In 1959, Milton I. Roemer — a physician and pioneering health services researcher at UCLA — published a study that would influence American healthcare policy for generations. Examining hospital utilization patterns, Roemer observed a striking correlation in insured populations: the availability of more hospital beds was associated with greater numbers of hospital days used. “A built bed is a filled bed,” he concluded. This insight, known as Roemer’s Law, posited that supply tends to create its own demand. In the context of third-party payment systems, it implied that unchecked expansion of facilities would fuel wasteful overcapacity and drive escalating costs through supplier-induced demand.
This observation became the intellectual foundation for Certificate of Need (CON) laws. The core implication was that supplier-induced demand would inevitably lead to inefficient duplication and wasteful overcapacity. Roemer, a staunch advocate of social medicine, viewed the Soviet Union as embodying the healthcare system of the future — one oriented more toward equity.
CON laws are state regulatory mechanisms that require healthcare providers — hospitals, ambulatory surgical centers (ASCs), nursing homes, and others — to obtain explicit government approval before making major capital investments, expanding services, or even purchasing certain equipment.
In practice, a state health planning agency reviews applications based on bureaucratic formulas for “community need,” projected utilization, and impact on existing providers. If approved, the CON acts as a legal permission slip; if denied, the project dies. These laws do not improve safety or clinical quality — that is handled by separate licensing, accreditation, and Medicare certification processes. Instead, they function as artificial barriers to entry in the healthcare marketplace.
Origins of CON Laws
CON laws trace their origins to the 1960s, with New York enacting the first statute in 1964. The concept gained national momentum amid concerns over rising healthcare expenditures under cost-plus reimbursement systems. The federal government amplified the approach through the National Health Planning and Resources Development Act of 1974 (NHPRDA), which conditioned certain federal funding on states establishing CON programs.
By the early 1980s, nearly every state except Louisiana had implemented some form of CON review. Congress repealed the federal mandate in 1986 after recognizing its shortcomings, yet as of 2026, approximately 30–35 states, including Alabama, retain active CON regimes.
Practical Application of CON Laws
Consider the practical implications for opening an ambulatory surgical center in a CON state. A multidisciplinary group of physicians — orthopedists, neurosurgeons, gastroenterologists, and pain specialists — identifies unmet demand in their markets: protracted wait times for outpatient procedures, higher costs in hospital outpatient departments (often 30–50% above ASC rates for equivalent cases), and opportunities for same-day discharge with superior patient experience. The surgeons and doctors realize this because they are actively taking care of patients.
Private capital is secured, a facility is designed emphasizing operational efficiency, infection control, and specialization, and a CON application is submitted to the appropriate board. Approval hinges on demonstrating conformity with a rigid state health plan that employs formulaic metrics: population-to-provider ratios, historical utilization rates, and projected demand that frequently lag behind actual market dynamics and technological shifts.
Incumbent hospitals, whose outpatient margins subsidize other operations, routinely intervene as opponents. Formal protests trigger adversarial public hearings, extensive discovery, and protracted legal proceedings. Applicants incur legal and consulting fees often exceeding hundreds of thousands of dollars. The review board — frequently influenced by representatives of existing providers — deliberates for 12 to 24 months or longer. Even conditional approval may impose geographic or service-line restrictions. During this interval, patients endure higher costs and delays, surgeons sacrifice productivity, and scarce capital remains unproductive. This process exemplifies not rational planning, but regulatory capture and rent-seeking. Political allocation supplants consumer sovereignty.
Justification For CON Laws
Advocates of CON laws advance a primary economic rationale: preventing duplicative investments and “overcapacity” that would allegedly inflate costs through underutilized fixed assets and supplier-induced demand, while safeguarding access in underserved (often rural) areas. Without regulatory gatekeeping, they contend, fragmented entry would fragment volume, raise unit costs, and exacerbate maldistribution of services.
