# How Certificate-of-Need Incumbents Get Paid: A Permission Slip Your Competitor Has to Ask You For

In 35 CON states, an incumbent hospital is legally notified when a rival wants to build a bed or buy an MRI, and can drag the approval out about two years before any court fight. The FTC calls it a shield.

Author: J.A. Watte
Published: July 20, 2026
Source: https://jwatte.com/blog/how-certificate-of-need-holders-are-paid/

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*Thirty-ninth in a series on jobs whose pay system is stranger than the salary. Earlier entries covered the [taxi medallion owner](/blog/how-taxi-medallion-owners-are-paid/), who is paid for holding a license the city refuses to duplicate, and the [alcohol distributor](/blog/how-alcohol-distributors-are-paid/), whose real asset is a state-enforced right to be the only lawful road a product may travel. The certificate-of-need incumbent belongs right beside them, with one twist that makes it the most brazen entry in the whole series. The other tollbooths are enforced by a public board or a statute. This one hands the toll collector a seat at the table where the toll is decided, and lets the incumbent object to, delay, and litigate the very application that would let a competitor compete. Every figure below is cited to a state legislative research office or a joint statement of the Federal Trade Commission and the U.S. Department of Justice, and where a number could not be verified at a primary source I say so rather than estimating.*

Most tollbooths in this series charge you to pass. This one charges your competitor to ask permission to build a road, and lets you veto the request.

A certificate of need, or CON, is a permission slip a healthcare provider must obtain from its state before it can add hospital beds, buy an MRI scanner, open an ambulatory surgery center, or in some states run an ambulance service. That much sounds like ordinary licensing. Here is the part that makes it a toll. The provider who would lose business if the new project got built is not a bystander. In most CON states the existing provider is formally notified as an interested party, is given standing to object, and can demand hearings and appeals that stretch a single decision out for roughly two years before a court fight even begins.

So the incumbent is not paid for labor. The incumbent is paid a slice of artificially scarce healthcare capacity, and the person who wants to compete pays the legal, consulting, and lobbying bills just for the right to ask. The Federal Trade Commission and the Department of Justice, the two federal antitrust agencies, put the effect in one blunt phrase. These laws, they wrote, can "shield incumbent health care providers from competition from new entrants." This article is about how that shield works, who holds it, and who pays for it without ever seeing the bill.

## The map of the toll, and why it keeps redrawing

Start with where the tollbooth stands, because the map itself is unstable, and that instability is part of the story.

According to the National Conference of State Legislatures, a nonpartisan research body serving state lawmakers, 35 states plus Washington, D.C. operate CON programs, with the covered facilities and services current "as of January 2025." I am dating that count deliberately, because it is time-sensitive and it moves almost every legislative session. NCSL notes that as of January 1, 2024, twelve states have fully repealed their CON programs or let them expire, with New Hampshire the most recent to repeal, in 2016. Four more states, Arizona, Louisiana, Minnesota, and Wisconsin, run no official CON program but keep similar approval processes. If you are reading this a year from now, check the live NCSL number before you quote it, because the register of toll states is being redrawn one statehouse at a time.

What the toll covers varies by state, but the pattern is consistent. NCSL reports that states with CON laws "most often regulate hospitals, outpatient facilities and long-term care facilities." Dig into the per-state tables and you find the specific gates: acute-care and hospital beds, ambulatory surgical facilities, skilled-nursing and long-term-care beds, imaging equipment listed as "Acquiring CT, MRI, PET or PET/CT scanners," cardiac catheterization and cardiovascular surgery, and in some states, such as Arizona, ambulance services. Which services a given state gates is itself time-sensitive and should be checked against that state's row before anyone relies on it. But the through-line is simple. Before a competitor can add capacity in one of these categories, it has to prove to the state that the capacity is needed, and the incumbent gets to argue that it is not.

## How the incumbent actually collects: the objection clock

Here is the mechanic that turns a licensing rule into a paycheck. The incumbent does not collect a fee. It collects delay, and delay is money.

The clearest account of the machine comes from the FTC and DOJ's own joint statement to South Carolina lawmakers in 2016. When a provider files a CON application and it is deemed complete, the agencies explain, the state health department notifies "affected persons," a category that expressly includes "competitors of the proposed project." Read that slowly. The law does not merely permit a rival to find out. It requires the state to go tell the rival. The competitor who has the most to lose from new capacity is served formal notice and handed a set of levers.

