Hospital certificate-of-need controls: Impact on investment, costs, and use

This monograph presents findings from an empirical study of the impact of certificate-of-need (CON) legislation on growth in hospital investment, utilization and costs over the 1968-1972 period. Two different methods were used for estimating CON impacts. The first method uses data from the 48 contiguous states and the District of Columbia to estimate investment regressions. Findings for states with CON are compared to those without CON programs. For the second method, data from states without CON programs were used to estimate investment regressions. The estimated regression coefficients were then used to predict the level of investment over the 1968-1972 period for five states with the earliest CON programs; the differences between predicted investment and actual investment in each of the five states measures the impact of CON controls. Analysis indicated that CON controls did not significantly affect total investment by hospitals, but did alter the composition of investments. Results showed that CON programs resulted in a lower rate of growth of bed supplies, but a higher growth of plant assets per bed than would have been observed in the absence of controls. The study also found that the rise in hospital costs per capita was not substantially reduced by CON controls; savings from lower admission rates and total hospital days were offset by higher than average per diem costs stemming from upgrading styles of care. The results suggest the possibility that CON controls may actually have exacerbated cost inflation during the study period. As the findings are based on data from 1968-1972, policymakers are cautioned to be careful when extra-polating the results of this study to the present. Until later information indicates that CON controls will not distort investment patterns, it is suggested that there is a need to rely more heavily on alternative or additional means of controlling health care costs, e.g., prospective rate-setting, HMOs, disease prevention and health manpower policies.