Joint Statement of the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice to the Virginia Certificate of Public Need Work Group

FEDERAL TRADE COMMISSION
Washington, DC 20580
DEPARTMENT OF JUSTICE
Washington, DC 20530
Joint Statement of the Federal Trade Commission and the Antitrust Division
of the U.S. Department of Justice to the Virginia Certificate of Public Need
Work Group
October 26, 2015
The Federal Trade Commission (the “FTC”)1 and the Antitrust Division of
the U.S. Department of Justice (the “Division”) (together, the “Agencies”)
welcome the opportunity to share our views on certificate-of-need (“CON”)
laws.2 We understand that Virginia’s Certificate of Public Need (“COPN”) Work
Group has been charged with a review of “the current certificate of public need
process and the impact of such process on health care services in the
Commonwealth, and the need for changes to the current certificate of public
need process.”3 It will “develop specific recommendations for changes to the
certificate of public need process to address any problems or challenges
identified during [its] review.”4
CON laws, when enacted, had the laudable goals of reducing health care
costs and improving access to care.5 However, it is now apparent that CON laws
1 The FTC approved this joint FTC and Department of Justice statement by a vote of 4-0.
Commissioner Brill wrote a separate concurring statement.
2 Kathy Byron, Vice Chair, Committee on Commerce and Labor, Virginia House of Delegates, has
requested that the FTC provide guidance to the Virginia COPN Work Group. Letter from Kathy
Byron, Va. House of Delegates, to Marina Lao, Director, Office of Policy Planning, Fed. Trade
Comm’n (Aug. 30, 2015).
3 2015 Va. Acts Chapter 665, Item 278.D.
4 Id.
5 CON programs originated under the 1974 National Health Planning and Resources
Development Act. States were required to pass CON legislation to avoid losing certain federal
funding. See CHRISTINE L. WHITE ET AL., A NTITRUST AND H EALTHCARE: A COMPREHENSIVE G UIDE
527 (2013).

2
can prevent the efficient functioning of health care markets in several ways that
may undermine those goals. First, CON laws create barriers to entry and
expansion, limit consumer choice, and stifle innovation. Second, incumbent
firms seeking to thwart or delay entry by new competitors may use CON laws to
achieve that end. Third, as illustrated by the FTC’s recent experience in the
Phoebe Putney case, CON laws can deny consumers the benefit of an effective
remedy following the consummation of an anticompetitive merger. Finally, the
evidence to date does not suggest that CON laws have generally succeeded in
controlling costs or improving quality. For these reasons, explained more fully
below, the Agencies historically have suggested that states consider repeal or
retrenchment of their CON laws and, in this case, respectfully suggest that the
Work Group and the General Assembly consider whether repeal or retrenchment
of Virginia’s COPN laws would best serve its citizens.
I. 	The Agencies’ Interest and Experience in Health Care Competition
Competition is the core organizing principle of America’s economy,6 and
vigorous competition among sellers in an open marketplace gives consumers the
benefits of lower prices, higher quality goods and services, greater access to
goods and services, and innovation.7 The Agencies work to promote
competition through enforcement of the antitrust laws, which prohibit certain
business practices that harm competition and consumers, and through
competition advocacy, whereby the Agencies advance outcomes that benefit
competition and consumers in comments on legislation, discussions with
regulators, and court filings, among other fora.
Because of the importance of health care competition to the economy and
consumer welfare, this sector has long been a priority of the Agencies.8 The
6 See, e.g., N.C. State Bd. of Dental Exam’rs v. FTC, 135 S. Ct. 1101, 1109 (2014) (“Federal antitrust
law is a central safeguard for the Nation’s free market structures.”); Standard Oil Co. v. FTC, 340
U.S. 231, 248 (1951) (“The heart of our national economic policy has long been faith in the value of
competition.”).
7 See, e.g., Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 695 (1978) (The antitrust laws
reflect “a legislative judgment that ultimately competition will produce not only lower prices, but
also better goods and services. . . . The assumption that competition is the best method of
allocating resources in a free market recognizes that all elements of a bargain—quality, service,
safety, and durability—and not just the immediate cost, are favorably affected by the free
opportunity to select among alternative offers.”).
