High Health Care Costs Are Fueling a New Fight Over Old Laws

Delightful person behind the counter: Welcome back.

Melanie Evans (ME): Thank you. Thanks so much.

I’m at Gertie, a new bagel shop in Brooklyn. So, can I get you two everything both with scallion.

Delightful person behind the counter: Two everything. Both with scallion. (Yes.) Perfect.

ME: That’s it.

Delightful person behind the counter: That’s it. No sweet treats. Nothing to drink? (Not today thanks.) Alrighty. 

ME: I’m here, to grab a bagel, of course. But also, I have questions for Gertie’s founder, Nate Adler. 

Nate, I don’t know how to open a bagel spot, but I am very glad that you do. So what does it take to open a spot like this?

Nate Adler (NA): It’s everything from setting up payroll and getting insurance, developing the menu and getting coasters and getting branded tape. Do we want a sticker for the cup? Do we want a plastic cup with branding already written on it? Do we want branded butcher paper or do we want branded tape? Do we want a plastic cup with branding already written on it?

ME: I am on a mission, not to open a bagel shop, but to understand one of the many oddities of U.S. health care.

At any point, did you have to prove that Brooklyn needed more bagels? 

NA: No. I did not.

ME: Down the street is, you know, the Bagel Shoppe and there’s La Bagel Delight. Did any of them perhaps legally challenge your right to produce bagels because we simply have enough?

NA: No. Were they salty about it? Yeah. But, um, not legally challenged.

Dan Gorenstein (DG): This bagel moment, courtesy of Tradeoffs producer Melanie Evans, sounds a bit bananas. Sure.

But unlike a bagel shop in Brooklyn, when it comes to opening a hospital or a surgery center or an office that does MRIs … in lots of states you need to get permission to open or expand your business. 

And your competitors can push back. 

Now, the Trump administration is encouraging states to drop these laws. 

Today, why do we regulate health care business this way, and what happens if we stop?

From the studio of the Leonard Davis Institute at the University of Pennsylvania, I’m Dan Gorenstein. This is Tradeoffs. 

*****

DG: Melanie, how was the bagel? 

ME: Excellent, Dan. As always. 

DG: So happy you were well fed in service of your reporting on health policy. 

ME: I needed sustenance. And really the truth is, reporting for this episode has been a test of endurance, there is a lot of research, decades of policy.

DG: Before we wade into all that research and policy, Melanie, let’s start with the basics. 

We’re talking with you about one very specific type of law, one that gives states the power to decide who gets to open or expand health care businesses in their borders.

The first thing I want to understand is why. What’s the goal of regulating health care this way? 

ME: Ok, so, states first adopted these laws in the mid-60s and 70s, as health care spending was going through the roof. 

At the time, the big fear was that health insurance made it super easy to overuse health care. 

DG: Because health insurance protects people from the full costs, so they are less concerned about how much care they get it, right?  

ME: That and we mostly paid hospitals and doctors very well, and by volume. More patients meant more money. 

This was a recipe for unnecessary care: patients not worried about costs plus hospitals with a financial incentive to stay very busy.

One famous researcher summed up the problem this way, Dan: A hospital bed built, is a hospital bed filled.

DG: It’s like the health care version of James Earl Jones in Field of Dreams, if you build it, they will come.

James Earl Jones: People will come, Ray. For reasons they can’t even fathom.

ME: This is exactly what policymakers wanted to avoid, Dan, a kind of glut of unnecessary services. 

So they decided to regulate the supply of beds and other medical care. 

Congress got behind the idea about 50 years ago, telling states, hey, figure out how much health care you actually need, then just approve or reject new business accordingly.

That’s why this type of law is called “certificate of need.” You have to prove your services are needed before you can enter the market.

DG: Certificate of need, another easy-on-the-ears health policy term. 

ME: Indeed.

DG: The goal, then, was to prevent hospitals from creating too much supply… providing care people didn’t need and driving up this unnecessary spending. 

ME: Exactly, these laws also applied to nursing homes and big expensive technology, they’ve expanded to cover a lot more.

And policymakers had big, big hopes for these laws. Not only would states keep an eye on how much care we needed, but also where it was needed. 

States could spread new health care businesses around to spots without enough hospitals or doctors. 

But about a dozen years later, Congress reversed course.

DG: Wait, what?

ME: Yup, a couple things happened. First, Congress changed how Medicare paid hospitals. That removed some of the incentives for hospitals to stay super busy. 

