The Law That Ate American Healthcare
How Certificate of Need (CON) Became the Hospital Industry’s Most Powerful Weapon
Day 4 of 7: The Rojas Report Healthcare Exposé Series
I want you to picture this.
In Cedar Rapids, Iowa, there’s an outpatient surgery center that’s already built. Already equipped. Ready to go.
It’s been ready for years.
Dr. Lee Birchansky, an ophthalmologist, built it right next to his office. He wanted to perform cataract surgeries and other routine, outpatient procedures there, procedures that take place every day in surgery centers across America.
He applied for permission to open it.
He was denied.
So he applied again. Denied.
Again. Denied.
Again. Denied.
Four times over two decades. Twenty years of applications, hearings, and rejections.
Why?
Because two local hospitals, which control 95% of the area’s existing surgical facilities, opposed him. They intervened in his application process. They argued there was no “need” for his surgery center.
And the state agreed with them.
Dr. Birchansky’s competitors decided whether he could compete.
That is the Certificate of Need.
A government-mandated permission slip that lets your rivals vote on whether you can open for business.
Dr. Birchansky put it: “It is ridiculous that I have an outpatient surgery center that is already built, already equipped, and already ready to go, but I have been denied a certificate of need four times because established hospitals do not want competition.”
In 2022, after two decades of fighting, he sued. The Institute for Justice took his case. A federal judge cleared the lawsuit to proceed in February 2024.
But here’s the thing: Dr. Birchansky shouldn’t have to sue the government for the right to practice medicine in a building he already owns.
He did everything right. He’s a licensed physician. He built a licensed facility. He has patients who need care.
None of that mattered.
Because in Iowa—and in 34 other states—your competitors get to decide if you’re allowed to exist.
What Is a Certificate of Need?
At its simplest, a Certificate of Need (CON) law is a state-level regulation that requires healthcare providers to get approval from a government agency before they can:
Build a new facility.
Expand an existing one.
Offer a new major medical service.
Buy specific equipment (like an MRI machine)
Open a new ambulatory surgery center.
The justification, on paper, is that by preventing the “unnecessary duplication” of services, the state can keep healthcare costs down.
It’s a central planning approach to healthcare infrastructure.
The idea is that if two hospitals across the street both buy a multi-million-dollar MRI machine that is used only half the time, the cost of that duplication is passed on to patients. CON is supposed to prevent that.
A noble goal.
But as the Iowa story shows, it has morphed into something else entirely.
Today, 35 states and Washington, D.C., still have some form of CON laws on the books.
And the story of how we got here is a journey through the entire post-war history of American healthcare.
The Origin Story
To understand why anyone thought CON was a good idea, we have to go back to the end of World War II.
The country was booming, but we didn’t have enough hospitals—especially in rural areas.
So in 1946, Congress passed the Hospital Survey and Construction Act, better known as the Hill-Burton Act. It was a massive federal program that provided grants and loans to build hospitals.
And it worked.
Over the next 25 years, Hill-Burton funded the construction of nearly one-third of the hospitals in the United States.
But this success created a new problem: a surplus of hospital beds.
At the same time, in 1965, Lyndon B. Johnson signed Medicare and Medicaid into law. Suddenly, the federal government was paying for a massive chunk of the nation’s healthcare on a “cost-plus” basis. Hospitals were reimbursed for whatever they spent, plus a little extra.
There was zero incentive to be efficient.
This is the moment where the incentives get completely warped.
More beds, more services, more equipment—it all meant more revenue.
This led to the famous theory from a UCLA researcher named Milton Roemer, which was boiled down to a simple, powerful phrase:
“A hospital bed built is a hospital bed filled.”
This became known as Roemer’s Law.
Policymakers in the 1960s, steeped in a technocratic, Great Society belief in central planning, looked at the data—spiraling costs, rampant overbuilding—and saw a simple solution:
If building beds causes them to be filled, then the answer is to stop hospitals from building so many beds.
The Birth of CON: New York, 1964
The birthplace of the Certificate of Need was New York State.
In 1964, a full decade before the federal government got involved—New York passed the Metcalf-McCloskey Act. It was the first CON law in the nation.
And who loved this idea?
The big, established players.
The Greater New York Hospital Association was a huge proponent. They saw it as a way to bring “order” to the market.
The American Hospital Association (AHA) loved it too. They saw it as a way for their members—the big, incumbent hospitals—to manage their growth and, not coincidentally, their competition.
It’s a classic playbook.
The incumbents, facing a chaotic market, lobby for regulation that they can then use to their advantage. They frame it as being in the public interest—controlling costs, ensuring quality—but the real prize is controlling the market.
And it spread.
Following New York’s lead and with significant support from the AHA, 23 other states voluntarily adopted CON laws by the early 1970s.
