Challenges to Regulatory Decentralization: Lessons from State Health Technology Regulation

Jill R. Horwitz, Daniel Polsky

NBER Working Paper No. 19801
Issued in January 2014
NBER Program(s):   HC   HE   LE

Policymakers often prefer decentralized regulation to central planning because decentralization allows them to better reflect the views of local residents, encourage experimentation, and evaluate various regulatory approaches. These advantages can be undermined, however, when the regulations of one government are affected by those of another. To examine the implications of such externalities, we consider the case of state certificate of need laws (CON), which require providers within the state to obtain licenses before adopting various types of health care technology. In particular, we analyze the cross-border effects of these laws on the number and location of magnetic resonance imaging providers. We find a large effect on the location of providers near borders between unregulated and regulated states. These results provide examples of some of the limitations of using states as policy laboratories as well as the ability of states to use state laws to reflect their local preferences. The results may also help explain conflicting studies on whether and why CON regulation may have failed to control costs and quantity.

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Document Object Identifier (DOI): 10.3386/w19801

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