Second, policymakers were getting worried that these laws were making it too hard to break into the market, stifling competition.

Think about Brooklyn’s bagel scene, right? If there’s no new shops opening up, existing places can jack up their prices.

Fast forward to today and this has become an even bigger problem, to the point where lots of states have watered down or repealed these laws.

DG: So a simple read of this is history, Melanie, is that even though certificate of need laws were designed to decrease spending, ironically, they drove health care costs up. 

Is that right?

ME: I wish it were that simple, Dan. I talked with policy analysts who’ve pored over the evidence. I interviewed researchers who have studied these laws for years.  

Again and again, these super smart people summed up the evidence this way: 

Jill Horwitz (JH): Conflicted. 

Vivian Ho (VH): We don’t have the best answers.

Mary Vaughan-Sarrazin (MV): Consistently inconsistent.

ME: Even though we have tons of studies going back decades, there’s no obvious thumbs up or thumbs down.  

More of an everything bagel, if you will.

DG: No, Melanie, I won’t. That’s terrible. Did these super smart people you spoke with have any clear takeaways?

ME: Yes. There are, broadly speaking, two camps.  

One says the evidence shows that overall, these laws have failed to deliver the intended savings and may harm the quality of medical care. 

They’re ready to scrap certificate of need. 

Matt Mitchell (MM): To be honest, I think they’re a bad idea. 

ME: That’s Matt Mitchell. He’s with the Mercatus Center at George Mason University and the Fraser Institute. These are two groups that largely oppose government regulation.

Matt has devoted more than 10 years to studying these laws. In 2025, he published a paper that cataloged decades of studies, which questions they asked, what answers they got. 

MM: If I had known that there were this many papers when I started it, I’m not sure I would have done this project.

ME: Matt looked through 128 papers, Dan. And those studies contained more than 450 separate tests of certificate of need laws’ impacts on cost or quality or access.

DG: Damn, Melanie, that’s a lot of tests. 

ME: Indeed. And Matt grouped those results into three buckets: good, bad or indifferent.

MM: About 51% of all of these tests associate certificate of need with some sort of bad outcome, either less access, lower quality, higher costs, 36% are indeterminate and only 13% are associated with some sort of a good outcome. 

DG: So. Matt said that really fast. 

He said about half of those tests find these laws get lousy results, less access, lower quality care or higher spending. And far fewer, 13%, according to his accounting found benefits to certificate of need laws.  

ME: Now, I should say, Dan. Several economists warned me that, in their view, a number of the studies on this aren’t very rigorous.

But Matt, his tally is enough to convince him that these laws should be repealed.

MM: Economists almost never can give definitive answers like that. So, I am going out on a limb here, but I think just the preponderance of evidence is that this is not a very effective tool.

DG: Ok, Matt’s seen enough. But you said there are two camps, so obviously others disagree.

ME: Yes. Folks in our second camp say these laws have flaws … but they have a role to play protecting consumers. 

JH: I think practically my takeaway is you got to be careful.

ME: Jill Horwitz is a law professor and health policy researcher at Northwestern University.

She first started looking into certificate of need laws after a family road trip from Michigan to the neighboring state of Ohio. 

As she drove across the state line, Jill had the most health policy nerd response ever. 

JH: What is the first thing you see there but an MRI provider. I was like, we have to pull over. I have to go in there and ask questions. And so, you know, my kids were mortified, right?

ME: Dan, here’s why Jill embarrassed her kids. 

In Ohio, the state let MRI businesses open wherever they wanted … no certificate of need law. 

The state line proved how big of a deal these laws were. Big, splashy ads for MRIs in Ohio, no MRIs in Michigan, a state that did regulate these businesses. 

Jill spent the next decade studying all of this.

DG: Right, this is a big policy question. Many states use certificate of need laws to limit MRIs because there’s a lot of evidence that Americans get a ton of unnecessary scans, which wastes money and can even be harmful with all the exposure to radiation.

ME: Exactly. Jill’s question was: Do certificate of need laws help avoid all that? 

In one of Jill’s recent studies, she found they do. 

And even with laws on the books, patients still got the scans that they actually needed.

Jill’s work is why you’ve got a camp that believes there’s reason to keep these laws around … at least, in some form.

JH: You can calibrate these a little bit. And that doesn’t mean that we, you know, do a full-hearted romantic embrace of certificate of need or that we kick it to the curb.