Those levers are procedural, and they are long. An affected person can request a public hearing, which in South Carolina's system extends the decision deadline to 150 days. It can request a final review. It can appeal to the Administrative Law Court, which has 18 months to decide. Stack those together and the agencies reach a conclusion worth quoting in full: "even before any appeal to the judiciary, the CON process can delay entry or expansion by approximately two years. Court challenges can add additional months or years."

Two years. That is the toll, expressed in time rather than dollars. A competitor who wants to open a surgery center across town cannot simply open it. It must file, wait, answer the incumbent's objection at a hearing, survive an administrative appeal that can run a year and a half, and only then reach a courthouse where the incumbent can start over. NCSL confirms that this standing is written into the design, noting that states even legislate who may formally oppose an application, one example being a provision "Limiting entities that can oppose a CON application to those within a 35-mile radius of the project." A rule that limits which competitors may object is a rule that presumes competitors object, because that is what the process is for.

The FTC and DOJ named the motive without euphemism in a later joint statement, this one to Alaska lawmakers. One section carries the heading "The CON Process May Be Exploited by Competitors Seeking to Protect Their Revenues." The text underneath is plain: "an incumbent firm may file challenges or comments to a potential competitor's CON application to thwart or delay competition," and existing firms can use the process "to forestall competitors from entering an incumbent's market." Responding to those challenges, the agencies note, forces the entrant to "incur legal, consulting, and lobbying expenses." That is the toll booth in one sentence. The incumbent files paper. The entrant pays lawyers. The delay protects the incumbent's revenue the entire time the fight drags on.

## The shield, in the agencies' own words

If the objection clock is how the toll is collected, the shield is what it protects. And here the language is not mine.

The South Carolina joint statement's central heading reads: "CON Laws Create Barriers to Entry and Expansion, Which May Suppress More Cost-Effective, Innovative, and Higher Quality Health Care Options." The sentence that follows is the one worth memorizing, because it is two federal antitrust agencies describing a state law as a moat: "By interfering with the market forces that normally determine the supply of facilities and services, CON laws can suppress supply, misallocate resources, and shield incumbent health care providers from competition from new entrants."

The agencies did not hedge on what they thought should happen. In the same statement they wrote that "CON laws create barriers to entry and expansion, limit consumer choice, and stifle innovation," that "incumbent firms seeking to thwart or delay entry or expansion by new or existing competitors may use CON laws to achieve that end," and that "the evidence to date does not suggest that CON laws have generally succeeded in controlling costs or improving quality." Their recommendation was one line: they "respectfully suggest that South Carolina repeal its CON laws."

This is not a fringe critique. NCSL, which takes no side, summarizes the opposing view the same way: "Opponents believe CON laws stifle competition by protecting incumbent providers and creating a burdensome approval process for establishing new facilities and services," and "many maintain there is little to no evidence that CON laws deliver on controlling health care costs, improving quality or ensuring access." The intellectual foundation for the repeal position is older still. The FTC and DOJ built their case on a July 2004 joint report titled "Improving Health Care: A Dose of Competition," whose Chapter 8 addressed CON directly and concluded that states should reconsider these laws. The South Carolina statement's footnotes reach back further, to FTC empirical work including a 1987 study, "Competition Among Hospitals," and a study of CON regulation of home health care that found CON "led to higher costs and that CON regulation did little to further economies of scale."

Sit with the shape of that. The two agencies whose entire job is competition looked at a law meant to control healthcare costs, studied it for decades, and concluded it does not control costs. What it reliably does is shield the incumbent. When a policy fails at its stated purpose but succeeds perfectly at an unstated one, the unstated one is worth treating as the real function.

## The documented abuse, with names

The abstraction has a paper trail, and the FTC and DOJ put a specific case into the Alaska record.

"For example," they wrote, "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 through expansion it would have been able to compete." Read what actually happened there. No hearing was even needed. The mere threat of dragging a rival through the objection process was enough to make that rival stand down. The tollbooth collected without the arm ever coming down, because everyone understood what a two-year delay would cost.

