federal mandate was repealed in 1987 and many states since have discontinued CON programs.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.
RELATED TERMS
  1. Universal Health Care Coverage

    Universal health care coverage are systems in which all legal ...
  2. Mutual Investment Certificate

    A mutual investment certificate is a certificate issued by a ...
  3. Custodial Care

    Custodial care is non-medical care recommended by a medical professional ...
  4. Shipping Certificate

    An instrument used by futures exchanges as a negotiable commitment ...
  5. Essential Health Benefits

    A set of benefit requirements that must be included in certain ...
  6. Skilled Nursing Facility

    A skilled nursing facility provides medically necessary professional ...
Related Articles
  1. Insurance

    The Debt Report: The Health Care Sector

    Discover how the health care industry's largest companies have greatly increased their debt exposure since the financial crisis, and why this trend matters.
  2. Investing

    Best 3 Vanguard Funds in the Healthcare Sector (VHT)

    Discover information about some Vanguard funds that provide exposure to the health care sector, and find out about their characteristics.
  3. Insurance

    Will Health Care Continue to Drive IPOs in 2016?

    Learn why health care IPOs may be slowing in 2016, and how Obamacare, poor previous filings and economic factors are affecting the health care sector.
  4. Investing

    ETF Flows: Health Care ETFs Are Shedding Assets in 2016 (FXH, XLV)

    Learn about five exchange-traded funds (ETFs) that invest in the health care sector and experienced large year-to-date (YTD) capital outflows as of March 4, 2016.
  5. Investing

    3 Best Dividend-Paying U.S. Health Care Mutual Funds (VGHCX, BMY)

    Find out which mutual funds are paying the highest dividend yields in the health care sector, which has underperformed all other sectors thus far in 2016.
  6. Investing

    XLV: Health Care Select Sector SPDR ETF

    Learn about the Health Care Select Sector SPDR Fund including its performance, current holdings, recent performance and the outlook for the ETF.
  7. Investing

    Portfolio Trends in 2016 (VGHCX)

    Evaluate the composition of the Vanguard Health Care Fund, and study how the fund's makeup has evolved over the previous 12 months.
  8. Retirement

    Is Your Health Insurance Enough For Retirement?

    Learn what to expect to pay for health insurance in retirement, what is covered through Medicare and what the Affordable Care Act means for retirees.
  9. Insurance

    Essential Health Benefits Under The Affordable Care Act

    Under the Affordable Care Act, certain preventive health services and these 10 essential health benefits are the minimum requirements for many health insurance plans.
RELATED FAQS
  1. What country spends the most on healthcare?

    Find out which countries spend the most on health care, and understand some different methods for measuring these rankings ... Read Answer >>
  2. How do you get a hard copy of a stock certificate?

    Before online brokers and personally-directed accounts, holding a physical stock certificate was a necessity, as this was ... Read Answer >>
Hot Definitions
  1. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  2. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  3. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  4. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  5. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  6. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
Trading Center