May 26, 2015

Certificate-of-Need Laws: Implications for Kentucky

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Thirty-six states and the District of Columbia currently limit entry or expansion of health care facilities through certificate-of-need (CON) programs. These programs prohibit health care providers from entering new markets or making changes to their existing capacity without first gaining the approval of state regulators. Since 1972, Kentucky has been among the states that restrict the supply of health care in this way, with 18 devices and services—including acute hospital beds, magnetic resonance imaging (MRI) and positron emission tomography (PET) scanners—requiring a certificate of need from the state before the device may be purchased or the service offered.


However, these claimed benefits have failed to materialize as intended. Recent research by Thomas Stratmann and Jacob Russ demonstrates that there is no relationship between CON programs and increased access to health care for the poor. There are, however, serious consequences for continuing to enforce CON regulations. In particular, for Kentucky these programs could mean approximately 5,782 fewer hospital beds, between 9 and 18 fewer hospitals offering MRI services, and between 22 and 31 fewer hospitals offering computed tomography (CT) scans. For those seeking quality health care throughout Kentucky, this means less competition and fewer choices, without increased access to care for the poor.

The Rise of CON Programs

CON programs were first adopted by New York in 1964 as a way to strengthen regional health planning programs. Over the following 10 years, 23 other states adopted CON programs. Many of these programs were initiated as “Section 1122” programs, which were federally funded programs providing Medicare and Medicaid reimbursement for certain approved capital expenditures. Kentucky enacted its first CON program in 1972, two years before the passage of the National Health Planning and Resources Development Act of 1974, which made certain federal funds contingent on the enactment of CON programs, and provided a strong incentive for the remaining states to implement CON programs. In the seven years following this mandate, nearly every state without a CON program took steps to adopt certificate-of-need statutes. By 1982 every state except Louisiana had some form of a CON program.


Kentucky remains among the 36 states, along with the District of Columbia, that continue to limit entry and expansion within their respective health care markets through certificates of need. On average, states with CON programs regulate 14 different services, devices, and procedures. Kentucky’s CON program currently regulates 18 different services, devices, and procedures, which is more than the national average. As figure 1 shows, Kentucky’s certificate-of-need program ranks the 16th most restrictive in the United States.







The Lasting Effects of Kentucky’s CON Program

While certificates of need neither control costs nor increase charity care, they continue to have lasting effects on the provision of health care services both in Kentucky and in the other states that continue to enforce them. However, these effects have largely come in the form of decreased availability of services and lower hospital capacity.

In particular, Stratmann and Russ present several striking findings regarding the provision of health care in states implementing CON programs. First, CON programs are correlated with fewer hospital beds. Throughout the United States there are approximately 362 beds per 100,000 persons. However, in states such as Kentucky that regulate acute hospital beds through their CON programs, Stratmann and Russ find 131 fewer beds per 100,000 persons. In the case of Kentucky, with its population of approximately 4.4 million, this could mean about 5,782 fewer hospital beds throughout the state as a result of its CON program.

Moreover, several basic health care services that are used for a variety of purposes are limited because of Kentucky’s CON program. Across the United States, an average of six hospitals per 500,000 persons offer MRI services. In states such as Kentucky that restrict hospitals’ capital expenditures (above a certain threshold) on MRI machines and other equipment, the number of hospitals that offer MRIs is reduced by between one and two per 500,000 persons. This could mean between 9 and 18 fewer hospitals offering MRI services throughout Kentucky. The state’s CON program also affects the availability of CT services. While an average of nine hospitals per 500,000 persons offer CT scans, CON regulations are associated with a 37 percent decrease in these services. For Kentucky, this could mean between 22 and 31 fewer hospitals offering CT scans.