The same statement describes a related West Virginia episode in which two competing hospitals agreed to divide services between them, one seeking a CON for open-heart surgery and the other for cancer treatment, an arrangement that drew DOJ consent decrees. The CON process, in other words, did not just let incumbents fight entrants. It gave competing incumbents a structured way to carve up territory, which is precisely the behavior antitrust law exists to stop.

The agencies also quoted outside research on who actually wins these fights. Citing a 2011 study from the National Institute for Health Care Reform, they noted 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," and that in Georgia "large hospitals ... have kept smaller hospitals out of a market by tying them up in CON litigation for years," with providers using the process "to protect existing market share ... and block competitors." The toll, in other words, tracks power, not need. The biggest incumbent, with the deepest bench of lawyers and the longest patience for administrative appeals, is the one best equipped to keep the objection clock running against a smaller rival. Scarcity does not distribute itself evenly. It flows to whoever can best afford to defend it.

## What the toll is worth, and why there is no clean number

I want to be honest about a figure I cannot give you, because the honesty is part of the point.

In the [ticketing article](/blog/how-ticketing-companies-are-paid/) I could point to a single company's SEC filing and read the toll off its income statement. There is no equivalent here. No hospital's 10-K carries a line labeled "revenue protected by certificate-of-need." The economic value of a CON is not booked as a fee. It lives in the competition that never happened, the surgery center that was never built, the MRI that a rival never bought, the beds that a market never added. That value is real, and the FTC and DOJ describe it at length, but it is described qualitatively, as suppressed supply and shielded incumbents, not as a per-company dollar slice. Anyone who hands you a precise figure for what CON protection is worth to a specific hospital is estimating. I will not, because no primary per-company revenue-slice figure was located and none should be invented.

What can be verified is the structure that generates the value, and it is a purer version of the mechanism under every high-paying entry in this series. The [taxi medallion](/blog/how-taxi-medallion-owners-are-paid/) was a license a city refused to print more of. The [alcohol distributor](/blog/how-alcohol-distributors-are-paid/) holds a franchise a state refuses to reissue. The CON incumbent holds something subtler and, in a way, stronger: not a license to itself, but a veto over anyone else's. The medallion owner profits from a fixed supply. The CON incumbent gets to help keep the supply fixed, by objecting every time someone tries to add to it.

## The moratorium, or the toll with the gate welded shut

There is a version of this where the state does not even bother pretending to decide. It just says no in advance.

NCSL reports that "at least 13 states have a moratorium on certain health care activities and capital expenditures, meaning they will not grant CON or state approval for a specific activity." That count is time-sensitive, so date it and check it. The most common target is telling: moratoria are "most common for long-term care related activities, such as expanding the number of long-term care beds in a facility." In those categories the objection clock is beside the point, because the answer is fixed at no. An incumbent nursing home in a moratorium state does not have to object to a rival's expansion. The state has already forbidden it. That is the tollbooth at its most complete, a gate that does not open at any price, protecting whoever is already inside.

## What a salaried reader should take from this

**The most valuable right is sometimes a veto over other people, not a license for yourself.** Every other tollbooth in this series pays its holder for something the holder owns: a medallion, a franchise, a swipe rail. The CON incumbent is paid for a right pointed at someone else, the standing to object to a competitor's application and run the clock. When you evaluate any protected position, do not just ask what the holder is allowed to do. Ask what the holder is allowed to prevent. The power to say no to a rival can be worth more than any permission granted to yourself, and it rarely shows up on a balance sheet.

**A law that fails at its stated goal but succeeds at an unstated one has found its real job.** CON was sold as cost control. Two federal antitrust agencies, after studying it since at least 2004, concluded the evidence "does not suggest that CON laws have generally succeeded in controlling costs or improving quality," while succeeding reliably at shielding incumbents. That gap is the tell. The same pattern runs through the whole series: when a rule consistently misses the purpose written on the label and consistently hits an outcome nobody advertised, treat the unadvertised outcome as the design. The label is a story. The incidence is the truth.

**Delay is a price even when no money changes hands.** The CON toll is not a fee. It is roughly two years of administrative process, standing granted to your competitor, and legal, consulting, and lobbying bills you pay just to ask permission, all before a courthouse is even in view. In the West Virginia case the FTC documented, the mere threat of that delay was enough to make a rival stand down without a single hearing. Whenever you see an incumbent that seems weirdly hard to challenge, look past the obvious barriers to the procedural ones. The most durable moat is often not a high wall but a long line, and the incumbent controls how long the line is.