8 A description of, and links to, the FTC’s various health care-related activities can be found at
https://www.ftc.gov/tips-advice/competition-guidance/industry-guidance/health-care. An
overview of the Division’s health care-related activities is available at
http://www.justice.gov/atr/health-care.

3
Agencies have extensive experience investigating anticompetitive mergers and
business practices by hospitals, insurers, pharmaceutical companies, physicians,
and other providers of health care goods and services. The Agencies also have
provided guidance to the health care community on the antitrust laws, and have
devoted significant resources to examining the health care industry by
sponsoring various workshops and studies. Finally, through their competition
advocacy programs, the Agencies have encouraged states to consider the
competitive impact of various health care-related legislative and regulatory
proposals, including CON laws.9
II. 	Virginia’s COPN Laws
Virginia’s COPN program requires providers to obtain a COPN from the
State Health Commissioner (the “Commissioner”) before initiating certain
projects. The program covers facilities that include hospitals, nursing homes,
psychiatric facilities, and rehabilitation hospitals and services that include
general acute care services, cardiac services, obstetrics, and organ
transplantation.10 The Commissioner may not issue a COPN unless he or she has
determined that there is a public need for the project,11 and may condition a
9 See, e.g., Letter from Marina Lao, Dir., Office of Policy Planning, Fed. Trade Comm’n, et al., to
The Honorable Marilyn W. Avila, N.C. House of Representatives (July 10, 2015), available at
https://www.ftc.gov/system/files/documents/advocacy_documents/ftc-staff-comment-
concurring-comment-commissioner-wright-regarding-north-carolina-house-bill-
200/150113ncconadv.pdf; Prepared Statement of the Federal Trade Commission Before the
Florida State Senate (Apr. 2, 2008) [hereinafter FTC Florida Statement], available at
https://www.ftc.gov/sites/default/files/documents/advocacy documents/ftc-prepared-
statement-florida-senate-concerning-florida-certificate-need-laws/v080009florida.pdf; Statement
of the Antitrust Division, U.S. Department of Justice, Before the Florida Senate Committee on
Health and Human Services (Mar. 25, 2008), available at http://www.justice.gov/atr/comments-
competition-healthcare-and-certificates-need; Prepared Statement of the Federal Trade
Commission Before the Standing Committee on Health, Education, & Social Services of the
Alaska House of Representatives (Feb. 15, 2008) [hereinafter FTC Alaska Statement], available at
https://www.ftc.gov/sites/default/files/documents/advocacy documents/ftc-written-
testimony-alaska-house-representatives-concerning-alaska-certificate-need-
laws/v080007alaska.pdf; Statement of the Antitrust Division, U.S. Department of Justice, Before a
Joint Session of the Health and Human Services Committee of the State Senate and the CON
Special Committee of the State House of Representatives of the General Assembly of the State of
Georgia (Feb. 23, 2007), available at http://www.justice.gov/atr/competition-healthcare-and-
certificates-need.
10 V A. C ODE ANN. § 32.1-102.1 (2015); 12 V A. A DMIN . CODE § 5-220-100 (2011); The Certificate of
Public Need Program, V A. DEP’T OF HEALTH , http://www.vdh.state.va.us/OLC/copn/ (last
visited Oct. 22, 2015).
11 V A. C ODE ANN. § 32.1-102.3 (2015).

4
COPN on the provision of a certain amount of charity care, the provision of care
to persons with special needs, or the provision of health care services in a
medically underserved area.12 The program’s goal is to “contain health care
costs while ensuring financial viability and access to health care for all Virginia at
a reasonable cost.”13
The COPN process can be time-consuming and costly. Applications must
be submitted to the Virginia Department of Health (the “Department”) and, in
certain cases, the appropriate regional health planning agency.14 The
Department reviews applications during 190-day review cycles designated for
particular batch groups, which occur only twice a year for most batch groups.15
Meetings, public hearings, and fact-finding conferences on applications may be
convened.16 According to the Department, the review process can take six to
seven months to complete.17 Once a decision is made, aggrieved parties,
including, in at least some cases, incumbent providers, can appeal the decision to
the circuit court.18 Therefore, the CON process can delay entry by, at a
minimum, many months, even when a COPN is ultimately granted. Further,
some beneficial entry may be deterred since a potential entrant may decide that
the process itself is too costly.
