Most states still require hospitals and other providers to earn a certificate-of-need before developing healthcare facilities including hospitals and ASCs.
But what often determines whether an application survives, though, has less to do with community need than with who gets a seat at the table when regulators decide, according to a new analysis published by the Cato Institute.
The analysis found that nationwide, incumbent providers are typically allowed to weigh in directly on a would-be competitor’s application. In 29 states, the report classifies competitors as playing a “direct role” in that process, meaning an existing hospital or provider can formally object to a rival’s application and trigger a review. Five more states — Indiana, Louisiana, Michigan, Nebraska and New York — give competitors a more limited, often informal avenue to object. Only 16 states have no CON requirement, or one narrow enough that competitor objections rarely factor in.
The 29 states where competitors hold direct sway skew heavily toward the South and Northeast, including Alabama, Florida, Georgia, Kentucky, Massachusetts, New Jersey, North Carolina, South Carolina, Tennessee, Virginia and West Virginia, along with Alaska, Hawaii, Nevada, Oregon and Washington.
Critics have a specific term for that dynamic.
“Because of the prominent role that incumbent providers play in the CON process, critics have often dubbed the regulation a ‘competitor’s veto,’” the report’s authors, Cato Institute Senior Fellow Stephen Slivinski and Fraser Institute Senior Fellow Matthew Mitchell, wrote.
That veto power isn’t merely symbolic. Objecting to a rival’s application can trigger a lengthy, quasi-judicial hearing process, and it sometimes ends only after the new applicant agrees not to compete in the incumbent’s territory.
Mr. Slivinski and Mr. Mitchell describe that outcome bluntly, calling it “a type of territorial collusion that would be a per se violation of the Sherman Antitrust Act if it were not facilitated by the state.”
The price of that leverage shows up in the numbers. One analysis cited in the report found CON approval rates of 51% in Virginia, 57% in Georgia and 77% in Michigan. Applicants can spend months or years preparing a filing and hire specialized consultants to navigate it, and some providers say they’ve lost hundreds of thousands of dollars in delayed or forgone revenue while a decision was pending.
Hospital associations defend the process as a safeguard, not a shield.
In a January 2023 legislative brief, the North Carolina Healthcare Association warned that “repealing North Carolina’s CON law will likely raise healthcare costs, not lower them.”
The Tennessee Hospital Association made a similar case in March 2024, responding to proposed reforms with a statement that changing the law “would cause hospital closures, cutbacks in the types of services offered at local hospitals, and ultimately result in a reduction in the availability of care for many Tennesseans.”
The report’s review of the underlying research cuts against both claims. A review of 128 peer-reviewed studies, comprising 458 separate statistical tests, found that among the 448 tests with a clear directional result, 53% linked CON regulation to a negative outcome such as higher spending, reduced access or lower quality, while just 12% found a benefit. Tests focused specifically on underserved populations were even more lopsided, with 88% tying CON laws to worse outcomes for those communities and none finding a benefit.
Momentum for change is building in a handful of states. South Carolina, Oklahoma and Tennessee have all enacted some form of CON reform in recent years, and the report’s authors note that trend could shrink the ranks of states requiring four or more certificate-of-need categories. But for now, across most of the country, a hospital’s ability to expand — or a new provider’s ability to open at all — still runs through the very competitors it would displace.
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