**When the map keeps getting redrawn, the toll is contested, not settled.** Twelve states have repealed CON, a federal mandate that once forced nearly every state into it was itself repealed, and the live count of CON states changes almost every legislative session. That churn is not noise. It is the sign of a toll whose legitimacy is genuinely in dispute, unlike, say, the [card network](/blog/how-card-networks-are-paid/) swipe fee that survives decade after decade of litigation intact. A protected position that legislatures keep dismantling is a weaker franchise than one nobody can touch. If your livelihood rests on a rule, the first question is not how good the rule is to you today. It is how many other people are actively trying to repeal it.

## Related reading

- [How taxi medallion owners are paid](/blog/how-taxi-medallion-owners-are-paid/): a government-capped license, and what happened when the same government erased the scarcity it had sold.
- [How alcohol distributors are paid](/blog/how-alcohol-distributors-are-paid/): another state-manufactured franchise where the license, not the labor, is the asset, protected by a law the producer cannot buy its way out of.
- [How ticketing companies are paid](/blog/how-ticketing-companies-are-paid/): an exclusive-contract tollbooth on a flow someone else created, where the fee actually does show up on a filing.
- [How pharmacy benefit managers are paid](/blog/how-pharmacy-benefit-managers-are-paid/): a healthcare-adjacent intermediary whose value lives in a spread nobody can see rather than a fee anyone quotes.
- [How credit rating agencies are paid](/blog/how-credit-rating-agencies-are-paid/): a gatekeeper whose blessing is required to enter a market, and whose power is the ability to withhold it.

## Fact-check notes and sources

The map of CON states, the history, and the coverage details come from the National Conference of State Legislatures, a nonpartisan state legislative research body. The mechanics, the shield language, and the documented abuse come from two joint statements of the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice, and from the agencies' 2004 joint report. Where a figure is time-sensitive, secondary, or could not be verified at a primary source, it is flagged in the text and here. Several FTC pages return access errors to automated fetches because of a site reorganization, and the joint-statement PDFs were retrieved from ftc.gov as noted; the URLs are current as retrieved on 2026-07-20 but the FTC may relocate them again.

