Effect of Certificate of Need Law on the intensity of competition: The market for emergency care

Abstract

PurposeThis article aims to contribute to the academic literature in better understanding the impact of Certificate of Need (CON) Law on Emergency Department (ED) care. Impact of CON Law on ED competition remains an unanswered empirical question. MethodsWe examine the impact of CON Law and its stringency on the intensity of competition (rivalry among competitors) between EDs measured by the Herfindahl-Hirschman Index (HHI). We then estimate the effects of CON Law on HHI by treating CON as an exogenous (endogenous) variable. FindingsOn average the CON legislation enhances ED competition. A possible reason is that the law hinders predatory behavior, and therefore acts as an effective anti-trust tool. Other findings indicate that competition is found to be positively related to a state's population size and median income and negatively related with the prevalence of employer provided insurance and magnitude of illegal immigration in a state. Practical implicationsThis article sheds some light on how political regulations could affect healthcare market and hence may provide public policy makers some insights on reducing healthcare cost. OriginalityOur analysis of the impact of CON regulation on ED competition significantly contributes to the healthcare and strategy literature. The law potentially serves as an anti-trust tool in the hands of the government. We extend the empirical literature by treating CON Law and its stringency as exogenous (endogenous). Our comprehensive analysis considers a host of control variables such as population demographics, their health status and access to health care, healthcare facilities, political environment, in addition to the CON features.