Healthcare Has a NIMBY Problem and It's Why Independent Primary Care Clinics Have Nearly Disappeared
The system lets existing hospitals block new clinics, keeps qualified foreign doctors from practicing, and gives specialists control over pricing, which made independent primary care less viable.
In 2022, two Nepali entrepreneurs wanted to open a clinic in their community. They’d serve patients in their native language. But the surrounding hospitals blocked them from opening.
Under “Certificate of Need” laws still active in thirty states, existing healthcare providers can veto new competitors.
The clinic never opened.
These laws work much like housing NIMBYism: incumbents blocking newcomers to protect the community.
The Original Logic
Certificate of Need laws emerged in the 1970s from a specific economic worry. If too many facilities opened, doctors with empty beds or appointment slots might recommend unnecessary treatments to stay busy.
This wasn’t unfounded. The fee-for-service payment model does create incentives for unnecessary procedures.
But the evidence didn’t support the broader concern. The federal government repealed its version of Certificate of Need decades ago after realizing the worry about oversupply was overblown. Sixteen states followed.
Thirty kept the laws.
Advocates for these laws argue they serve a purpose. In very rural areas, two clinics might not both survive. Allowing one provider to reach higher volumes might mean higher-quality specialized procedures.
But the outcomes in those thirty states show patients have access to fewer facilities, pay more for care, and wait longer for treatment. Meta-analyses show higher mortality rates for heart attacks, heart failure, diabetes, influenza, and Alzheimer’s disease in Certificate of Need states. Every presidential administration since Reagan has called for repeal.
But CON laws are just one layer.
The System That Ate Primary Care
When your parents needed a doctor, they probably went to an independent practice. That world has nearly disappeared. Independent doctor-owned clinics have been replaced by large hospital systems on one end and urgent care centers on the other. The middle vanished.
A web of regulations and payment rules made independent practice unviable.
Insurance reimbursement favors size. Large hospital systems negotiate higher rates than independent doctors can. A solo primary care physician gets paid less for the same appointment than a physician employed by a hospital network. Small practices are harder to run profitably.
Medicare’s payment rules accelerate consolidation. When a hospital system acquires an independent practice, it can immediately charge more for identical services under “hospital outpatient” billing rules. Same doctor, same exam room, higher bill. This creates incentives: hospitals buy practices, revenue increases, the network expands.
Specialists control the pricing mechanisms. The American Medical Association, dominated by specialists rather than primary care physicians, controls the medical coding system that determines Medicare payments. A cardiologist performing a fifteen-minute procedure earns significantly more than a primary care doctor spending thirty minutes managing a diabetic patient’s complex medication regimen. While specialists require longer training and bear greater liability, the gap exceeds these differences. This also causes an incentive loop: fewer doctors choose primary care. AMA’s core membership continues to be majority specialists.
The result: Americans lack accessible primary care clinics. People skip preventive visits and routine care, then turn to urgent care centers and emergency rooms, the most expensive and least effective entry points into the healthcare system.
Doctors Are Scarce By Design
The shortage of independent clinics gets worse because there aren’t enough doctors. When physicians are scarce, their salaries rise. Hospitals can afford these higher salaries. Small independent practices often cannot. So scarcity pushes doctors toward hospital employment in two ways: better pay plus administrative support, versus lower income and uncertain finances in independent practice.
Some main drivers of this artificial scarcity:
Medicare caps residency positions. The federal government funds residency training, the required years of supervised practice after medical school. This funding has been capped near 1996 levels. The US population has grown and aged since then. The number of training spots has not.
The original justification was reasonable: federal funding shouldn’t subsidize unlimited training positions. But the cap was never indexed to population growth or healthcare needs.
In 2022, over 3,300 medical school graduates couldn’t match with a residency because there weren’t enough slots.
Hospitals can pay for extra residency slots themselves, but it’s expensive. Only wealthy institutions can afford it. These hospitals cluster in already well-served areas, especially the Northeast. New doctors train where there are already plenty of physicians, then often stay where they trained. The geographic imbalance gets worse.
About 100,000 physicians trained abroad live in the US but can’t practice. They cannot practice medicine here because they haven’t completed a US or Canadian residency program.
The stated justification is quality control. Medical training standards vary globally.
But the requirements are so rigid that even excellent physicians trained at top international medical schools can’t practice in the US. Some states are beginning to create alternative pathways. Progress is slow. Part of the reason is that foreign-trained physicians increase supply, which threatens incomes for doctors already practicing here.
What We’ve Lost
I think about my own Mexican American relatives who would have gotten care sooner if they’d had access to doctors who spoke their language and shared their culture. The distrust many immigrant communities feel toward healthcare is real, but there are solutions.
These structural problems also make it hard for technology to fix things. AI that helps doctors process billing paperwork will probably get adopted. Doctors spend roughly half their time on paperwork. But AI tools that improve diagnostic accuracy or prevent emergencies eat into revenue under fee-for-service payment. The system rewards volume, not outcomes. But the bigger problem is the artificial scarcity itself: we need more doctors and more clinics, and the structures above prevent both from existing.
Artificial scarcity in healthcare makes the whole system seem stuck, hopeless and unfixable. But a lot of these are fixable. Policy choices like these can be reversed.
This essay was inspired by our last DC Abundance gathering, which featured Niskanen Center Fellow Lawson Mansell. See Lawson’s full report on Health Abundance. Sign up here for our next DC Abundance meetup. All errors my own.
If you know ambitious high schoolers interested in tackling healthcare challenges, check out Progress in Medicine, a summer program that shows teens how past medical heroes solved seemingly impossible problems and helps them figure out how they could contribute to solving today’s problems.
I would add the ban on physician-owned hospitals in the Stark Law, the 340B drug program, the Inpatient Only list, the lax enforcement of the nonprofit tax status of hospitals, and Any Willing Provider laws in the provider rent-seeking bucket. It's more of a stretch to call either of these 'NIMBY' but our incredibly strict health privacy laws inhibit digitalization in the healthcare sector and bioethical concerns about compensating kidney donors is partly why ESRD is 1% the federal budget.
However the insurer side of the equation is important too given that healthcare spending is dominated by catastrophic episodes of care (shoppable services are only ~40% of spending) and most research has shown that patients are pretty bad at shopping for cost or quality on their own vs an insurer channeling them to higher value care through reference pricing, tiered copayments, managed care networks, etc.
The insurance problem defies a straight-forward YIMBY solution though. The fact insurance is regulated by the states under McCarran-Ferguson makes them uniquely vulnerable to local rent-seeking by the provider lobby (as manifested in burdensome state benefit mandates), and the types of insurance that are regulated at the federal level and thus have a much freer hand in benefit design (self-funded ERISA plans, Medicare Advantage) tend to be much more popular with policyholders as a result. But without some backstop for those with pre-existing conditions, unlimited freedom in benefit design just results in insurers explicitly or implicitly selecting for lower risk and we get the adverse selection death spiral of the pre-ACA world.
My own preference is for a national insurance charter akin to the OCC's banking charter which can allow for long duration, guaranteed renewable plans that can be bundled with life insurance to best align insurer incentives towards high-value care. Germany allows for insurance contracts like this and it hasn't caused any disruption in their subsidized, community rated market.
Say it louder
Excellent piece, thank you