The planning bureaucrats, the hospital administrators, the Blue Cross plans—they all formed a powerful coalition, believing they could rationally plan the healthcare needs of a community from a boardroom.
The Federalization: Kennedy’s Mandate
The real inflection point came in 1974.
As the 1970s dawned, the federal government, now footing a massive bill for Medicare and Medicaid, decided it needed to get involved.
The first significant step came in 1972, with a little-known but hugely important provision of the Social Security Amendments: Section 1122. This provision tied federal Medicare and Medicaid reimbursement for capital expenditures to a state-level review.
In other words, if a hospital wanted to build something new and get paid for it by Medicare, it first had to get approval from a state planning agency.
It was the federal government’s first attempt to control capital spending in healthcare.
This set the stage for the main event.
By 1974, healthcare costs were out of control, and in Washington, two influential figures decided to take the New York model national:
Senator Ted Kennedy and Representative Paul Rogers.
Kennedy, the liberal lion, chaired the Senate Health Committee. Rogers, a Democrat from Florida known as “Mr. Health,” was his counterpart in the House.
They were the architects of the National Health Planning and Resources Development Act of 1974 (Public Law 93-641).
This was the bill that federalized the Certificate of Need.
But they didn’t just create a federal CON program. They did something much more clever and much more coercive.
The law said that any state that didn’t have a CON program that met federal standards would lose its federal public health funding.
We’re talking Hill-Burton money, NIH grants, the works.
It was an offer the states couldn’t refuse.
The ultimate top-down mandate.
Within a few years, nearly every state in the country had a CON law.
The era of central planning in healthcare had officially arrived.
The Capture
And this is where the story turns.
This is the acquisition of the Certificate of Need by the very entities it was supposed to regulate.
This is the story of regulatory capture.
The law required states to set up local health planning boards to review CON applications. And who ended up sitting on these boards?
Doctors. Hospital administrators. Representatives of the incumbent providers.
It was the fox guarding the henhouse.
The process became a weapon.
A new, independent group of physicians wants to open an ambulatory surgery center that can do colonoscopies for half the price of the local hospital.
The hospital files an objection to their CON application. They argue the new ASC is an “unnecessary duplication” of services and will “harm the financial viability” of the hospital.
And the board, staffed by the hospital’s friends and colleagues, denies the application.
It’s a competitor’s veto, enshrined in law.
We see it over and over:
A group of cardiologists wants to open their own cardiac cath lab. Denied.
A rural hospital wants to buy a new MRI machine to save patients a two-hour drive. Denied, because the big academic medical center in the city already has one.
Dr. Birchansky in Iowa has been fighting for 20 years. His surgery center is built and sitting empty.
In Alabama, Bradford Health Services, owned by a New York private equity firm, used CON to kill Sereno Ridge, a 16-bed addiction treatment startup. The project never opened. Bradford has done the same thing to block a veterans’ recovery program in Mobile and a nonprofit veteran-focused campus near Fort Benning.
In North Carolina, Dr. Jay Singleton, an ophthalmologist in New Bern, is currently in court challenging the entire CON statute as unconstitutional. The NC Supreme Court unanimously revived his case in October 2024. A three-judge panel is hearing it now.
The incumbents had built a moat.
And they used it to protect their regional monopolies, stifle innovation, and keep prices high.
The law that was supposed to control costs had become a legal shield for price-gouging.
The Evidence Pours In
By the 1980s, the evidence was damning.
Study after study showed that CON laws don’t control costs. In fact, they’re associated with higher costs.
States with CON laws have fewer hospitals, fewer ambulatory surgery centers, and less access to technology—but their citizens pay more for care.
And the federal government started to notice.
In a landmark 2004 joint report, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) came down on CON like a ton of bricks:
“CON laws are not successful in containing health care costs, and they pose serious anticompetitive risks that usually outweigh their purported benefits.”
This was the government’s own antitrust enforcers saying that this other part of the government was creating monopolies.
When physicians have challenged CON laws in court, the courts have acknowledged the harm and refused to act.
In 2018, the 4th U.S. Circuit Court of Appeals ruled on a challenge to Virginia’s CON law brought by doctors who wanted to open imaging centers. The court admitted in its ruling:
“Barriers to entry like CON programs may reduce competition and thereby allow entrenched incumbents to exert market power and charge inefficiently high prices.”
Then they upheld the law anyway, saying the Virginia General Assembly—not federal judges—should fix it.
The courts know. The FTC knows. The DOJ knows.
And 35 states still have CON laws on the books.
The Evidence Is Overwhelming
In 2025, economist Matthew Mitchell published a comprehensive review of hundreds of academic studies on CON laws in the Southern Economic Journal. The findings are damning.
On spending, 45 empirical tests examined whether CON laws reduce spending per service. 60% found that CON laws are associated with higher spending. Only 7% found lower expenditure.
