Does certificate of need law enhance competition in inpatient care market? An empirical analysis.

Abstract

This article investigates the impact of Certificate of Need (CON) laws on competition in the inpatient care market. One of the major criticisms of these laws is that it may hinder competition in the health care market, which can lead to higher prices. However, from a theoretical standpoint, CON laws could also promote competition by limiting excessive expansion from incumbents. Our main conclusion is that CON laws by and large enhanced competition in the inpatient market during the period of our study. This indicates that the effects of CON laws to hinder predatory behavior could dominate its effects of preventing new entrants into the inpatient care market. We do not find statistically significant evidence to reject the exogeneity assumption of either CON laws or their stringency in our study. We also find factors such as proportion of population aged 18-44, proportion of Asian American population, obesity rate, political environment, etc., in a state significantly impact competition. Our findings could shed some light to public policy makers when deciding the appropriate health programs or legislative framework to promote health care market competition and thereby facilitate quality health care.