The effect of Certificate‐of‐Need laws on substance use disorder care for vulnerable populations

Substance use disorders are a prevalent and growing problem across the United States, especially for households that rely on publicly funded healthcare insurance plans. State Certificate‐of‐Need (CON) laws for substance use disorder (SUD) treatment facilities can worsen outcomes for these patients by restricting the supply of facilities and beds, leading to spillovers into the general hospital system. We present a choice theory for treatment facility patient admission and model the outcome as a function of the patient's insurance type. We then combine two datasets on state CON laws for SUD treatment facilities with Medicaid patient data from 2017 to 2020 to test the model using a three‐stage least squares design and provide some of the first evidence on Medicaid patient outcomes under CON laws for SUD treatment facilities. We find significant evidence that state CON laws for SUD treatment facilities are associated with higher rates of hospital bed utilization, increases in the number of infants born with Neonatal Abstinence Syndrome, and higher rates of emergency department visits. Our findings are robust to several specification tests, including a model of conditional mixed method endogeneity and incorporating timing of the Affordable Care Act.