On access: 89 tests examined the availability of services. 79% found CON laws are associated with less availability of care. States with CON laws have 30% fewer hospitals per 100,000 residents, 30% fewer rural hospitals, and 20% fewer psychiatric care facilities.
On quality: 113 tests examined patient outcomes. 53% found CON laws are associated with lower quality of care—including higher mortality rates following heart attack, heart failure, and pneumonia.
On COVID: During the pandemic, hospitals in CON states were 27% more likely to run out of beds.
And here’s the kicker on rural access—the argument incumbents always use to defend CON:
After states repealed CON laws for ambulatory surgery centers, rural areas saw 92-112% increases in ASCs per capita. The researchers found “no evidence that CON repeal is associated with hospital closures in rural areas.”
The doomsday scenarios the hospital lobby predicts? They don’t happen.
The data is precise: CON laws raise costs, reduce access, lower quality, and protect monopolies.
They had seen enough.
And so, in 1987, as part of the Reagan-era push for deregulation, Congress repealed the federal CON mandate. The threat of losing federal funds was gone.
And what happened?
Twelve states immediately repealed their CON laws.
But the rest didn’t.
Why?
Because by now, the moats were built.
The incumbent hospital systems had enormous political power in their state capitals, and they lobbied furiously to keep their protectionist racket in place.
The law may have been born in Washington, but its power now resides in the states.
The Modern-Day Gatekeepers
So, where is this problem the worst today?
Where have these moats become the most impenetrable?
Based on a December 2024 ranking from the Cicero Institute, we can identify the most egregious and restrictive CON states in the country.
Eight states, plus Washington D.C., have what are called “Universal CON” laws—scoring a perfect 10 points for restrictiveness. These states regulate virtually every category of healthcare, creating the maximum regulatory burden and the strongest protections for incumbent hospital systems:
Kentucky
Nevada
New Jersey
North Carolina
Vermont
Virginia
Washington
West Virginia
Rounding out the top ten most restrictive are two states with “Stringent CON” programs, scoring 9 out of 10 points:
Georgia
Maryland
These ten states, plus Washington D.C., represent the modern-day gatekeepers of healthcare.
They are the places where it is hardest for independent physicians to compete, where innovation is most stifled, and where patients ultimately pay the price.
The Cost
In CON states, health insurance premiums are higher.
The CON state have 18% higher premiums.
Now multiply that times millions of individuals over the last three decades.
The hidden tax of protected monopolies.
Paid by every family. Every employer. Every taxpayer.
The hospitals call it “community benefit.”
I call it what it is: extraction.
The Beautiful, Tragic Irony
What are the big lessons here?
The number one lesson is the beautiful, tragic irony at the heart of this story:
A law designed with the explicit goal of controlling costs became one of the most powerful tools for increasing costs.
It’s a perfect case study in how good intentions can lead to disastrous outcomes when you ignore the power of incentives.
The entire story is about incentives.
The initial incentive was to build, build, build because of Hill-Burton and cost-plus reimbursement.
The CON incentive was to plan and control.
But the real incentive that CON created was to capture the regulatory process and block competition.
And that incentive always wins.
CON is not a RED or BLUE issue and it certainly not about whether you’re for or against government regulation.
It’s about understanding that market participants will always, always, always respond to the incentives you create.
And if you create a system where the most profitable activity is lobbying the government to block your competitors, that’s what you’re going to get.
The Scorecard
If the Certificate of Need were a company, what would its scorecard look like?
Market: US Healthcare. An A+. Trillions of dollars.
Business Model: Selling regulatory protection to incumbents. It’s a tollbooth. From the perspective of the “company,” it’s a fantastic business. High margins, recurring revenue, and a government-enforced monopoly. An A+ for the business model—but an F for society.
Source of Power: Pure, unadulterated government mandate. The legal right to say no. One of the strongest forms of power imaginable. Another A+.
Winners: The large, established hospital systems. The lawyers and consultants who navigate the CON process.
Losers: Everyone else. Patients pay higher prices for fewer choices. Physicians are blocked from innovating and opening their own practices, and taxpayers foot the bill for higher Medicaid costs.
What Comes Next
This isn’t just a history lesson.
This is the invisible architecture that has shaped the market we all have to live with.
And it directly impacts your wallet.
In the coming weeks on The Rojas Report, I’ll be doing deep dives into each of these restrictive CON states. We’ll expose the specific ways these laws are used to block competition and drive up costs in each jurisdiction.
If you want to know why your premiums are high, this series is for you.
Tomorrow: Where does the $125 billion in nonprofit hospital tax exemptions actually go? We follow the money.
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Day 4 of 7. Tomorrow: The $125 Billion Question.
Rojas out.