Beyond cost control, CON regulation is defended as essential for safeguarding access in underserved — particularly rural — areas. Without government gatekeeping, new entrants (especially efficient ambulatory surgery centers) would “cream-skim” the most profitable cases and commercially insured patients, leaving incumbent hospitals burdened with a disproportionate share of complex, high-cost, low-margin, and uncompensated care. This fragmentation of volume would supposedly raise unit costs for remaining providers, threaten the financial viability of safety-net and rural hospitals, undermine cross-subsidization of essential services (such as emergency and trauma care), and ultimately exacerbate maldistribution of services, harming the very populations CON laws purport to protect.
This rationale is explicitly articulated by the National Conference of State Legislatures (NCSL), which states that CON programs “primarily aim to control health care costs by restricting duplicative services and determining whether new capital expenditures meet a community need,” while also seeking to ensure access for “historically underserved communities, such as rural areas.” Similar arguments appear in state-level policy analyses and hospital association positions.
Economic Theory Does Not Support CON Laws
Friedrich Hayek’s seminal 1945 essay, “The Use of Knowledge in Society,” illuminates the core epistemic failure. Economic knowledge is not centralized or articulable in a form readily aggregated by a planning board in any state capital; it is dispersed, tacit, and contextual — embodied in the localized observations of physicians, administrators, investors, and patients regarding shifting demographics, technological feasibility (e.g., minimally invasive techniques enabling safer ASC procedures), and revealed preferences via willingness to pay. The price system serves as a “telecommunications” mechanism that synthesizes this fragmented information into actionable signals far more efficiently than any bureaucratic formula. CON laws supplant these dynamic signals with static, politically mediated projections, inevitably producing misallocation: persistent shortages where entrepreneurial insight perceives opportunity, and protected excess where incumbents lobby effectively.
Milton Friedman extended this critique to occupational and market-entry licensing, arguing that such barriers function primarily as protectionist devices that restrict supply, elevate prices, and shield established interests from competition. CON regimes exemplify this on a facility level: by limiting entry, they enable incumbents to exercise greater market power, sustaining higher reimbursement rates and operational inefficiencies. As typically occurs, Friedman’s thoughts are corroborated by data and empirical evidence.
Studies document that CON states exhibit fewer ASCs per capita; repeal of ASC-specific CON requirements has been causally linked to 44–47% statewide increases in ASC supply (and 92–112% in rural areas), without corresponding rises in hospital closures or service reductions. Broader analyses reveal associations with higher variable costs in acute-care hospitals, elevated per-service and per-capita spending in many specifications, and slower adoption of cost-saving innovations. Competition disciplines providers toward value — ASCs routinely deliver equivalent or superior outcomes for appropriate cases at substantially lower cost precisely because they must attract patients and surgeons on merit rather than regulatory fiat.
A colloquial illustration underscores the absurdity.
Envision applying CON logic to the fast-food industry in a growing Alabama suburb plagued by long lines at the lone Chick-fil-A. Entrepreneurs propose a new location, financed privately, promising faster service, consistent quality, and local jobs. Under a hypothetical “Certificate of Need for Fried Chicken,” they must persuade a state board that the community “requires” additional drive-thru capacity according to utilization formulas and population ratios. Existing chains directly or indirectly impacted by this — Burger King, McDonald’s — file vigorous objections, warning of “duplicative” capacity that would force price hikes to amortize their underutilized grills and parking lots. Months of hearings, expert testimony, and six-figure legal expenditures ensue. The board denies the application, citing sufficient “nugget utilization rates.” Customers endure persistent queues and elevated prices, innovation in menu or service models stalls, and consumer welfare suffers — all justified as preventing wasteful “overcapacity in poultry processing.” The satire exposes the folly: in competitive markets, entry and exit guided by profit-and-loss signals rapidly correct misallocations; suppressing them predictably harms the very consumers purportedly protected.
In healthcare, the consequences are graver, measured in delayed care, inflated expenditures, and forgone innovations. CON laws do not merely fail on their own terms; they invert the logic of markets, substituting political knowledge for the superior coordinating power of prices and voluntary exchange. Decades of evidence — from cross-state comparisons to difference-in-differences analyses of repeals — affirm that liberalization expands supply, moderates costs, and improves access without the predicted collapse of incumbent providers.
Repeal CON.
