Regulation and Rural Hospitals

A new working paper at the Mercatus Center looks at the effect of Certificate of Need (CON) laws on rural health care provision. CON laws require providers to get permission from state governments. This permission is ostensibly determined by the need for new facilities in an area. Currently, CON laws are on the books in 26 states primarily in the southeast, northeast, and northwest.
According to the authors, the primary concern that CON laws address in rural areas is that ambulatory surgical centers (ASCs) will engage in "cream skimming" which is the practice of refusing to treat poorer, more risky, or less well insured clients and only treating the easy cases. This would result in closures of rural hospitals reducing the quantity and quality of care in rural areas.

However, CON laws are literally a barrier to entry in the health care market, so it remains an open question whether this barrier to entry reduces the quantity of hospitals or, through some unintended consequence, increases the quantity of hospitals by preventing "cream skimming."
The authors of the paper find:

CON Programs Are Associated with Fewer Hospitals

• The presence of a CON program is associated with 30 percent fewer hospitals per 100,000 residents across the entire state.
• The presence of a CON program is also associated with 30 percent fewer rural hospitals per 100,000 rural residents.

ASC-Specific CON Programs Are Effective Barriers to Entry for ASCs

• The presence of an ASC-specific CON is correlated with 14 percent fewer total ASCs per 100,000 residents.
• The presence of an ASC-specific CON is associated with 13 percent fewer rural ASCs per 100,000 rural residents.

And the authors conclude:

The data do not support the cream-skimming hypothesis as a justification for CON programs. ASC-specific CON laws serve as effective barriers to entry for ASCs, both in rural areas and throughout the state. However, as barriers to entry, CON programs do not promote access to rural care in the form of rural hospitals. CON laws are associated with a decrease, not an increase, in the number of hospitals, rural or otherwise. Policymakers seeking to protect access to rural care should not use CON programs to achieve their goals.

This is an important issue for rural America and I'm glad the issue is being tackled with careful research.