12 V A. C ODE ANN. § 32.1-102.2(C) (2015).
13 The Certificate of Public Need Program, V A. DEP’T OF HEALTH ,
http://www.vdh.state.va.us/OLC/copn/ (last updated Aug. 21, 2014).
14 12 V A. A DMIN . C ODE § 5-220-180 (2011); Peter Boswell, Dir., Div. of Certificate of Public Need,
Va. Dep’t of Health Office of Licensure & Certification, Presentation at the July 1, 2015 COPN
Work Group Meeting: The Certificate of Public Need Program in Virginia 9 (July 2015),
http://www.vdh.state.va.us/Administration/documents/COPN/COPN%20Program%20in%20
Virginia.ppt.
15 12 V A. A DMIN . C ODE § 5-220-200 (2011). A party must file a notice of intent 70 days prior to the
start of a review cycle and its application 40 days prior to the start of a cycle. 12 V A. A DMIN .
C ODE § 5-220-180 (2011); Boswell, supra note 14, at 9.
16 12 V A. A DMIN . C ODE § 5-220-230 (2011).
17 The Certificate of Public Need Program, V A. DEP’T OF HEALTH ,
http://www.vdh.state.va.us/OLC/copn/ (last updated Aug. 21, 2014).
18 See, e.g., Reston Hosp. Ctr., LLC v. Remely, 559 Va. App. 96, 111, 717 S.E.2d 417, 425 (Ct. App.
2011) (allegations by incumbent that its competing facility and service would suffer an
appreciable reduction in utilization and efficiency sufficient to confer standing).

5
III. 	Analysis of the Likely Competitive Effects of Virginia’s COPN Laws
Competition in health care markets can benefit consumers by containing
costs, improving quality, and encouraging innovation.19 Indeed, price
competition generally results in lower prices for and, thus, broader access to,
health care products and services, while non-price competition can promote
higher quality and encourage innovation. CON laws may suppress these
substantial benefits of competition by limiting the availability of new or
expanded health care services. For these reasons, the Agencies historically have
suggested that states with CON laws repeal or narrow those laws, 20 and now
respectfully suggest that the Work Group and the General Assembly reconsider
whether Virginia’s COPN laws best serve its citizens.
A. 	CON Laws Create Barriers to Entry, Which May Suppress More
Cost-Effective, Innovative, and Higher Quality Health Care
Options
CON laws, such as Virginia’s COPN laws, require new entrants to obtain
a state-issued approval before offering certain health care services. By interfering
with the market forces that normally determine supply of services, CON laws
can suppress competition and shield incumbent health care providers from
competition from new entrants.21 As a result, they can:
• 	Delay, and raise the cost of, entry by firms that are potentially able to offer
new, lower cost, more convenient, or higher quality services;
• 	Reduce the ability of the market to respond to consumer demand for
different treatment options, settings, or prices; and
19 See FED . T RADE COMM’N & U.S. DEP’T OF J USTICE , I MPROVING HEALTH C ARE : A DOSE OF
C OMPETITION Executive Summary at 4 (2004) [hereinafter A DOSE OF COMPETITION], available at
https://www.ftc.gov/sites/default/files/documents/reports/improving-health-care-dose-
competition-report-federal-trade-commission-and-department-justice/040723healthcarerpt.pdf.
20 See A DOSE OF COMPETITION , supra note 19, at ch. 8 at 6; Joint Statement of the Antitrust Division
of the U.S. Department of Justice and the Federal Trade Commission Before the Illinois Task
Force on Health Planning Reform 2 (Sept. 15, 2008) [hereinafter DOJ-FTC Illinois Testimony],
available at https://www.ftc.gov/sites/default/files/documents/advocacy_documents/ftc-and-
department-justice-written-testimony-illinois-task-force-health-planning-reform-
concerning/v080018illconlaws.pdf.
21 See A DOSE OF COMPETITION , supra note 19, ch. 8 at 4 (discussing examples of how CON
programs limited access to new cancer treatments and shielded incumbents from competition
from innovative newcomers).

