An Empirical Study of the Effects of Repealing Certificate-of-Need Laws on Hospital Costs, Access, and Quality

Abstract

I examine the effects of repealing certificate-of-need (CON) laws on hospital costs, access, and quality. There are competing economic theories about the effects of CON on costs, access, and quality, making the potential welfare impact of repeal ambiguous. This theoretical debate generates the empirical questions about the effects of CON repeal that I examine in this paper, using 39 years of data from the American Hospital Association’s Annual Survey of Hospitals. Using a difference-in-differences methodology to examine the aggregated effect of CON repeal, I find some suggestive evidence that CON repeal reduces total expenditures and payroll expenditures (measures of cost). I find strong suggestive evidence that CON repeal reduces the percentage of hospitals with diagnostic radioisotope facilities (a measure of quality). My findings are mixed for the effects of CON repeal on access variables. Taken together, these results suggest that CON repeal has a mixed effect on patient welfare. Lower costs are positive for patient welfare, but lower quality is negative for patient welfare, while the welfare contributions related to access are unclear. I also perform an event study incorporating the leading and lagging effects of CON repeal, which provides robustness testing that corroborates my results. Finally, I analyze the hypothesis that CON repeal has different effects in different subgroupings of states. I do not find strong evidence that CON repeal has different effects in states that had the law for a short versus long period of time, while I find strong evidence that CON repeal had different effects across geographic regions of states.