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As the midterm elections approach (mercifully), affordability remains a central concern for most American voters and policymakers. Among the chief worries about affordability, healthcare consistently sits near the top—often ahead of concerns about housing and groceries. As many observers have noted with a hint of irony, some of this worry is somewhat overstated: societies tend to spend more on healthcare as they become richer and older (two trends the United States is experiencing); Baumol’s cost disease predicts that labor-intensive services like health care tend to grow faster than goods-producing sectors; and, as the Brookings Institution—a center-left think tank—pointed out earlier this year, U.S. health care spending has—against expectations—“permanently slowed, thanks in part to technological advances that make medical treatments cheaper and more effective.”
Nevertheless, a degree of American anxiety remains reasonable: health is an intensely personal matter, and the sticker prices for hospital services and other medical care have risen faster than the general inflation for decades. Meanwhile, an average employer-sponsored family insurance plan that cost about $21,000 per year six years ago now exceeds $27,000—and, whether you favor Obamacare or not (I’m clearly not a fan, obviously), subsidies that have now expired will likely translate into larger bills for many Americans.
So, naturally, much of Official Washington has rushed to propose remedies, most of which, unsurprisingly, involve pouring more money into various programs. Senate Democrats spent December 2025 trying to extend the enhanced Affordable Care Act subsidies, while Senate Republicans countered with a proposal to put $1,500 into consumers’ health savings accounts. The Trump administration has promoted backdoor drug-price controls and, more recently, a politically dubious “rebate check” for alleged Obamacare user-fee overpayments. Bad ideas have also proliferated at the state level—for example, California weighing penalties on providers that exceed state cost-growth targets.
Yet there is another path to healthcare reform that is supported by a substantial body of research and could do a fair amount to foster competition and innovation, curb costs, and expand access to essential services—especially in underserved regions. All it requires is scrapping a common yet little-known state regulation that should never have existed: the certificate of need (CON).
The temporary government ‘fix’ that created a Kafkaesque hospital cartel.
State CON laws have existed since the 1960s but truly took hold a decade later thanks to poorly designed federal policy. In particular, U.S. policymakers realized that Medicare’s payment framework, which reimbursed providers for costs plus a fixed margin, was perversely incentivizing hospitals to maximize the amount of care billed (since higher spending translated into higher government reimbursements), thereby inflating health spending to excessive levels. Rather than fixing Medicare’s flawed reimbursement incentives, Congress in 1974 chose to curb supply (naturally) by threatening to withdraw federal funds unless states adopted CON programs, which—as explained below—restrict the construction of new facilities and the introduction of new services in a given locality. The (well-intentioned) theory was that by limiting hospital capital expenditures on items such as beds and advanced equipment, the government could limit reimbursements to necessary care, thereby artificially restraining healthcare costs from spiraling.
“If you don’t build it, they won’t come.”
The federal government eventually abandoned the Medicare reimbursement framework in the mid-1980s, and Congress removed the CON mandate in 1986. Yet most states retained their CON programs, and many still operate them today. A recent Cato Institute study by Steve Slivinski and Matt Mitchell shows that a staggering 39 states continue to require a CON for at least one health-related service or technology—ranging from hospital beds and operating rooms to MRI/CT scanners, neonatal care, obstetrics, hospice, home health, dialysis, substance-use treatment, and beyond—and 30 states regulate four or more of these categories. By contrast, only about 32 percent of Americans live in a state with no healthcare CON requirement at all—even though the federal mandate at the heart of many of these laws has been repealed for decades. Sigh.
So how do CON laws actually operate? Slivinski and Mitchell explain that the statutes require anyone seeking to open or expand a covered medical facility or service to first demonstrate to regulators that the public “needs” the proposed facility or service. In practice, CON regimes are overtly anti-competitive and impede both new and expanded healthcare offerings in several ways.
First, in many states a CON application becomes a contested proceeding: A applicant’s competitors are allowed to comment on the proposal, and those objections trigger quasi-judicial hearings in which the entrant must prove it will not “duplicate” or otherwise interfere with existing services. This framework creates a “competitor’s veto” that enables incumbents to block entry by providers who could deliver the same services more efficiently or cheaply. Some disputes end in settlements where the applicant agrees to stay out of an incumbent’s market—the sort of deal you’d expect from fictional mobsters, not people supposedly aiming to improve patient access to high-quality care.
Even when incumbents can’t directly slow or block an entry, CON laws can still deter competition. Planning formulas instruct regulators to refuse applications if the new service is deemed duplicative—or when current capacity utilization (for instance, beds in use) falls below a threshold controlled by incumbents—giving them yet another means to influence the review process. The very process itself can become a substantial barrier to entry: Applications can take months or even years to prepare, saddling prospective providers with hefty consulting fees and opportunity costs.