6
• 	Remove or delay the competitive pressures that typically incentivize
incumbent firms to innovate, improve existing services, or introduce new
ones.22
We urge the Work Group and the General Assembly to consider that
Virginia’s COPN law may be causing these results in Virginia to the detriment of
health care consumers and to consider the benefit to patients if new facilities and
services would be able to enter the market more easily. This new entry – and the
threat of entry – could restrain the price of health care, improve the quality of
care, incentivize innovation in the delivery of care, and improve access to care.
B. 	The CON Process May Be Exploited by Competitors Seeking to
Protect Their Revenues
In addition to disrupting the market forces that typically determine the
supply of services, CON laws may further harm competition because
competitors may take advantage of the CON process to protect their revenues.
For instance, an incumbent firm may file challenges or comments to a potential
competitor’s CON application merely to thwart or delay competition. As noted
in an FTC-DOJ report, existing firms can use the CON process “to forestall
competitors from entering an incumbent’s market.”23 This use of the CON
process by competitors can not only cause delay, 24 but can also divert scarce
resources away from health care innovation as potential entrants incur legal,
consulting, and lobbying expenses responding to competitor challenges.25
22 See id.; DOJ-FTC Illinois Testimony, supra note 20, at 6.
23 A DOSE OF COMPETITION , supra note 19, Executive Summary at 22; see also Tracy Yee et al.,
Health Care Certificate-of-Need Laws: Policy or Politics? 2, 4 (Research Br. No. 4, Nat’l
Institute for Health Care Reform May 2011) [hereinafter, Policy or Politics?] (interviewees
stated that CON programs “tend to be influenced heavily by political relationships, such as a
provider’s clout, organizational size, or overall wealth and resources, rather than policy
objectives,” that, in Georgia, “large hospitals, which often have ample financial resources
and political clout, have kept smaller hospitals out of a market by tying them up in CON
litigation for years,” that the CON process “often takes several years before a final decision,”
and that providers “use the process to protect existing market share – either geographic or
by service line – and block competitors”).
24 See, e.g., Policy or Politics?, supra note 23, at 5 (“CONs for new technology may take upward of
18 months, delaying facilities from offering the most-advanced equipment to patients and staff.”).
25 What makes this conduct more concerning is the fact that much of it, even if exclusionary and
anticompetitive, may be shielded from federal antitrust scrutiny to the extent it involves
protected petitioning of the state government. See DOJ-FTC Joint Illinois Testimony, supra note
20, at 6-7; FTC Florida Statement, supra note 9, at 8-9; FTC Alaska Statement, supra note 9, at 8-9.

7
Repeal or retrenchment of Virginia’s COPN law would eliminate or mitigate the
opportunity for this type of exploitation of the CON process.
C. 	CON Laws Can Impede Effective Antitrust Remedies and Can
Facilitate Anticompetitive Agreements
As the FTC’s recent experience in FTC v. Phoebe Putney demonstrates,
CON laws can entrench anticompetitive mergers by limiting the ability to
implement effective structural remedies. Phoebe Putney involved a challenge to
the merger of two hospitals in Albany, Georgia.26 The FTC alleged that the
merger had created a monopoly in the provision of inpatient general acute care
hospital services sold to commercial health plans in Albany and its surrounding
areas. The FTC was ultimately precluded from obtaining a remedy that would
have restored competition to the marketplace because of Georgia’s CON laws
and regulations.27 As the Commission explained, “[w]hile [divestiture] would
have been the most appropriate and effective remedy to restore the lost
competition in Albany and the surrounding six-county area from this merger to
monopoly, Georgia’s [CON] laws and regulations unfortunately render a
divestiture in this case virtually impossible.”28 The Commission further noted
that the case “illustrates how state CON laws, despite their original and laudable
goal of reducing health care facility costs, often act as a barrier to entry to the
detriment of competition and healthcare consumers.”29 Thus, the Work Group
and the General Assembly should consider whether Virginia’s COPN laws could
prevent divestiture as an effective tool to remedy anticompetitive mergers in
appropriate cases.
