The impact of certificate-of need controls on hospital investment

Certificate-of-Need (CON) controls over hospital investment have been enacted by a number of states in recent years and the National Health Planning and Resources Development Act of 1974 provides strong incentives for adoption of CON in additional states. In this study, we review the questions that have been raised about the effectiveness of CON controls and then we develop quantitative estimates of the impact of CON on investment. These estimates show that CON did not reduce the total dollar volume of investment but altered its composition, retarding expansion in bed supplies but increasing investment in new services and equipment. We suggest that this finding may be due to (1) the emphasis in CON laws and programs on controlling bed supplies and (2) a substitution of new services and equipment for additional beds in response to financial factors and organizational pressures for expansion. Finally, we caution against the conslusion that CON controls should be broadened and tightened, though our results might be so interpreted, because of the practical difficulties involved in reviewing and certifying large numbers of small investment projects.