Impact of state certificate-of-need laws on health care costs and utilization

The empirical analysis of the impact of Certificate-of-Need (CON) regulation on hospital costs and utilization proceeded in 2 stages. First, CON impacts on hospital investment were estimated. Second, the effects on costs and use resulting from these investment impacts and from other influences of CON regulation were measured. In both stages of the analysis, multiple regression based upon state date for the 1968-1972 period was employed to measure CON effects. Results from stage one indicated that CON regulation tends to reduce expansion in bed supplies but that this reduction is accompanied by an increase in other types of hospital investment (e.g. new equipment). While the composition of hospital investment is altered by CON, the total level of investment is not reduced. Results from stage 2 indicated that the volume of patient days per capita was reduced under CON regulation, but that the level of per capita expenditures on hospital services was not decreased. These findings are at variance with the presumption that inflation in the costs of hospital services can be reduced substantially by CON controls on hospital investment.