Certificate of Need (CON) laws require entrepreneurs to obtain government permission before opening or expanding a facility, and the permission is effectively decided by their own competitors. Across three episodes of The Bob Zadek Show, guests describe CON as a “competitor’s veto” that artificially restricts supply, protects established businesses, and has nothing to do with public health or safety.
How CON laws work
Don Boudreaux, an economics professor at George Mason University, told Bob Zadek that the United States has had a system of certificates of need in place since Gerald Ford’s administration. Under this system, he said, new hospitals are not allowed to open unless they are granted a certificate of need, meaning the builder must get permission from the government and show that a new hospital is needed. The question of whether a new hospital is needed is decided by existing hospitals, which are not inclined to say they need more competition. Boudreaux described the policy as one that artificially restricts the number of hospitals and hospital beds in the country The Single Most Common Economic Fallacy in COVID-19 Reporting (2020).
Jessica Thompson of the Pacific Legal Foundation, a litigator, told Zadek that the organization calls these “the competitor’s veto law.” She described them as a particular type of occupational licensing that is super problematic because it has nothing to do with the ability or safety of the services provided and nothing to do with public health and safety, but much more to do with competitors. CON laws require would-be entrepreneurs to obtain permission from the state before they are allowed to open or expand, and to get that permission they must prove that their service or facility is needed. She said this most frequently comes up in the healthcare or transportation industry, and that states allow a direct competitor to weigh in on whether the service is needed. If an entrepreneur wants to open a respite care center for kids with special needs, the state asks competitors whether another one is needed in the area; if the entrepreneur wants to run a non-medical ambulance company, the state asks whether another transport company is needed. Frequently the competitors say they have it covered, and the entrepreneurs are shut out Food Truck v. Farmville (2022).
Zadek framed the arrangement as requiring permission from the people from whom one hopes to take business. He said it is impossible to prove there is a need, asking what data could possibly be provided and what the word “need” even means. Thompson agreed that the person determining need is not the consumer or the customer but the bureaucrat, and said consumers and individuals are far better empowered to know what services they need and where they should get their barbecue, taxis, or healthcare than a bureaucrat is Food Truck v. Farmville (2022).
Origins and rationale
Boudreaux said the system has been in place for at least half a century, or going on half a century. Zadek said he thought it was created during the Nixon administration at first, and for a reason that sounds bizarre: the Nixon administration reasoned that healthcare costs could be reduced by eliminating excess capacity, since excess capacity is a cost. The idea, as Zadek described it, was to prevent free marketeers and capitalists from doing something stupid like building a hospital nobody needs, and to require them to prove a hospital is needed. He compared it to AT&T voting on whether Apple could create the iPhone, calling it utterly absurd and embarrassing for a country such as ours to have Certificate of Need statutes The Single Most Common Economic Fallacy in COVID-19 Reporting (2020).
COVID-19 and hospital capacity
Boudreaux raised CON in the context of worries about hospital bed capacity during the COVID-19 pandemic. He said that if there is a run on hospital bed capacity because of COVID-19, the first thing to talk about is not China or foreign trade but the inappropriateness of government for decades artificially restricting the number of hospitals and the size of hospitals in the United States. He called that an artificially created scarcity that is real and that the country might be on the verge of paying a very high price for The Single Most Common Economic Fallacy in COVID-19 Reporting (2020).
In a later episode, the guest said that over 35 states have Certificate of Need laws, under which adding beds to a hospital, building a hospital, or building a surgery center requires permission from a government committee usually made up mostly of competitors, who decide whether the state needs it. The guest compared it to requiring a new restaurant to go through a Certificate of Need board staffed by all the other restaurants, which would say there are already plenty of that type. The guest said these laws made it difficult in some states for hospitals to adjust to the anticipated surge in patients. In some states governors temporarily suspended the laws and in some they still had not. In the guest’s state of Arizona, which the guest said does not have a Certificate of Need law for that, hospitals immediately began converting sections of the hospital—such as a cafeteria or a post-op recovery room—into additional ICU beds, and could add beds in parts of the hospital where there were none. In states with CON laws, the guest said, hospitals cannot necessarily do that and have to get permission Here comes “the spike…” (2020).
The broader economic liberty campaign
Zadek told Thompson that Pacific Legal Foundation has been in the forefront of attacking certificate of need laws, and asked her to explain the device. Thompson said PLF has litigators as well as policy attorneys who advocate in state courthouses and state legislatures to overturn these laws, working in both directions. She said the laws are falling one at a time as a result of PLF’s work Food Truck v. Farmville (2022).
Thompson also described the Mark Shirley case in North Carolina, in which a food truck owner fought protectionist regulations in the town of Farmville. She said Mark is not seeking monetary damages but is making a philosophical point about his right to earn a living, and that he is willing to go back to the same regulations he was subject to when he first launched his business, challenging only the amended ordinance requirements put in place to force him out of his parking spot and out of town. She said the town is free to repeal the amended ordinance, and until then PLF will keep pushing in court to secure victory for Mark and set precedent to protect other entrepreneurs in the state Food Truck v. Farmville (2022).
Zadek noted that the town’s approach was simply attempting to protect an established business against competition, and Thompson said brick-and-mortar restaurants contribute to property taxes, so it is possible the lack of money the town brings in from food trucks makes it a disfavored industry. She cited Baylen Linnekin’s article in Reason magazine about food trucks being squeezed out by local governments, including Detroit loosening restrictions so that food trucks must now be 200 feet away from existing restaurants and 300 feet away from sports arenas. She mentioned American Coney Island, a brick-and-mortar restaurant in Detroit, saying it was particularly concerned about trucks that sell hot dogs, and that its neighbor Lafayette Coney Island was also upset, even though the two restaurants have been side-by-side neighbors for more than 100 years and both sell hot dogs Food Truck v. Farmville (2022).
Thompson listed other areas where PLF has fought for the right to earn a living: moving companies, taxi cabs, ambulance care operators, and a social worker in Louisiana who wants to provide childcare services to special needs kids. She said PLF fights economic liberty in a variety of cases and fights back anytime certificate of need laws or arbitrary occupational licensing come up Food Truck v. Farmville (2022).
Across episodes
The topic appears in three episodes spanning 2020 to 2022. In the April 2020 episode, Boudreaux and Zadek discussed CON as an artificially created scarcity relevant to hospital capacity during the pandemic, with Zadek calling it the competitor’s veto and tracing it to the Nixon administration. In the June 2020 episode, the guest described how over 35 states have CON laws, how some governors suspended them during the pandemic while others did not, and how Arizona hospitals without such a law could convert space to ICU beds. In the January 2022 episode, Thompson described PLF’s litigation and legislative work against CON laws, calling them the competitor’s veto law and noting they are falling one at a time. The later treatment adds the litigation campaign and the broader economic liberty context, but the description of the mechanism remains consistent across all three.
What the sources do not cover
The excerpts do not state the full text of any Certificate of Need statute, the name of any specific CON bill, or the holding of any CON case. They do not give the founding date of the Certificate of Need system beyond Zadek’s attribution to the Nixon administration and Boudreaux’s reference to Gerald Ford’s administration. The excerpts do not state which amendment or constitutional provision any CON case turned on, nor do they give the outcome of the Mark Shirley case. The June 2020 episode ends mid-sentence after Bob Zadek’s name, so nothing from that section can be reported.