A certificate of need (CON) is a government mandated permission slip that a provider must get before opening a healthcare facility or adding new services. CON laws began as an experiment to reduce government expenditures on healthcare. The architects of CON laws thought that reducing the number of healthcare facilities would lower government spending on healthcare services. On some level, this might work; if there were no hospitals, there would be no healthcare spending. But if we assume that healthcare services provide value to patients, then reducing access to healthcare would likely be harmful, even if it does reduce spending. In fact, CON laws are more likely to increase healthcare costs because they limit supply and suppress competition. This drives up costs per service, which can increase overall spending, even if the amount of care that each person receives decreases.
As long as CON laws have existed, economists and health researchers have studied their effects. Decades of research confirm that CON laws fail to decrease spending and often increase it. They also limit access to care and likely undermine the quality of care.
To better understand the existing data, we reviewed 128 papers that tested the effects of CON laws. These papers contained more than 400 tests. Some CON advocates claim that the data is mixed. This review of the literature ends the debate—89% of the tests show that CON laws lead to negative or neutral results, and negative results are five times (500%) more common than positive results. Many of these studies show that CON laws are bad for patients, bad for payors, bad for improving access to care (including rural care), bad for vulnerable populations, bad for mortality rates for common conditions, and bad for healthcare innovation.
CON laws force patients to accept a one-size-fits-all approach to healthcare. And those providers who dare disrupt the status quo are quickly squashed. Take Dipendra Tiwari and his business partner, Kishor Sapkota. In 2018, they decided to open a modest home health agency to help the sizable Nepali-speaking community in the Louisville area. Dipendra immigrated to the United States from Nepal in 2008. Here, in the land of opportunity, he earned an MBA and opened his own accounting practice. When he learned about Kentucky’s CON laws, he was stunned. He never dreamed such a thing could exist in the United States.
Still, Dipendra and Kishor pressed forward. They named their agency Grace Home Care, because, in Dipendra’s words, “the whole world is because of grace.” He and Kishor submitted their CON application to the Cabinet for Health and Family Services. They estimated they’d serve a mere 30–45 patients in the first two years of operation. And they wouldn’t be taking patients away from any existing home health agencies; they would be serving patients who couldn’t find any care.
But the Cabinet denied Grace’s application based on its rigid formula that said Jefferson County didn’t need a new home health agency. The formula calculates “need” based on population and the number of patients that used home healthcare over the past two years. But looking backward is not a good way to estimate how many patients will need care in the future. And naturally, plugging numbers into a formula cannot account for real-world variables, like whether language-appropriate or culturally responsive care exists. The formula also ignores that people may be forgoing care because the available options don’t meet their needs.
This fixed formula isn’t the only part of the CON process that favors the status quo over innovation and competition. The CON application process allows existing providers to object when a new provider tries to open. In fact, opposition from a competitor during the CON application process decreases the chances of approval by nearly half. Baptist Health, a $2 billion healthcare conglomerate in Louisville, opposed Dipendra and Kishor’s application. Grace hardly stood a chance. Dipendra and Kishor’s community continues to suffer.
In this report, we provide a deep dive into CON laws with a focus on Kentucky. We start by outlining the policy purposes of CON laws. Understanding the original intent behind CON makes it clear that many modern justifications are nothing more than post hoc rationalizations. Next, we walk through what facilities and services require a CON in Kentucky and how the application process works in practice. Anyone considering whether Kentucky’s CON laws are still useful should get a feel for how they operate. Finally, we summarize the best available CON research. This report will arm readers with the tools necessary to improve healthcare outcomes in Kentucky.