The impact of certificate of need laws on rural health care

Rural communities have a problem. Their health care options continue to shrink, as medical facilities close or consolidate. The trend has accelerated in recent years, but Westfield Memorial Hospital in Western New York wants to expand.

The tiny facility on the shores of Lake Erie has four inpatient beds, and has plans to double its capacity to eight. The $700,000 project would not require an additional wing or any new floor space. Westfield Memorial has available rooms that have sat vacant since 2006, when New York ordered the hospital to downsize as part of a statewide restructuring campaign.

Back then, a commission led by investment banker Stephen Berger decided New Yorkers had too much health care access, which threatened the ability of the state’s largest providers to make money. So Berger singled out some hospitals for closure and others for consolidation, and the state executed his recommendations under the force of law.

The rooms at Westfield Memorial now serve as storage closets for supplies rather than recovery areas for patients. Converting the rooms back to their original purpose would require renovation and funding for new staff. But first the hospital needs something else: a government permission slip called a “certificate of need” or “CON.”

Regulators in 38 states and Washington, D.C., require this piece of paper before health care providers can move forward with projects in one or more categories. A study from our public interest law firm, the Institute for Justice, shows that New York requires a CON in six broad categories: hospital beds, beds outside hospitals, equipment, facilities, services, and emergency medical transport. Overall, New York has the broadest and most intrusive CON laws in the nation.

The purpose of CON laws is to lower health care spending by limiting redundancy and oversupply, which works great for industry insiders. Reduced competition gives them leverage over doctors, nurses, and patients, who get funneled to their facilities. But the government interference can backfire, especially in rural communities, where providers already struggle with poverty, staffing shortages, and other challenges.

Besides adding thousands of dollars to any project, CON laws create unnecessary delays. Westfield Memorial applied for a CON on October 14, 2022, but is still waiting for approval more than ten months later. Its spare rooms are still vacant, and four beds that otherwise could be available are still on standby.

At least one other project in the same community remains on hold. A state grant allowed the Chautauqua County Health Department to purchase a mobile health clinic, which is set up and ready to roll. The vehicle made its debut in July 2023 at the county fair. But doctors and nurses could not treat actual patients. Until a CON comes through, the customized RV is little more than a photo op.

Similar stories are routine in rural communities nationwide.

States with CON laws have 30 percent fewer rural hospitals, spend more per patient on Medicaid in rural areas, and have higher emergency room utilization rates in rural areas than other states. Five states without rural hospital CON laws—Colorado, Montana, Oregon, Utah, and Wyoming—have had zero rural hospital closures since at least 2005, when the University of North Carolina started tracking the data.

All the evidence points to the same conclusion: CON laws are a failed experiment that hurts rural communities the most. Decades of real-world experience support this finding.

California, Texas, and ten other states dumped their CON laws years ago with good results. Elsewhere, lawmakers have substantially scaled back CON laws in Arizona, Ohio, Indiana, and Montana. Three more states—North Carolina, South Carolina, and West Virginia—followed in 2023. Georgia and Kentucky could be next. Committees in these states are studying full CON repeal.

New York remains rigid. The state even doubled down in June 2023, adding a “Health Equity Impact Assessment” to the application process. In addition to showing market need, CON applicants now must prove their projects would reduce “health disparities” and benefit “medically underserved” groups—vague targets that can translate to concrete costs. One hospital system had to pay an extra $50 million as punishment for investing in an upscale Manhattan neighborhood.

None of this micromanagement helps rural health care. People on the ground in places like Westfield know best what their communities need, not bureaucrats looking at spreadsheets hundreds of miles away.

Jaimie Cavanaugh is an attorney. Daryl James is a writer.

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