On Jan. 25, the South Carolina Senate voted 35-6 to advance S. 290, a bill eliminating the state’s certificate of need program. The policy, which first came to existence in the 1960s and was federally mandated in 1974, requires healthcare providers to receive approval from state regulators before opening or expanding a health practice.
However, in 1987, a bipartisan federal government repealed the federal government’s CON mandates. While some states immediately repealed their CON laws, many have kept this old policy.
When states began to adopt CON laws, they did so under the assumption that the laws would curb healthcare spending, increase access to care, and protect existing high-quality providers. Proponents believed that if a community had too much of one service, money would be siphoned out of communities in need. Patients would get forced to bear the high cost of expensive, unnecessary services.
Yet those who support the repeal of CON mandates say the opposite has come to fruition. A 2016 study from the Mercatus Center at George Mason University discovered a 5.5% higher mortality rate, fewer hospital beds, fewer MRI machines, and less access to CT scans in states that maintained CON laws. The federal government has also championed CON elimination for every administration since President Ronald Reagan.
In a joint report from the Federal Trade Commission and the Department of Justice, the pair agreed that “it is apparent that CON laws can prevent the efficient functioning of health care markets.”
“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 report said.
Conversely, a study from the Journal of the American Medical Association concluded that CON laws had no influence on the quality of care.
However, in a recent letter to the South Carolina Senate, the American Medical Association shared it supports the full repeal of CON mandates.
“The AMA joins the South Carolina Medical Association in urging the passage of S 290,” it said. “To be clear, CON represents a failed public policy. It may have made sense when most reimbursement was cost-based, and health care market participants would be paid for increasing supply regardless of demand and the actual needs of patients. Today, however, managed care forces providers and physicians to be efficient. CON invites obstructionist behavior and is incompatible with the evolution of competitive health care markets.”
On the other hand, the South Carolina Hospital Association is fighting to protect CON.
“While opponents of CON argue that it obstructs the ‘free market,’ the U.S. government remains the largest purchaser of healthcare services through Medicaid and Medicare — providers with whom hospitals cannot negotiate and reimburse hospitals less than cost,” it said. “CON helps provide a process that protects access to care for every South Carolinian.”
Despite the differing arguments, states across the nation are actively taking steps to reform their CON laws.
Tennessee reformed its CON laws in the past decade but has not been successful with a full repeal. Tennessee enacted Public Chapter No. 557, which codified the Health Services and Planning Act of 2021, making a variety of changes to the state’s CON laws, including “use it or lose it” language that makes an issued CON void “if the actions it authorizes have not been performed for a continuous period of one year after its implementation.”
Now, Tennessee advocates for repeal are actively requesting that the General Assembly review the process once more.
Macy Scheck, a doctoral research fellow with the Political Economy Research Institute, and Daniel J. Smith, director of the Political Economy Research Institute at Middle Tennessee State University and professor of economics at the Jones College of Business, recently released a report examining the impact of the policy on Tennessee healthcare.
“The CON framework is essentially nonsense because a market economy already allows consumers to judge whether a new provider is warranted or not. Just as we don’t give McDonald’s a say in whether Five Guys should be allowed to set up shop, we shouldn’t provide incumbent healthcare providers a say in new investments to better meet the needs of Tennesseans,” the pair authored in an op-ed.
Florida and Montana have also legislated reforms.
Florida enacted a phased repeal of CON restrictions just ahead of the pandemic. Starting July 2019, CON was repealed for general hospitals, comprehensive rehabilitation, and “tertiary” health services. In July of 2021, the second phase of CON reform began, removing requirements for Class II hospitals, including children’s and women’s hospitals, Class III hospitals, including specialty medical, rehabilitation, and psychiatric and substance abuse hospitals, and Class IV hospitals, including specialty facilities restricted to offering intensive residential treatment facility services for children.
More recently, Montana removed nearly all CON requirements in October of last year. Montana now only requires a CON for long-term care facilities and swing beds.
In West Virginia, H.B. 4013, a full repeal of the state’s CON program, was introduced early in the session, but the bill swiftly failed in the House’s Health and Human Resources Committee.
In testimony to the committee, Barbara Skeen, the director of the West Virginia Health Care Authority who approves CON applications, said the process is far more collaborative than opponents suggest. Instead of issuing denials, Skeen said the Health Care Authority provides consulting to ensure as many providers are approved as possible through the application process.
Caity Coyne, a reporter from the Charleston Gazette-Mail, interviewed Jim Kaufman, the head of the West Virginia Hospital Association. He said that “a vast majority” of the state’s hospitals feel as though it is necessary to protect CON.
“West Virginians have a vested interest in this because we want to make sure everyone has good access to quality, affordable healthcare,” Kauffman said.
Now, the West Virginia Legislature is making incremental changes to reform the process. In particular, H.B. 4573 attempts to remove the CON moratorium on the operation and development of all opioid treatment facilities.
The House Health and Human Resources Committee must approve the bill to advance in the Legislature.
While the future of healthcare looms in a post-COVID-19 world, one thing seems inevitable: A growing minority of states believes CON may be an inhibitor to healthcare access.
