I once heard Dr. Roy Cordato of the John Locke Foundation in North Carolina describe an unusual metaphor. Imagine that you wanted to open an Italian restaurant. In the town where you want to open it, you need to apply to the municipal authorities for a Certificate of Need. That is, before you put any of your capital or reputation into actually opening and operating the restaurant, you have to prove to bureaucrats and politicians that the town “needs” it. So, even though no taxpayers’ dollars are invested in your business, you are not allowed to take this risk before writing applications and participating in hearings to prove the unprovable: That potential customers “need” your Italian restaurant.
Who else is monitoring your application and participating in hearings? Owners of Italian restaurants that already exist. They have reams of data that prove that they fully satisfy the demand for Italian cuisine in the town. You have none. They have effective veto power over the entry of new competitors. You do not need a PhD in economics to predict that such a town would have a shortage of Italian restaurants with very high prices.
Yet, this unacceptable situation exists for hospitals or other healthcare facilities in 36 states and the District of Columbia. Thomas Stratmann and Jake Russ of the Mercatus Center have used a newly compiled database of these laws to examine their consequences. Their key findings are: