CON Laws Are Fading, but Their Logic Is Not

CON Laws and Their History

Certificate of Need laws, or CON laws, are state-based regulations that require health care providers to get government approval before building new facilities, expanding services, or purchasing new medical equipment.

In order to receive a certificate of need, providers need to demonstrate that they have a need to expand by either meeting a mathematical formula or other measurable requirements laid out by the government. The exact process varies by state. Application fees for a certificate of need can also be quite expensive, ranging from hundreds of dollars to hundreds of thousands of dollars.

CON laws became commonplace in the 1970s after the United States Congress passed the National Health Planning and Resource Development Act (NHPRDA) in 1974. This new law stated that states must adopt CON laws, otherwise certain federal reimbursements would be withheld. As a result, every state except Louisiana adopted CON laws.

Congress passed this act in light of the rapidly rising hospital prices taking place in the 1970s. The idea was that CON laws would limit unnecessary supply in inpatient healthcare, which would in turn reduce both cost and usage of services. However, lawmakers' dream of effective central planning never came to fruition, as hospital prices continued to climb.

Recognizing its failure, Congress repealed the NHPRDA in 1988. Shortly after, dozens of states repealed their own CON laws, and many other states loosened theirs.

Certificate of need laws now look very different in every state. Some states have none, while others still have laws that require facility review or determination of need for all providers. Other states' CON laws just apply to certain facilities, like nursing homes.

The Effect of CON Laws

Many empirical studies show that CON laws increase costs, decrease access, and decrease the quality of care.

For instance, one study from 2013 found that states who dropped their CON laws after 1988 had lower costs per patient for coronary artery bypass graft surgery. Another study from 2016 found that the presence of CON laws in a state led to 30% fewer rural hospitals per 100,000 rural residents. Lastly, one study also found that mortality rates were higher during the COVID-19 pandemic for states that had stricter CON laws for both COVID and non-COVID deaths.

There are myriad other studies that measure the effects of CON laws across many different states, providers, and procedures, all finding similar results.

So why do many states still have CON laws in effect? Mainly because some lawmakers still view CON laws as good policy, despite opposing evidence. Additionally, existing hospitals will often lobby in favor of CON laws, as they limit competition against them by hindering new providers' entry into the market.

CON Laws in Wisconsin

Wisconsin is a complicated case, as it doesn’t directly have CON laws, nor is it without them. Wisconsin is known as a quasi-CON law state, meaning they have an approval process for expanding certain provider entities that is similar to the CON process.

More specifically, Wisconsin has laws that place a cap on hospital beds, intermediate care facilities for those with intellectual disabilities, new hospitals or hospital-sized investments, psychiatric services, and nursing home beds.

It is worth noting that while Wisconsin has a statewide cap on the number of hospital beds, that number has not been reached yet, so the regulation has never had to “take effect.”

The Cicero Institute published a chart ranking all 50 states on how restrictive their CON laws are. Wisconsin was ranked the 14th least restrictive, with its quasi-CON laws being less stringent than surrounding states'.

Particularly, Wisconsin’s regulations of nursing home facilities are what make the Badger State rank 14, rather than at the very top of the list among the least restrictive states. This in turn is creating higher-than-average nursing home costs in the state of Wisconsin.

According to recent data, the average annual cost for a semi-private room in a nursing home in Wisconsin is $120,815, while the national average is only $111,325. Additionally, the average annual cost for a fully private room in Wisconsin is $135,050, with the national average being $127,750.

Wisconsin has the 19th highest assisted living costs, the 21st highest semi-private nursing home costs, and the 19th highest private room nursing home costs. This puts Wisconsin in the upper-middle tier for nursing home costs overall.

Additionally, these figures are higher than most other Midwestern states, excluding Minnesota.

Other Provider Regulations

The Wisconsin Hospital Association gripes over the amount of regulation on the Badger State's hospitals, saying it is the most regulated industry in the state.

Other than Wisconsin’s quasi-CON laws, most regulations come from the federal government. The regulatory structure surrounding Medicare and Medicaid plays a huge role, imposing strict requirements on reimbursements, staffing, and facility standards.

The large presence of the Medicare and Medicaid programs has largely standardized provider regulation, limiting how much regulation can vary by state. However, this also means any CON laws in place are marginally more meaningful and play a great role in creating the regulatory environment of the provider market.

Conclusion

While Wisconsin is not a full-blown certificate-of-need (CON) law state, it does have laws structured similarly to certificate-of-need, making room for improvement in its regulatory policy. Empirical analysis has shown that states who choose to keep their CON laws in place often face high health care costs and worse health outcomes.

South Carolina is the most recent state to fully eliminate its CON laws, rather than just loosen them. In 2023, South Carolina passed a law that will slowly phase out certificate-of-need requirements for ambulatory surgery centers, hospitals, and nursing homes from now until 2027.

Wisconsin should adopt a similar approach, phasing out the rest of its quasi-CON laws. Then, the badger state can move towards a more free, competitive, and prosperous health care market.