Certificate of Need (CON) laws were intended to reduce costs and improve access to health care by controlling the availability of medical facilities through state-based regulation. In the 1960s, policy makers began to worry that the free market would concentrate an oversupply of lucrative medical services in some areas, while creating an undersupply of services more broadly. Beginning in 1964 with New York and extending to nearly every state throughout the 1980s, legislatures began to control the licensing of new facilities. In 1987, federal mandates requiring CON were removed. Since then, states have begun to reform and repeal their CON laws as many legislatures have determined that rationing health care has done more harm than good.
Currently, 35 states and the District of Columbia require care providers to go through a CON approval process before constructing a facility, or in some cases even buying certain equipment such as imaging machines. As of 2022, 12 states have completely repealed their CON laws.
Patients benefit when states reduce regulatory barriers to the construction of new health care facilities. States with burdensome restrictions on new hospitals, surgical centers, diagnostic centers, treatment centers, and nursing homes should learn from the years of evidence that now clearly shows that the free market does a better job of controling costs, and at least as good a job at ensuring people have access to health care as the moratoria.
In South Carolina, Sen. Wes Climer recently introduced S. 164, which would repeal the state’s CON law. In fact, Sen. Climer reintroduced legislation to address issues in his district, specifically to lower health care costs and improve access. As consolidation has driven the closure of facilities across the state, more than $1 billion in projects wait for approval, ranging in size from a nine-bassinet addition to a newborn intensive care unit in Charleston, to a new 98-bed regional hospital in Lancaster County.
Sen. Climer’s bill is far more sweeping than most reform efforts, proposing what would effectively become a complete repeal. While the bill updates sections of the law to better reflect terminology and the changes in care delivery and technologies, the repealed sections reflect just how comprehensive South Carolina’s law currently is. For instance, hospitals are under CON, as are hospices, intermediate care facilities (ICFs), nursing homes, and residential substance abuse and addiction treatment centers. Specialty care such as surgical centers, radiology, cardiac catheterization, Ob/Gyn, birthing centers, as well as rehabilitation and psychiatric care are also required to go through the CON process to expand or build in South Carolina.
A 2021 Mercatus Center analysis found that the repeal of CON in South Carolina could increase the number of hospitals in the state from 82 to 116, while nearly doubling the number of rural hospitals. The study also found per capita spending would decrease by $200 per person.
The Mercatus study also indicated that due to the increased availability of services closer to patients, post-surgical complications and associated deaths could decrease 5.1 percent and 5.5 percent, respectively.
A 2020 study by BMC Health Services Research showed more mixed results across 90 national studies, nonetheless, it determined that CON, “costs as well as adverse effects on health spending, exceed those benefits by an estimated $302 million a year. On average, the cost-benefit ratio is 1.08, meaning costs exceed benefits by 8%. Consequently, the weight of the evidence suggests that CON creates more costs than benefits.”
This realization led to an uncommon bipartisan reform in health care policy. The Obama and Trump administrations both promoted policies aimed at reforming certificate of need legislation.
As the coronavirus took hold in early 2020, hospital beds quickly filled, and the top priority of every governor became finding more beds and ventilators to handle the coming wave of critically ill patients. Limiting hospital beds had already been viewed by many as a weird relic of the 1970s, but the pandemic made getting rid of bed restrictions an easy decision for governors looking to respond to the coming surge of critically ill people. In fact, 20 states quickly set aside certificate of need laws and more followed.
As the pandemic destabilized hospital revenues and tore through nursing homes, the need to move away from very large, concentrated facilities became obvious. That realization has progressively turned into legislation to reform, unwind, and even outright repeal of outdated CON laws, which are increasingly being viewed as causing the very disparities they were supposed to prevent in the first place.
The following documents provide additional information about Certificate of Need policy:
Do Certificate of Need Laws Limit Spending? Matthew Mitchel from the Mercatus Center examines cost implications of Certificate of Need laws across the healthcare system.
2022 Testimony on the South Carolina Certificate of Need Repeal Matt Dean Testimony for the South Carolina bill to repeal CON
A state-by-state look at restricted services Matthew Mitchell and Anne Philpot from the Mercatus Center update the CON legislative Landscape and provide context for state policy reforms.
Tearing Down Regulations That Restrict The Supply Of Healthcare Has Become Bipartisan Patrick Gleason examines the political currents and cross currents that created rare bipartisanship
Certificate of Need (CON) State Laws (ncsl.org) NCSL state-by-state legislative update on Certificate-of-Need laws with interactive map:
Certificate of Need Laws; A Systematic Review and Cost-Effectiveness Analysis Christopher Conover and James Bailey from BCM Health Services provide analysis of 90 studies looking at the effectiveness of CON legislation in the states.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Budget & Tax News website, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.
The Heartland Institute can send an expert to your state to testify or brief your caucus, host an event in your state, or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Heartland’s government relations team at governmentrelations@heartland.org or 312/377-4000.
