Economics - General Regulation

Certificate of Need Stringency

Many states have certificate of need (CON) laws which restrict providers supply for certain procedures.  A paper presented by Vivan Ho at AcademyHealth claimed that there were 37 states with a CON law for at least one procedure.  Following up earlier research which found that CON laws decreased quality, Dr. Ho found that dropping CON laws also reduced cost.

An important point was made by an audience member, however.  CON law stringency is highly variable across states.  According to the commenter, most providers who make applications to receive a certificate of need receive one in states like Massachusetts.  In other states, however, CON laws are much more stringent.

Thus, in any empirical analysis, using an dummy variable to indicate the presence of CON law indicates the effect of CON on average.  Policymakers may care more about this variable if they feel they cannot pre-determine the level of stringency upon passing a law.  The true causal effect of CON, however, may of course vary depending on how severely States restrict providers supply of services.

This issue provides a valuable teaching point: any research into CON or other regulations must explicitly interpret what their findings do and do not say about the regulation under consideration.

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