- **The count of 35 states plus Washington, D.C. operating CON programs**, with covered services current "as of January 2025"; **the services most often regulated** ("hospitals, outpatient facilities and long-term care facilities," plus the per-state gates for acute-care and hospital beds, ambulatory surgical facilities, skilled-nursing and long-term-care beds, "Acquiring CT, MRI, PET or PET/CT scanners," cardiac catheterization and cardiovascular surgery, and ambulance services in states such as Arizona); **the repeal tally** ("As of Jan. 1, 2024, 12 states have fully repealed their CON programs or allowed the program to expire," New Hampshire the most recent in 2016, and four states running no official program but keeping similar approval processes); **the federal history** (New York first in 1964, 26 states in the following decade, 1972 Section 1122 waivers, the National Health Planning and Resources Development Act of 1974, all states except Louisiana with a CON program by 1982, early programs typically regulating capital expenditures greater than $100,000); **the repeal of the federal mandate** ("The federal mandate was repealed in 1987, along with the associated federal funding"); **the incumbent-protection critique** ("Opponents believe CON laws stifle competition by protecting incumbent providers ..."); **the 35-mile-radius standing provision**; and **the moratorium finding** ("At least 13 states have a moratorium on certain health care activities and capital expenditures ... most common for long-term care related activities") are from the [National Conference of State Legislatures, Certificate of Need State Laws](https://www.ncsl.org/health/certificate-of-need-state-laws), a primary source. **The state count, the repeal count, the moratorium count, and every per-state coverage detail are time-sensitive; NCSL notes activity across 2019 to 2024 and dates its coverage to January 2025. Verify the live figures and any per-state claim against the current NCSL page or the state statute before relying on them.**
- **The federal-mandate repeal date** is given by NCSL as 1987. Some sources date the underlying repeal of the National Health Planning and Resources Development Act to the 1986 Omnibus Budget Reconciliation Act, effective in 1987, so both the 1986 (enactment) and 1987 (effective) framings appear in the literature. This article follows NCSL's 1987 and flags the ambiguity rather than resolving it.
- **The core FTC/DOJ position** ("CON laws create barriers to entry and expansion, limit consumer choice, and stifle innovation," incumbents "may use CON laws" to "thwart or delay entry or expansion," and "the evidence to date does not suggest that CON laws have generally succeeded in controlling costs or improving quality," with the recommendation that "South Carolina repeal its CON laws"); **the shield language** ("By interfering with the market forces that normally determine the supply of facilities and services, CON laws can suppress supply, misallocate resources, and shield incumbent health care providers from competition from new entrants," under the heading "CON Laws Create Barriers to Entry and Expansion ..."); **the objection mechanic** (the state notifies "affected persons," including "competitors of the proposed project"; a public hearing extends the deadline to 150 days; the Administrative Law Court has 18 months; "even before any appeal to the judiciary, the CON process can delay entry or expansion by approximately two years. Court challenges can add additional months or years"); and **the older empirical studies** cited in the footnotes ("Competition Among Hospitals," 1987, and the home-health study finding CON "led to higher costs" and doing "little to further economies of scale") are from the [Joint Statement of the FTC and the Antitrust Division of the U.S. DOJ on Certificate-of-Need Laws and South Carolina House Bill 3250, January 11, 2016](https://www.ftc.gov/system/files/documents/advocacy_documents/joint-statement-federal-trade-commission-antitrust-division-u.s.department-justice-certificate-need-laws-south-carolina-house-bill-3250/160111ftc-doj-sclaw.pdf), a primary source.
- **The "exploited by competitors" framing** (section heading "The CON Process May Be Exploited by Competitors Seeking to Protect Their Revenues," the statements that an incumbent "may file challenges or comments to a potential competitor's CON application to thwart or delay competition" and can use the process "to forestall competitors from entering an incumbent's market," and that entrants "incur legal, consulting, and lobbying expenses"); **the documented abuse** (the 2006 Charleston, West Virginia hospital that "used the threat of objection during the CON process to induce another hospital to refrain from seeking a CON," and the two West Virginia hospitals that split open-heart-surgery and cancer-treatment services, drawing DOJ consent decrees); and **the clout-not-need research** (the National Institute for Health Care Reform finding, quoted in the statement, 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," and the Georgia example of large hospitals keeping smaller ones "out of a market by tying them up in CON litigation for years") are from the [Joint Statement of the Antitrust Division of the U.S. DOJ and the FTC on Certificate-of-Need Laws and Alaska Senate Bill 62](https://www.ftc.gov/system/files/documents/advocacy_documents/joint-statement-federal-trade-commission-antitrust-division-us-department-justice-regarding/v170006_ftc-doj_comment_on_alaska_senate_bill_re_state_con_law.pdf), a primary source. **The precise issue date of the Alaska statement was not confirmed on the face of the retrieved PDF; the FTC file identifier (v170006) indicates 2017, so it is dated as "2017."**
- **The foundational antitrust-agency report** ("Improving Health Care: A Dose of Competition," July 2004, whose Chapter 8 addresses CON and is cited by the later joint statements as the basis for the repeal recommendation) is from the [FTC/DOJ report page, Improving Health Care: A Dose of Competition](https://www.ftc.gov/reports/improving-health-care-dose-competition-report-federal-trade-commission-department-justice), a primary source.
- **Not asserted, and why:** any per-company or per-hospital dollar figure for CON-protected revenue. Unlike a filing-backed tollbooth such as ticketing, no single company 10-K isolates CON-protected revenue, and the economic value of CON protection is described by the FTC and DOJ qualitatively, as suppressed supply and shielded incumbents, not as a quantified revenue slice. No primary per-company figure was located and none is invented here.

*This post is informational and journalistic, not legal, medical, or financial advice, and nothing here is a recommendation about any provider, security, or policy position. It describes a nonpartisan state legislative research office, two joint statements of the Federal Trade Commission and the U.S. Department of Justice, and an FTC/DOJ report. CON programs, state counts, covered services, and moratoria change almost every legislative session, and the figures here are dated as noted or flagged as time-sensitive, so verify current status before relying on any of them. Mentions of specific states, agencies, and documented cases are drawn from the public record and are nominative fair use, and no affiliation is implied.*


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