26 See generally In re Phoebe Putney Health Sys., Inc., Dkt. No. 9348, available at
https://www.ftc.gov/enforcement/cases-proceedings/111-0067/phoebe-putney-health-system-
inc-phoebe-putney-memorial.
27 The Eleventh Circuit affirmed the district court’s dismissal of the case on state-action grounds
and dissolved the stay that had prevented the parties from consummating the merger. The
Supreme Court reversed, finding against state-action immunity. But, with the stay dissolved, the
parties had consummated their merger before the state-action question was resolved by the
federal courts. See FTC v. Phoebe Putney Health Sys. Inc., 133 S. Ct. 1003, 1011 (2013).
28 Statement of the Federal Trade Commission at 1, In re Phoebe Putney Health Sys., Inc., Dkt.
No. 9348, (Mar. 31, 2015), available at
https://www.ftc.gov/system/files/documents/public_statements/634181/150331phoebeputne
ycommstmt.pdf.
29 Id. at 3.

8
Additionally, CON programs have facilitated anticompetitive agreements
among competitors. For example, in 2006, a hospital in Charleston, West
Virginia, used the threat of objection during the CON process to induce another
hospital to refrain from seeking a CON for a location where it would have
competed to a greater extent with the existing hospital’s program.30 In a separate
but similar case, the informal urging of state CON officials led a pair of closely
competing West Virginia hospitals to agree that one hospital would seek a CON
for open heart surgery, while the other would seek a CON for cancer treatment.31
While the Division secured consent decrees prohibiting these agreements
between competitors to allocate services and territories,32 such conduct indicates
that CON laws can provide the opportunity for anticompetitive agreements.
IV. 	Evidence on the Impact of CON Laws
States originally adopted CON programs over forty years ago as a way to
control health care costs and mitigate the incentives created by a cost-based
health care reimbursement system.33 Although that reimbursement system has
changed significantly, CON laws remain in force in many states, and CON
proponents continue to raise cost control as a justification for CON programs.
CON proponents also argue that CON laws positively affect the quality of health
care services and that CON programs have enabled states to assure access to
health care services. As described below, however, the empirical evidence on
balance suggests that these laws have failed to produce cost savings or higher
quality health care.
A. 	CON Laws Appear to Have Failed to Control Costs
Proponents of CON programs contend that CON laws contain health care
costs by preventing “overinvestment” in capital-intensive facilities, services, and
equipment. They claim that normal market forces do not discipline investment
in the health care sector given, in many cases, the disconnect between the party
30 United States v. Charleston Area Med. Ctr., Inc., No. 2:06-0091 (S.D. W.Va. 2006).
31 United States v. Bluefield Reg’l Med. Ctr., Inc., No. 1:05-0234 (S.D. W.Va. 2005).
32 See also Press Release, U.S. Dep’t of Justice, Department of Justice Statement on the Closing of
the Vermont Home Health Investigation (Nov. 23, 2005), available at
http://www.justice.gov/archive/opa/pr/2005/November/05_at_629.html (home health
agencies entered into territorial market allocations, which were facilitated by the state regulatory
program, to give each other exclusive geographic markets; without the state’s CON laws,
competitive entry might have disciplined this cartel behavior).
33 See A DOSE OF COMPETITION , supra note 19, ch. 8 at 2; WHITE , supra note 5, at 527.

9
selecting a provider (the patient) and the party paying all or most of the bill (the
insurer), and the information asymmetries among provider, patient, and insurer.
They therefore call for a regulatory regime requiring preapproval for health care
investments.34
However, CON laws are likely to increase, rather than constrain, health
care costs. By potentially shielding incumbents from competition, CON laws can
permit providers with market power to charge higher prices. When health plans
and other purchasers can choose among alternative providers, they can bargain
more effectively. Empirical evidence examining competition in health care
markets generally has demonstrated that more competitive health care markets
bring price and quality benefits to consumers and, in particular, that prices are
higher in concentrated provider markets.35 Furthermore, both the FTC and the
Division have engaged in significant enforcement efforts to prevent
anticompetitive behavior in health care provider markets because the evidence
suggests that consumers benefit from competition.36 It is simply not the case that
competition cannot work in health care markets.37
Also, CON laws may restrict investments that would benefit consumers
and lower costs in the long run. Because CON laws raise the cost of investment
for everyone, they make it less likely that beneficial investment will occur. The
CON application process directly adds to the cost of investment for both
incumbents and potential entrants. CON laws shield incumbents from
34 See CON Background, A M. HEALTH PLANNING A SS’N , http://www.ahpanet.org/copnahpa.html
(“The rationale for imposing market entry controls is that regulations, grounded in community-
based planning, will result in more appropriate allocation and distribution of health care
resources and, thereby, help assure access to care, maintain or improve quality, and help control
health care capital spending.”).
