You’re reading Dispatch Markets, a weekly dive into the forces driving economic growth—and those holding it back—featuring Scott Lincicome, Kyla Scanlon, Karl Smith, Marian Tupy, and Adam Ozimek.
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You → read → Lincicome
With the midterms (mercifully) just a few weeks away, affordability remains top of mind for most American voters and politicians.
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affordability → remain → voters
And among U.S. households’ biggest affordability anxieties is healthcare—often ranking ahead of common targets like housing and groceries.
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healthcare → rank → housing
As many folks have patiently (pun!) explained, some of this angst is unwarranted: Societies tend to consume more healthcare as they get richer and older (both things America is doing); good ol’ Baumol’s cost disease ensures that the price of a labor-intensive service like health care will grow faster than the prices of industries making more stuff with fewer people; and, as the center-left Brookings Institution noted earlier this year, healthcare spending in the United States has—contra expectations—“permanently slowed thanks in part to technological advances making medical treatments cheaper and more effective.”
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treatments → explain → advances
Yet at least some amount of American worry remains understandable: Along with the simple fact that one’s health is an intensely personal issue, the sticker prices of both hospital services and other medical care services have risen faster than inflation for decades.
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prices → remain → decades
Meanwhile, an average employer-provided family insurance plan that cost $21,000 a year just six years ago now costs more than $27,000—and, whether you like Obamacare or not (put me in the Not Camp, obviously), now-expired subsidies will likely mean bigger bills for many Americans.
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subsidies → provide → Americans
So, of course, much of Official Washington has rushed to offer solutions, most of which unsurprisingly involve throwing money at stuff.
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most → rush → stuff
Senate Democrats, for example, spent December 2025 trying to extend the enhanced Affordable Care Act subsidies, and Senate Republicans countered with an offer to deposit $1,500 into consumers’ health savings accounts.
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Republicans → spend → accounts
The Trump administration, meanwhile, has pushed backdoor drug-price controls and, more recently, a politically suspect “rebate check” for the alleged overpayment of Obamacare “user fees.”
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administration → push → fees
Bad ideas have proliferated at the state level, too (e.g., California weighing penalties on providers that exceed state cost-growth targets).
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that → proliferate → targets
Yet there’s another healthcare reform movement underway that’s backed by a mountain of research and could go a decent way toward promoting competition and innovation, tempering costs, and expanding access to essential health services, especially in underserved parts of the country.
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that → ’ → country
And all it does is eliminate a common yet little-known state regulation that never should’ve been enacted in the first place: certificate of need (CON).
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that → do → need
The temporary government ‘fix’ that created a Kafkaesque hospital cartel.
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that → create → cartel
State CON laws have been around since the 1960s but really took root a decade later thanks to poorly designed federal policy.
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laws → take → policy
In particular, U.S. government planners realized that Medicare’s payment system, which reimbursed providers for the cost of care plus an additional percentage, was perversely encouraging U.S. hospitals to maximize covered expenditures (because higher spending meant higher government payouts), thus inflating healthcare spending by a troublingly excessive amount.
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spending → realize → amount
Rather than fix Medicare’s broken reimbursement incentives, however, Congress in 1974 opted instead to control supply (naturally) by threatening to withhold federal funds unless states adopted CON programs, which—as explained below—limit new health facilities and services in a covered locality.
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which → fix → locality
The (dumb) theory was that, by restricting hospitals’ capital expenditures on things like hospital beds and advanced machines, the government could limit reimbursements to necessary care, thus artificially containing skyrocketing healthcare costs.
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government → restrict → costs
“If you don’t build it, they won’t come.”
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they → build → it
The feds wisely abandoned the Medicare reimbursement framework in the mid-1980s, and Congress wisely dropped the CON mandate in 1986.
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Congress → abandon → 1986
Yet most states kept their CON programs anyway, and many persist to this day.
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many → keep → day
According to a new Cato paper from Steve Slivinski and Matt Mitchell, in fact, a whopping 39 states still require a CON for at least one health-related service or technology—hospital beds, operating rooms, MRI and CT scanners, neonatal intensive care, obstetrics, hospice, home health, dialysis, substance use treatment, and more—and 30 states regulate four or more of these things.
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states → accord → things
By contrast, just 32 percent of Americans live in a state with no healthcare CON requirement at all—even though the federal mandate underlying many of these laws dissolved decades ago.
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mandate → live → laws
So how exactly do CON laws work?
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laws → work → ?
As Slivinski and Mitchell explain, the laws require anyone seeking to open or expand a covered medical facility or service to first prove to regulators that the public “needs” the facility or service at issue.
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public → explain → issue
In practice, CON regimes are blatantly anticompetitive and discourage both new and expanded healthcare services in several ways.
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regimes → discourage → ways
First, in most states a CON application is a contested case: An applicant’s competitors get to weigh in on the application, and their objections trigger quasi-judicial hearings in which an entrant must prove it won’t “duplicate” or otherwise interfere with existing services.
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it → contest → services
This approach thus creates a “competitor's veto” that allows incumbents to block entry into a market by providers who might offer the same services in a better or cheaper way.
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who → create → way
Some disputes end in settlements where an applicant expressly agrees to stay out of an incumbent’s territory—the kind of deal you’d expect from Fat Tony or Stringer Bell, not people ostensibly trying to improve patients’ access to quality care.
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you → end → care
Even where incumbents can’t directly slow or block an application, CON laws can discourage them.
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laws → slow → them
Planning formulas, for example, instruct regulators to deny applications when services are considered duplicative—literally what competition is supposed to do!—or when existing capacity utilization (e.g., beds being used) sits below a certain threshold that incumbents control (thus giving them another way to influence the application review).
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incumbents → instruct → review
Just the process itself can be a significant barrier to entry: Applications can take months or even years to prepare, costing potential providers a fortune in both consulting fees and forgone profits.
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Applications → take → fees
As the maps above show, my home state of North Carolina unfortunately remains one of the biggest users of CON regulations and thus provides some useful and depressing examples of how this all shakes out in the real world.
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this → show → world
In February 2025, for example, North Carolina regulators ruled on nine applications covering Wake County, home to Raleigh and one of the fastest-growing metro areas in the country.
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regulators → rule → country
Anticipating this obvious demand growth, applicants asked for 246 acute care beds and 13 operating rooms, but the state approved just 70 and four, respectively.
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state → anticipate → 70
Every approved bed went to an existing hospital, while all three proposed new hospitals were denied—including ones in Wake Forest, Garner, and Knightdale, where population growth is the strongest.
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growth → approve → Forest
One of the denied applications was from Novant, a system that’s been trying to enter the market since 2008 yet keeps getting boxed out in CON disputes led by incumbents like UNC Health.
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that → deny → Health
To top it all off: Within a year, the state quietly admitted it had significantly underestimated Wake County’s hospital bed needs.
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it → top → needs
UNC Health’s $280 million hospital project in Research Triangle Park was approved in 2021 but has been stuck in CON litigation (filed by Duke, of course), hasn’t advanced past planning documents, and is now scheduled to open in 2032 rather than 2026.
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project → approve → 2026
But this isn’t just a basketball rivalry: In February 2024, both Duke and UNC teamed up to litigate rival incumbent WakeMed's approvals for a patient tower and for nine beds at its Cary hospital.
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Duke → team → hospital
“It's delaying patient care even more,” one local health executive exclaimed.
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executive → delay → care
…and 71 more, not listed.
The Aporia
