Barriers to Entry in the Healthcare Markets: Winners and Losers from Certificate-of-Need Laws

Abstract

Certificate-of-need (CON) laws in 21 states restrict medical providers from acquiring imaging equipment, including magnetic resonance imaging (MRI), computed tomography (CT), and positron emission tomography (PET) scanners. Using difference-in-difference methods to control for state invariant characteristics, we test the effect of those restrictions on incumbent hospitals and entry into the imaging market. We find that states with CON laws demonstrate less market entry and lower market penetration of nonhospital and new hospital providers than do states that do not have those laws. Further, hospitals that opened before the implementation of a CON law face less competition in CON states than in non-CON states. We also study the effect of CON laws on consumers, which we measure as patient access to imaging services. We find that residents in CON states are more likely to travel outside their home county to obtain imaging services than are their counterparts in non-CON states.