35 See, e.g., Martin Gaynor & Robert Town, The Impact of Hospital Consolidation – Update, ROBERT
WOOD J OHNSON FOUNDATION : T HE SYNTHESIS PROJECT (2012) (synthesizing research on the impact
of hospital mergers on prices, cost, and quality and finding that hospital consolidation generally
results in higher prices, hospital competition improves quality of care, and physician-hospital
consolidation has not led to either improved quality or reduced costs).
36 Supra note 8.
37 Indeed, similar arguments made by engineers and lawyers in defense of anticompetitive
agreements on price – that competition fundamentally does not work in certain markets, and in
fact is harmful to public policy goals – have been rejected by the courts, and private restraints on
competition have been condemned. See, e.g., FTC v. Superior Court Trial Lawyers Ass’n, 493 U.S.
411, 424 (1990); Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 695 (1978).

10
competitive incentives to invest. The Agencies have found no empirical evidence
that CON laws have successfully restricted “over-investment.”38
Finally, the best empirical evidence suggests that greater competition
incentivizes providers to become more efficient.39 Recent work shows that
hospitals faced with a more competitive environment have better management
practices.40 Consistent with this, there is evidence suggesting that repealing or
narrowing CON laws can reduce the per-patient cost of health care.41
38 Some papers find that CON laws are associated with lower utilization of hospital beds. These
studies, however, do not address the critical question of whether the lower bed utilization in
states with CON laws is a result of preventing over-investment or restricting beneficial
investment. See, e.g., Paul L. Delamater et al., Do More Hospital Beds Lead to Higher Hospitalization
Rates? A Spatial Examination of Roemer’s Law, 8 PLOS ONE e54900, 13-14 (2013) (finding “a
positive, significant association between hospital bed availability and hospital utilization rates”);
Fred J. Hellinger, The Effect of Certificate-of-Need Laws on Hospitals Beds and Healthcare Expenditures:
An Empirical Analysis, 15 AM. J. MANG. C ARE 737 (2009) (finding that CON laws “have reduced
the number of hospital beds by about 10%”).
39 Furthermore, recent marketplace developments may undermine further the case for CON laws.
Proponents of CON programs generally assume that providers are incentivized to provide a
higher volume of services. But this assumption may be undermined as policy reforms and
market developments encourage a move toward value-based payments and away from volume-
based payment structures.
40 See, e.g., Nicholas Bloom et al., The Impact of Competition on Management Quality: Evidence from
Public Hospitals, 82 REV. E CON . S TUDIES 457, 457 (2015) (“We find that higher competition results in
higher management quality.”).
41 See, e.g., Vivian Ho & Meei-Hsiang Ku-Goto, State Deregulation and Medicare Costs for Acute
Cardiac Care, 70 M ED . CARE RES. & REV. 185, 202 (2012) (finding an association between the lifting
of CON laws and a reduction in mean patient costs for coronary artery bypass graft surgery, and
finding that these cost savings slightly exceed the fixed costs of new entrants); Patrick A. Rivers
et al., The Effects of Certificate of Need Regulation on Hospital Costs, 36 J. HEALTH C ARE FIN . 1, 11
(2010) (finding a positive relationship between the stringency of CON laws and health care costs
per adjusted admission and concluding that the “results, as well as those of several previous
studies, indicate that [CON] programs do not only fail to contain [hospital costs], but may
actually increase costs as well” (emphasis in original)). While other studies evaluate the impact of
repealing CON laws (with varying results), many of these studies are less persuasive because
they do not account for preexisting cost differences between the states. Compare Michael D.