As the maps above illustrate, my home state of North Carolina remains one of the most frequent users of CON regulations and thus offers a set of instructive, albeit troubling, real-world examples.
In February 2025, for instance, North Carolina regulators ruled on nine CON applications in Wake County, which includes Raleigh and one of the nation’s fastest-growing metropolitan areas. Anticipating this obvious demand, applicants requested 246 acute-care beds and 13 operating rooms, yet the state granted only 70 beds and four operating rooms. Every bed approved went to an existing hospital, while all three proposed new hospitals were denied—including projects in Wake Forest, Garner, and Knightdale, where population growth has been strongest. One rejected filing came from Novant, a system that had been trying to enter the market since 2008 but repeatedly faced CON-led obstacles from incumbents like UNC Health. To add insult to injury: Within a year, the state quietly admitted it had significantly underestimated the county’s need for hospital beds.
Approvals aren’t the only bottleneck. UNC Health’s $280 million hospital project in Research Triangle Park received approval in 2021 but has languished in CON litigation (filed by Duke, unsurprisingly), never progressed beyond planning documents, and is now slated to open in 2032 rather than 2026. But this isn’t just a basketball rivalry: In February 2024, Duke and UNC joined forces to challenge WakeMed’s approvals for a patient tower and for nine beds at its Cary hospital. “It’s delaying patient care even more,” lamented a local health executive. Hospitals here even face multi-year courtroom battles over a single MRI machine in a metro area with more than two million residents.
This is anticompetitive madness—and it isn’t confined to North Carolina. Even the federal government agrees: for decades, the Justice Department’s Antitrust Division and the Federal Trade Commission have urged CON repeal in letters to states like Illinois, South Carolina, Virginia, Alaska, and others. As a 2023 DOJ letter to Alaska legislators stated, CON laws have “created barriers to entry and expansion, suppressing cost-effective, innovative, and higher-quality healthcare options.” They’re right.
The evidence shows clear harms.
Defenders of CON argue they protect patients and preserve rural healthcare services by ensuring demand remains sufficient so facilities stay open around the clock. But as Slivinski and Mitchell document, this justification collapses under a mountain of research.
Because CON laws differ across states and have changed over time, they stand as one of the most extensively studied U.S. health regulations. Mitchell’s survey in the catalogs 128 studies with 458 statistical tests. Of the 448 tests with a clear conclusion, more than half linked CON to worse health outcomes—higher costs, reduced access to care, or lower quality—while only 12 percent showed the opposite effect:
Among the starkest results are those measuring CONs’ effects on per-service spending (about 60 percent higher with CON vs 7 percent lower), service availability (about 80 percent less vs 7 percent more), and care for underserved groups (about 88 percent harmful versus zero beneficial). Rural communities, frequently cited as protected by CON, bear the brunt of these policies:
CON laws don’t merely translate into fewer hospitals—they translate into fewer health services overall. States without service-level CON restrictions boast roughly 24 percent more ICU capacity per capita, 50 percent more neonatal ICU capacity, 16 percent more obstetric services, and 37 percent more surgical ICU capacity. They also tend to have about twice as many home-health agencies, hospice providers, and hospitals with MRI capability. Repealing CON laws has generally yielded better health outcomes:
More rigorous causal research points in the same direction (i.e., against CON). One recent study examined the five states that repealed hospital CON between 1995 and 2016 and found repeal led to sizable gains for both rural and urban hospitals. Another study found comparable post-repeal improvements for ambulatory surgery centers, nationwide and in rural areas, with no evidence of rural hospital closures tied to CON repeal—a common scare tactic used by CON supporters. Separate work on long-term acute care hospitals found that repeal in ten states increased facilities by 69 percent and added an average of 558 beds per million elderly residents, thereby improving health outcomes for that population.
If these studies do not convince you of CON’s harms, consider the pandemic period. When COVID-19 hit and ICU demand surged, many states quickly suspended or relaxed CON requirements. For example, 13 states paused construction or expansion rules, and six more expedited review processes. The Institute for Justice documented that 24 states and Washington, D.C. relaxed or paused their CON programs during the same period, prompting the obvious question of what needs these laws were meant to serve in the first place. Subsequent research confirmed that states suspending or repealing CON laws experienced lower COVID-19 mortality and related deaths compared with CON states that did not reform.
Faced with an emergency, states reached the conclusion—within days—that their own healthcare policies were part of the problem. The episode speaks volumes.
This affects prices, too.
As expected, anti-competitive rules that restrict the supply of health services tend to push prices higher for American patients. Historical research has shown that healthcare costs are markedly higher in CON states than in states without CON restrictions.