DG: Ok, so Jill’s camp, they’re facing some headwinds right now, though, right? The Trump administration is dangling new federal funding for states that roll back or repeal these laws.

ME: Yes. You’re talking about the Trump administration’s recent competition to hand out $50 billion for rural health care. 

States had to apply for the money and one of the ways they could get more of it was if they pledged to roll back certificate of need laws. 

And out of more than 30 states that currently have some kind of law… at least six took up the offer. 

Iowa said they’d drop it for some mental health services. Delaware said they’d loosen their laws for rural health care. Tennessee said it would repeal its law entirely. 

DG: When we come back, we hear from Tennessee and Vermont, two states taking two very different approaches. 

BREAK

DG: Welcome back. Today we’re talking about laws that give states power to decide whether new hospitals, nursing homes and MRI centers can open up shop. 

These laws, called “certificate of need” took hold across the country about 50 years ago as a possible solution to high health care costs and limited access. 

Evidence for the laws’ success is mixed, as we heard before the break.  

We’re joined again by Tradeoffs reporter Melanie Evans who has been looking into how states’ views on certificate of need are evolving. Melanie, what have you learned?

ME: Dan, I have learned that when it comes to certificate of need, the conversation right now is really all about competition.

DG: Say more.

ME: Well, we all know that everyone is really worried about high health care costs.

And we have some pretty  good evidence that consolidation, the lack of competition among providers, is part of that problem.

That has policymakers re-examining certificate-of-need laws, asking if these regulations are making things worse or part of the solution.

DG: That’s really interesting, Melanie. So let’s walk folks through this and start with a state that sees certificate of need as a problem.

ME: Sure, that would be the state of Tennessee. 

The legislature there has been rolling back these laws for a few years. 

Health care in the state is expensive and can be hard to access. The state’s Obamacare premiums are among some of the nation’s highest. And many of its rural counties have no hospital at all.

State Sen. Bo Watson has long seen getting rid of certificate of need as a way to spur some new life into the market. 

Bo Watson (BW): I’ve been introducing it over and over again for a while. 

ME: Bo told me he’s been working to wipe out these rules, because they squash competition and investment, leaving consumers with higher prices and fewer options.

He thinks requiring state approval for new businesses creates two problems. The first is cost. Companies have to find money for fees, law firms, consultants. All just to ask permission to open.

The second problem is risk.

BW: Even after you’ve spent all that money, you go before this commission, which may have your competitors part of it, and, and you get denied.

ME: It’s an unpredictable process. Who wants to sink time and money into what could be a drawn-out dead end? 

Bo believes getting rid of certificate of need will make it easier and cheaper for rural Tennesseans to get the care they need.

DG: Okay so it sounds like Bo is a true certificate of need non-believer.

What about the evidence, Melanie? The original goal behind these laws was to prevent unnecessary care and slow spending. Is Bo worried about losing that potential upside? 

ME: Bo has looked at the research and he says, sure, it’s possible that too many businesses will flood into the market, opening the door for needless, expensive care.

BW: Yes, initially that might happen, but the market weeds all that out. Tennessee has a very business friendly, low regulatory climate. And we should have that in all of our economic sectors, health care not excluded.

ME: Bo acknowledges Tennessee needs some regulations to make health care cheaper and more accessible.

He’s proposed some wonky ones, because bottom line, it’s clear to Bo that certificate of need… needs to go. 

And he sees an opening this year, thanks to extra federal money being on the line.

BW: The timing is right for this because you have the federal government and their $50 billion investment in the rural hospital transformation act. 

DG: So, the extra money from the Trump administration, for states that roll back certificate of need, that made a difference?

ME: It mostly added urgency. State lawmakers held a few hearings about the new federal funding.

Sen. Joey Hensley: Thank you Mr. Chairman.

ME: One question kept coming up over and over again.

Sen. Joey Hensley: How much money are we forfeiting if we don’t do some of those things?

ME: How much of this precious new money from Washington would Tennessee give up if it failed to deliver some policies, including its certificate of need law. 

The governor’s office tracked down the answer.

Michael Hendrix: Roughly $8.43 million in clawbacks, in funding already awarded to Tennessee is sort of at stake on the policy side … 

ME: Dan, $8 million may sound like loose change, but that’s money Tennessee has already committed to spending on ambulances and new clinics in rural communities.