Rosko & Ryan L. Mutter, The Association of Hospital Cost-Inefficiency with Certificate-of-Need
Regulation, 71 M ED . C ARE RES. & REV. 1, 15 (2014) (finding “a plausible association between CON
regulation and greater hospital cost-efficiency”), with Gerald Granderson, The Impacts of Hospital
Alliance Membership, Alliance Size, and Repealing Certificate of Need Regulation on Cost Efficiency of
Non-profit Hospitals, 32 M ANAGE . DECIS. ECON . 159, 167-68 (2011) (“[R]epealing state CON
programs contributed to an improvement in hospital cost efficiency.”).

11
B. 	Quality of Care Arguments Should Not Preclude COPN Reform
Proponents also have argued that CON laws improve the quality of health
care services. Specifically, they contend that providers performing higher
volumes of procedures have better patient outcomes, particularly for more
complex procedures.42 Hence, by concentrating services at a limited number of
locations, CON laws could increase the number of procedures performed by
particular providers and reduce the frequency of adverse outcomes.
Such arguments do not fully consider the literature or the effect of
competition on clinical quality. First, the most pronounced effect of volume on
quality outcomes may be limited to certain relatively complicated procedures.43
Second, even for services where certain studies have shown a volume/outcome
relationship, such as coronary artery bypass graft surgery,44 evidence suggests
that these volume effects may not offset the other effects of CON programs on
quality.45 The volume/outcome relationship is just one mechanism by which
quality of health care can be affected by CON laws, so this literature only
provides a partial picture of the impact of CON. A more complete picture is
obtained by studies that directly analyze the impact of changes in CON laws on
health outcomes. The weight of this research has found, contrary to the
volume/outcome justification for CON laws, that repealing or narrowing CON
42 This relationship between the volume of surgical procedures and quality has been studied in
numerous settings, and is often supported by the evidence. See, e.g., Martin Gaynor et al., The
Volume-Outcome Effect, Scale Economies, and Learning-by-Doing, 95:2 A M. E CON . REV. 243, 245 (2005)
(“Like the prior literature, we find a large volume-outcome effect.”).
43 See Ethan A. Halm et al., Is Volume Related to Outcome in Health Care? A Systematic Review and
Methodological Critique of the Literature, 137.6 ANNALS INTERNAL MED . 511, 514 (2002) (“We found
the most consistent and striking differences in mortality rates between high- and low-volume
providers for several high-risk procedures and conditions, including pancreatic cancer,
esophageal cancer, abdominal aortic aneurysms, pediatric cardiac problems, and treatment of
AIDS. The magnitude of volume-outcome relationships for more common procedures, such as
[coronary artery bypass graft surgery], coronary angioplasty, and carotid endarterectomy, for
which selective referral and regionalization policies have been proposed, was much more
modest.”).
44 See Gaynor et al., supra, note 42, at 244.
45 See, e.g., Vivian Ho et al., Certificate of Need (CON) for Cardiac Care: Controversy over the
Contributions of CON, 44:2 HEALTH S ERVS. RES. 483, 483 (2009) (“States that dropped CON
experienced lower [coronary artery bypass graft surgery] mortality rates relative to states that
kept CON, although the differential is not permanent.”).

