The misguided laws contributing to America’s rural health crisis

America’s rural health crisis has gone from bad to worse. 

More than 90 percent of rural counties face a shortage of primary care physicians, forcing many rural residents to travel for hours even for basic procedures. Over the last two decades, nearly 200 rural hospitals have shut down. Hundreds more hospitals teeter on the brink of bankruptcy, threatening to deprive millions more people of vital nearby care.

In fact, a lack of adequate access to health care has contributed to the widening health gap between rural and urban Americans. From 2010 to 2019, while life expectancy rose in urban counties, it declined in rural parts of the country. In 2020, for example, rural counties experienced higher-than-average COVID-19 death rates. And in newly released research in the Southern Economic Journal, we show that misguided government policies are pouring fuel on this fire.

We study certificate-of-need (CON) laws, which require health care providers to obtain approval from state officials before offering new services, expanding facilities or investing in technology. Currently, CON laws exist in 35 states. A large amount of evidence shows that these regulations limit competition and drive up prices in the health care industry, but our study is one of the first to examine their impact on rural America.

Some policymakers insist that by controlling where additional health services can be offered, they can direct providers to invest more in geographically remote and underserved areas. Without CON laws, the argument goes, profit-hungry providers would solely focus on urban centers.

For example, the West Virginia Health Care Authority, the agency that oversees the state’s CON program, argues: “In West Virginia, the CON program offers some protection for small, often financially fragile, rural hospitals and the underinsured population they serve by promoting the availability and accessibility of services.” The Kentucky Hospital Association has made similar claims, warning that repealing CON laws “would be another nail in the coffin for rural communities.”

However, this narrative could simply serve as a pretext for existing hospitals to keep potential competitors out of their areas. In many states, the CON application process is lengthy and expensive, placing a considerable burden on smaller and newer providers. In contrast, larger and more politically connected organizations are usually more adept at navigating all of the bureaucratic procedures.

To test these competing theories, we analyzed nearly 30 years of data focused on five states — Nebraska, New Hampshire, North Dakota, Ohio and Pennsylvania — that have repealed CON restrictions on hospitals since the early 1990s. Relative to states that kept their CON laws in place, these five states experienced a 3.4 percent increasein rural hospitals per capita in the years after repeal. Nationally, that would translate to roughly 70 additional hospitals serving rural patients.

Instead of deepening health care shortages in rural areas, repealing CON laws led to more access to hospital services. Moreover, we find that repealing CON laws increased the number of hospitals in urban areas too, indicating that these laws are restricting beneficial competition in all areas of the country.

CON laws deter new hospitals from forming and, by doing so, exacerbate the rural health care crisis. Established hospitals are highly incentivized to derail the CON applications of potential competitors to protect their turf, and hospital associations lobby aggressively to keep these protections in place. 

Maureen Ohlhausen, a former commissioner of the U.S. Federal Trade Commission, put it bluntly: “[CON laws] serve primarily, if not solely, to assist incumbents in fending off competition from new entrants.” Our research supports this claim.

If policymakers want to address the crisis, repealing these anti-competitive, anti-health-care consumer laws would be a good place to start.

Liam Sigaud is a postgraduate fellow with the Mercatus Center at George Mason University. Vitor Melo is a senior research associate with the Knee Regulatory Research Center at West Virginia University.