DG: Ok, Tennessee seems headed for repeal. Now let’s hear about a state that thinks certificate of need could actually be a solution to their lack of competition.

I will admit this one is a little harder for me to get my head around.

ME: It’s definitely a twist, Dan, but it’s one that more states are looking at, including Vermont.

Vermont’s competition problems are arguably worse than Tennessee’s.

Most towns in the state have just one hospital and many of them with the same owner: The University of Vermont Health.

State Representative Alyssa Black, like Bo Watson in Tennessee, blames this consolidation for her state’s high health care costs.

Alyssa Black (AB): Vermont has the highest premiums of any other state in the country. We’re number one.

ME: But unlike Bo, Alyssa and her colleagues in Vermont are using their certificate of need laws to help them increase competition.

AB: It allows us to have a check against monopolization.

ME: Alyssa says because the law gives the state power to decide who gets to open up shop, it can stop the big guys from expanding and give a boost to upstarts trying to break in.

DG: Wait, I get how Vermont could use certificate of need as a check on the big dominant systems, Melanie.

But how could it help new facilities open up?

ME: Here’s an example of how they’ve done it.

In 2017, Vermont approved plans for a new outpatient surgery center, even though hospitals pushed back, saying they could easily handle all the patients who needed operations.

DG: Which is the traditional test of whether a new facility is needed under these laws.

ME: Right, but the applicants argued that patients would pay less at their center than they would at hospitals, which have a lot of overhead.

State regulators said Vermont needed cheaper options and signed off on the start up.

DG: So Vermont has kind of expanded the definition of “need” here. They’re saying it’s more than just having enough beds and doctors.

In this era of consolidation and rising costs, we also need more affordable care.

ME: Precisely. And they have company. Other states are looking to certificate of need laws as one way to stop dominant hospitals from gobbling up more businesses.

DG: But I’m guessing those entrepreneurs up there still had to deal with the extra costs and uncertainty that State Sen. Bo Watson in Tennessee says make companies think twice about a new business. 

ME: Those obstacles are as real in Vermont as Tennessee, Dan. 

Amy Cooper is one of the entrepreneurs behind the surgery center that wanted to compete with Vermont’s hospitals.

Amy Cooper (AC): It took us a year to plan and submit the application. Then it took us two years of regulatory back and forth, questioning, appearances in front of the board. 

ME: Amy told me everything about the application process took time and money. Consulting fees. Legal bills. Banks wanted a higher interest rate on loans to build the center because of all the risk it may not win state approval. 

She had some deeply anxious moments where she doubted the surgery center would ever get off the ground.

AC: Even up to a week before we got the decision, I was putting the chances at less than 50%.

ME: Start to finish, it took about five years to open the doors of the surgery center. 

Alyssa Black, the Vermont state lawmaker, she agreed that the strain of applying is a problem for small businesses. 

She helped pass legislation last year to exempt some of the smaller health care businesses from certificate of need.

But even with the expense and uncertainty that exists, she thinks it’s still an important tool.

AB: Keeping certificate of need on the books in Vermont is to ensure that our larger facilities do not monopolize the market.

DG: Ok, Melanie. You’ve just walked us through two very different ways that state policymakers are thinking about certificate of need.

In your mind, what do Tennessee and Vermont, Bo and Alyssa, tell us about the future of these laws?

ME: I think the most honest thing I can say is that my reporting puts into stark relief the big problem at the center of health care’s affordability crisis. 

Consolidation is on everyone’s mind. Almost anywhere you live, there is less and less competition … and that is pushing up the prices we all pay. 

Those prices, they’re forcing people to go without insurance, without health care. Everyone is thinking about affordability and states’ decisions about certificate of need laws, they are a battle ground over how best to fight consolidation.  

In places like Tennessee and the White House, they’ve decided that these laws are a barrier to competition and therefore a driver of higher costs.

DG: And in places like Vermont, they see them as a tool that maybe geared toward fighting consolidation, and they’re gonna give it a shot.

ME: That’s right. 

We’ve covered a lot of ground today, Dan. I’m famished. Fortunately, 

Delightful person behind the counter: Hi. Welcome back.

Melanie Evans: Thank you. 

I’ve got so many good options nearby.

DG: A competition joke from Melanie Evans! She’s around all week, folks!

ME: Tip your waiters!

DG: In all seriousness, Melanie, thank you so much for your reporting on this. 

ME: You’re welcome, Dan. 

DG: I’m DG. This is Tradeoffs.