The aforementioned study of ambulatory surgery centers illustrates one mechanism by which CON laws keep costs elevated: by preserving a hospital-centric system for most procedures. The expansion of outpatient surgeries since 1980—from a small share performed at a few hundred centers to around 80 percent across roughly 6,000 outpatient facilities—has been a genuine cost-containment success in recent decades. For instance, Medicare pays about $2,900 for a knee arthroscopy performed in a hospital outpatient department, compared with roughly $1,650 when performed in an ambulatory surgery center (ASC).
Unfortunately, the evidence shows CON laws have slowed the spread of ASCs, forcing patients to undergo minor procedures in costly hospital settings where facility charges can run into five figures. A similar challenge arises for mobile imaging and scanner services that many CON laws block, forcing rural residents to travel excessive distances to obtain expensive hospital services that could be offered more cheaply nearby, such as in a parking-lot setup.
Higher costs show up in individual cases too, as the North Carolina illustrations make clear. In New Bern, an ophthalmologist has fought CON since 2020, compelled to refer patients to a nearby hospital where fees run about three times what he could charge in his own accredited surgical suite (which the state won’t allow him to open!). Here in Raleigh, an ophthalmologist told the that self-pay cataract patients were delaying surgery for years rather than pay hospital prices. In Asheville, a patient quoted over $9,000 for a meniscus procedure postponed the operation, shopped around, and paid less than a third of that at an independent outpatient center.
This is the consequence of CON laws.
Whom the rules actually serve.
CON laws do not deliver on a patient-centered rural safeguard and they have not been required by federal statute since the 1980s. Yet they endure for a straightforward and obvious reason: they enrich powerful, well-funded hospital systems that lobby aggressively to preserve their protected revenue streams. By design, CON grants incumbent hospitals a captive stream of income by suppressing regional competition—a stream worth tens of millions of dollars each year. When North Carolina paired Medicaid expansion with modest CON reform in 2023, the state hospital association argued that the amendments would cost its members more than $700 million annually (even as they bizarrely claimed repeal would raise costs rather than lower them). That’s money coming directly from consumers and insurers, and it would be far less if the law allowed smaller, cheaper alternatives to flourish.
As Slivinski and Mitchell note, the expectation of windfall profits from captive customers and reduced competition helps explain why incumbents typically oppose CON deregulation or elimination—and, at the very least, it provides implicit evidence that these regulations raise patient costs.
Reform is coming.
Frankly, even the strongest arguments in favor of CON laws have never made much sense. Even setting aside the research, if states want to ensure a baseline level of hospital capacity or access, they could simply subsidize hospitals directly or require private providers to offer charitable care instead of constructing a convoluted protection racket full of lawsuits, distortions, and poor incentives.
Fortunately, policymakers appear to be moving in that direction, reforming CON statutes. South Carolina repealed most of its CON framework in 2023, Montana pared back its regime, and Tennessee began phasing out CON for acute-care hospitals in April 2026. (Tennessee replaced CON with a licensure framework that requires hospitals to treat Medicaid patients and to provide comparable charity care. No state-enforced monopoly is needed!) Nearly half of the states with CON laws have told the federal government they intend to narrow or eliminate them, and a North Carolina appeals court is considering the already-trimmed (but still overly burdensome) version of the state’s CON regime.
This is encouraging news. As noted, reforms yield rapid benefits, and anecdotes corroborate the pattern. After North Carolina enacted reforms over the past year, doctors who had not seriously contemplated expansion began submitting proposals. More supply translates into not only greater access to care but also increased competitive pressure on costly hospital systems to lower costs, raise quality, and innovate.
Of course, even if every state fully repeals its CON regime, American healthcare will never be perfectly cheap. Yet, in the midst of a nationwide debate about affordability—where most proposals are costly, contested, and complex—repealing CON is an evident step with proven benefits. The only obvious losers would be well-connected hospitals that these antiquated laws have unjustly enriched at patients’ expense.
Increasing supply makes care cheaper simply by making more of it available. In dozens of states, though, obtaining this extra supply requires a permit—one signed by the very person who would bear the downside.
Markets Win
This week we mark the 37th anniversary of a landmark grocery-store excursion in world history: Boris Yeltsin’s impromptu trip to a Randall’s supermarket near Houston. For a man raised in a Soviet system of bread lines, such an ordinary American store was so transformative that it helped push him away from the Communist Party and away from the Soviet economic model. Happy Yeltsin Supermarket Day!
Chart of the Week
American manufacturers face headwinds.
College football payrolls, via The Athletic:
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Disclaimer: The opinions expressed above do not necessarily reflect those of the presenting sponsor.
