In 1959, Milton I. Roemer — a physician and pioneering health services researcher at UCLA — published a study that would influence American healthcare policy for generations. Examining hospital utilization patterns, Roemer observed a striking correlation in insured populations: the availability of more hospital beds was associated with greater numbers of hospital days used. "A built bed is a filled bed," he concluded. This insight, known as Roemer's Law, posited that supply tends to create its own demand. In the context of third-party payment systems, it implied that unchecked expansion of facilities would fuel wasteful overcapacity and drive escalating costs through supplier-induced demand.

This observation became the intellectual foundation for Certificate of Need (CON) laws. The core implication was that supplier-induced demand would inevitably lead to inefficient duplication and  wasteful overcapacity. Roemer, a staunch advocate of social medicine, viewed the Soviet Union as embodying the healthcare system of the future — one oriented more toward equity.

CON laws are state regulatory mechanisms that require healthcare providers — hospitals, ambulatory surgical centers (ASCs), nursing homes, and others — to obtain explicit government approval before making major capital investments, expanding services, or even purchasing certain equipment.

In practice, a state health planning agency reviews applications based on bureaucratic formulas for "community need," projected utilization, and impact on existing providers. If approved, the CON acts as a legal permission slip; if denied, the project dies. These laws do not improve safety or clinical quality — that is handled by separate licensing, accreditation, and Medicare certification processes. Instead, they function as artificial barriers to entry in the healthcare marketplace.

Origins of CON Laws

CON laws trace their origins to the 1960s, with New York enacting the first statute in 1964. The concept gained national momentum amid concerns over rising healthcare expenditures under cost-plus reimbursement systems. The federal government amplified the approach through the National Health Planning and Resources Development Act of 1974 (NHPRDA), which conditioned certain federal funding on states establishing CON programs.

By the early 1980s, nearly every state except Louisiana had implemented some form of CON review. Congress repealed the federal mandate in 1986 after recognizing its shortcomings, yet as of 2026, approximately 30–35 states, including Alabama, retain active CON regimes.

Practical Application of CON Laws

Consider the practical implications for opening an ambulatory surgical center in a CON state. A multidisciplinary group of physicians — orthopedists, neurosurgeons, gastroenterologists, and pain specialists — identifies unmet demand in their markets: protracted wait times for outpatient procedures, higher costs in hospital outpatient departments (often 30–50 percent above ASC rates for equivalent cases), and opportunities for same-day discharge with superior patient experience. The surgeons and doctors realize this because they are actively taking care of patients.