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Winter 2018

ISSN 0890-913X

Volume 33, Number 4

Categories: Winter 2018 | Health care spending

Does “Excess Supply” Drive Excessive Health Spending? The Case of Certificate-of-Need Laws

James Bailey, Providence College

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TheJournalofPrivateEnterprise33(4),2018,91–109Does“ExcessSupply”DriveExcessiveHealthSpending?TheCaseofCertificate-of-NeedLawsJamesBailey∗ProvidenceCollege______________________________________________________AbstractFordecades,USpolicymakersandeconomistshavesearchedforwaystoslowthegrowthofspendingonhealthcare.Oneapproachcurrentlytakenbythirty-fivestatesistorestrictthesupplyofhealthcarebyrequiringnewandgrowingproviderstoshowthattheyservean“economicneed.”Hospitalsandcertainotherhealthprovidersmustobtainacertificateofneed(CON)fromastateboardbeforeopeningorexpanding.IshowthatinasimplemodelwhereCONrestrictssupply,theeffectofCONonspendingdependsonthepriceelasticityofmarketdemandforhealthcare.CONwillworktorestrainspendingwhendemandiselastic;however,mostestimatesshowthedemandforhealthcaretobequiteinelastic.IthereforepredictthatCONwillincreasepricesforhealthcarewithoutmuchreducingitsuse,leadingtoanincreaseinspending.______________________________________________________JELCodes:I11,I18,H75Keywords:healthcarespending,certificateofneed,healthcaresupply,regulationI.IntroductionCertificate-of-need(CON)lawsrequirehealthcareproviderstoobtainthepermissionofastateboardbeforeopening,expandingintonewlinesofservice,ormakinglargecapitalexpenditures.Theselawswerepassedrapidlybetween1964and1980inthehopeofrestrainingthegrowthofhealthspending.By1980,everystatebutLouisianahadaCONprogram,andthefederalgovernmentwaspushingstatestoadoptCON.SincetheMedicarepaymentreform∗ThankstoEleanorLewin,MichaelKotrous,AnnaChorniy,MohamadElbarasse,MattMitchell,TomHamami,participantsintheCreightonBusinessEconomicEnvironmentandPolicyseminar,theAssociationofPrivateEnterpriseEducationandtheAmericanSocietyofHealthEconomists2016meetings,andtheInternationalHealthEconomicsAssociation2017forhelpfulcomments.ThankstotheMercatusCenterforfinancialsupportandhelpfulcomments.

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Metadata [hide]

Title	Does “Excess Supply” Drive Excessive Health Spending? The Case of Certificate-of-Need Laws
Authors/Creators:	James Bailey, Providence College
Year:	2018
Volume:	33
Number:	4
Pages:	91 - 109
Publisher:	The Association of Private Enterprise Education
ISSN:	0890-913X
Document Type:	Articles
Keywords:	health care spending, certificate of need, health care supply, regulation

Citation:
Bailey, James / 2018. "Does “Excess Supply” Drive Excessive Health Spending? The Case of Certificate-of-Need Laws." The Journal of Private Enterprise, 33(4): 91-109.