12
laws is generally unlikely to lower quality, and may, in fact, improve the quality
of certain types of care.46
C. 	More Targeted Policies May Be More Effective at Ensuring
Access to Care and Would Not Inflict Anticompetitive Costs
Another argument advanced by proponents of CON programs is that the
programs enable states to increase access to care for their indigent residents and
in medically underserved areas. The general argument is that, by limiting
competition, CON laws allow incumbent health care providers to earn greater
profits – through the charging of higher prices and the preservation of their
volume of lucrative procedures – than they would earn in a competitive
environment. These incumbents can then use those extra profits to cross-
subsidize their provision of care to the indigent. Additionally, proponents
maintain that regulators can use CON laws to restrict entry into well-served
areas and encourage it in underserved areas. Virginia COPN laws go further,
explicitly providing that a COPN may be conditioned on the applicant’s
agreement to provide a certain amount of indigent care, care to patients
requiring specialized services, or care in medically underserved areas.47
Though the Agencies appreciate the importance of ensuring access to
health care for the indigent and in medically underserved areas, we urge the
Work Group and the General Assembly to consider whether there are more
effective or narrowly tailored ways in which to accomplish this public policy
goal. As described in Section III.A., above, CON programs may restrict
competition from potentially lower priced, higher quality, and more innovative
providers. They also may reduce the ability of providers to respond to consumer
demand. As a result, CON programs may impede providers from providing
46 See Suhui Li & Avi Dor, How Do Hospitals Respond to Market Entry? Evidence from a Deregulated
Market for Cardiac Revascularization, 24 HEALTH ECON . 990, 1006 (2015) (finding that repeal of
Pennsylvania’s CON program improved “the match between underlying medical risk and
treatment intensity”); Ho & Ku-Goto, supra, note 41, at 199 (finding association between lifting of
CON laws and shorter lengths of stay and fewer strokes during admission for coronary artery
bypass patients, finding no significant association between lifting CON laws and three other
complications during admission for coronary artery bypass graft patients, and finding no
significant associations between lifting of CON laws and length of stay or need for coronary
artery bypass graft surgery for percutaneous coronary intervention patients); David M. Cutler et
al., Input Constraints and the Efficiency of Entry: Lesson from Cardiac Surgery 2:1 A M. E CON . J.: E CON.
POLICY 51, 52 (2010) (finding that new entry after repeal of Pennsylvania’s CON program “had a
salutary effect on the market for cardiac surgery by directing more volume to better doctors and
increasing access to treatment”).
47 V A. C ODE ANN. § 32.1-102.4(F) (2015).

13
access to all patients – including the indigent. Although CON laws may seek to
promote indigent care, research shows that safety net hospitals are no stronger
financially in CON states than in non-CON states.48
Additionally, CON programs are a blunt tool for accomplishing the
specific goal of providing care to the indigent and in medically underserved
areas. They tend to sweep broadly, limiting competition for a wide variety of
health care services. Although the Agencies do not endorse any particular
mechanism for funding indigent care, we note that solutions more narrowly
tailored to a state’s recognized policy goals may be substantially less costly to
consumers, and ultimately more effective at achieving the desired social goals,
than a CON regime.49
V. 	Conclusion
The Agencies recognize that states must weigh a variety of policy
objectives when considering health care legislation. But, as described above,
CON laws raise considerable competitive concerns and generally do not appear
to have achieved their intended benefits for health care consumers. For these
reasons, the Agencies historically have suggested that states consider repeal or
retrenchment of their CON laws. We respectfully suggest that the Work Group
and the General Assembly consider whether Virginia’s citizens are well served
by its COPN laws and, if not, whether they would benefit from the repeal or
retrenchment of those laws.
48 The Lewin Group, An Evaluation of Illinois’ Certificate of Need Program: Prepared for the
State of Illinois Commission on Government Forecasting and Accountability, at ii, 27-28 (Feb.
2007), available at http://cgfa.ilga.gov/Upload/LewinGroupEvalCertOfNeed.pdf (“Through our
research and analysis we could find no evidence that safety-net hospitals are financially stronger
in CON states than other states.”); Cutler, supra note 46, at 63 (2010) (finding that, following
repeal of Pennsylvania’s CON program, incumbent hospitals “were not put in a precarious
position by the elimination of CON”).
49 See, e.g., L EWIN GROUP, supra note 48, at 29 (discussing various financing options for
charity care in Illinois); DOJ-FTC Illinois Testimony, supra note 20, at 9; Joint Comm’n on
Health Care, A Plan to Eliminate the Certificate of Public Need Program Pursuant to Senate
Bill 337 22 (2000), available at
http://www.vdh.state.va.us/Administration/documents/COPN/Prior%20Virginia%20Stu
dies/JCHC%20COPN%20Deregulation%20Plan%20SB337%20of%20%202000.pdf (plan to
eliminate Virginia’s COPN program included “several provisions to help cushion hospitals
and the AHCs from the impact of being less able to cost-shift and subsidize indigent care,
low revenue-generating services, and undergraduate medical education”).