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Research & Commentary: South Carolina Should End Certificate of Need Laws

April 17, 2019

In this Research & Commentary, Matthew Glans examines a proposed repeal of South Carolina’s certificate of need laws.

South Carolina is one of 35 states that institute certificate of need (CON) laws, which limit health care providers’ ability to expand services. CON programs require health care providers to receive state approval, generally from the state’s health care agency or a designated CON commission, to expand facilities and services. In short, CON laws are nothing more than hurdles blocking providers from adding new beds or building new, often badly needed, hospitals and other facilities.

South Carolina’s CON laws are particularly robust. Although states with CON programs regulate on average 14 medical services, devices, and procedures, the Palmetto State regulates 22. Competition is a crucial component in the growth and development of all industries. Competition improves services and lowers costs, because the presence of additional product or service providers gives consumers additional choices and drives innovation.

In recent years, the unintended consequences of CON laws have led many experts to call for their reform or repeal. Abolishing South Carolina’s CON laws and lowering the unnecessary barriers to the health care market would allow medical facilities to fulfill the growing demand for new and existing patient services without inflating costs.

The ideal reform for South Carolina would be a full repeal of the state’s CON laws. Some states have only partially repealed these laws, choosing which providers and services to exempt. However, this flawed approach leads to political infighting and cronyism. On the other hand, a full repeal would help to restore a thriving health care market.

Fortunately, South Carolina legislators are considering a bill to repeal the state’s outdated CON laws. The proposed legislation, H.B. 3823, would fully repeal all of the state’s CON laws. If it becomes law, H.B. 3823 would immediately increase health care competition, improve access to quality care, and lower costs.

If South Carolina’s CON laws are repealed, total health care spending could drop by $200 per person, according to a state profile of South Carolina’s CON laws conducted by the Mercatus Center.

In addition to lowering health care costs, eliminating South Carolina’s CON laws would improve health care quality and access. The Mercatus study estimates the Palmetto State would have 34 additional health care facilities, 12 additional ambulatory surgery centers, and nine rural hospitals if the state were to end its CON requirements. Health care quality would likely improve as well. States with CON laws have a mortality rate about 5.5 percent higher than the average rate in non-CON states, according to a 2016 Mercatus study.

One of the most problematic issues with CON laws is the inappropriate influence given to competitors during the vetting process. When a provider applies to enter a new market, competitors often use the CON process to block potential competition. Unfortunately, this allows those who are politically well-connected to hinder competition, which has a negative effect on the entire health care industry.

Like all industries, when the U.S. health care sector has improved, it’s been because of competition and innovations born in the free market, not because of government regulation. If health care providers have the means to expand and innovate, they should be encouraged to do so. Repealing South Carolina’s CON program would put an end to the burdensome and unnecessary regulations that stifle the state’s health care market.

The following articles examine certificate of need laws from multiple perspectives.
 

Certificate-of-Need Laws: Implications for South Carolina – Before the South Carolina Department of Health & Environmental Control
https://www.heartland.org/policy-documents/certificate-need-laws-implications-south-carolina-south-carolina-department-health-
Christopher Koopman, Thomas Stratmann, and Mohamad Elbarasse of the Mercatus Center at George Mason University say South Carolina’s certificate of need laws do not control costs and instead decrease the supply and availability of health care services by limiting entry and competition. They recommend legislators repeal these laws and open the market for greater ease of entry, more competition, and ultimately more options for those seeking care. 

Feds: South Carolina Should Stop Regulating Health Care Investments
http://www.postandcourier.com/article/20160111/PC16/160119858/1005/feds-repeal-rule-for-sc-health-facilities
Meg Kinnard of the Associated Press examines a letter from two federal agencies, the Department of Justice and the Federal Trade Commission, which recommends a repeal of requirements for health care facilities to get state permission for many kinds of construction and expansion in South Carolina.

Amending CON Laws
http://www.scpolicycouncil.org/legislation/amending-con-laws
The South Carolina Policy Council examines state Rep. Murrell Smith’s (R-Sumter) CON law proposal and argues it would be a positive reform for the state: “This would be a positive reform considering CON laws have both failed to restrain health care spending or hospital costs (their stated goal), and harmed consumers by reducing competition in the health care market, and limiting the supply of important medical services. True reform, however, would be eliminating South Carolina’s CON laws altogether.”

‘Certificate of Need’ Program: Not Needed
http://www.scpolicycouncil.org/research/healthcare/con-not-needed
The South Carolina Policy Council studies the state’s certificate of need program, why it was implemented, and whether it is really needed.

Certificate of Need Laws: A Prescription for Higher Costs
https://www.ftc.gov/system/files/documents/public_statements/896453/1512fall15-ohlhausenc.pdf
In this an article from Antitrust, Maureen K. Ohlhausen, a commissioner at the Federal Trade Commission, outlines several reasons why states should repeal CON laws.

CON Job: Certificate of Need Law Used to Delay, Deny Expansion of Mental Health Options
https://goldwaterinstitute.org/article/con-job-certificate-of-need-laws-used-to-delay-deny-expansion-of-mental-health-options/
In this article, Mark Flatten of the Goldwater Institute discusses how certificate of need laws hold back the expansion of needed mental health care facilities.

Certificate-of-Need Laws and Hospital Quality
https://www.heartland.org/publications-resources/publications/certificate-of-need-laws-and-hospital-quality
Thomas Stratmann and David Wille of the Mercatus Center at George Mason University challenge the claim CON laws improve hospital quality. “Using a broad dataset, the study finds no evidence that CON laws improve hospital quality. In fact, there are more deaths and serious postsurgery complications in hospitals in states with CON laws,” wrote Stratmann and Wille.

Certificate-of-Need Laws Lower Quality of Care, Study Finds
http://www.modernhealthcare.com/article/20160928/NEWS/160929875
Shelby Livingston of Modern Healthcare examines a new study from the Mercatus Center that argues certificate of need laws that govern the construction and development of health care facilities do not raise the quality of care at hospitals and may even lead to higher readmission rates.

Certificate of Need Laws: A Prescription for Higher Costs
https://www.heartland.org/publications-resources/publications/certificate-of-need-laws-a-prescription-for-higher-costs
In this article published in Antitrust Magazine, Federal Trade Commissioner Maureen Ohlhausen examines CON laws and argues for their repeal. “Regardless of one’s perspective on the proper balance between state and federal power, there are some very good reasons to repeal state CON laws,” wrote Ohlhausen.

The Great Healthcare CON
http://fee.org/the_freeman/detail/the-great-healthcare-con
Jordan Bruneau of the Foundation for Economic Education finds CON laws raise health care prices and reduce availability. He advises, “Rather than pinning our hopes on grand plans to overhaul the system, we should first look at where we can make changes on the margin that would move us in the right direction. Abolishing CON laws – a barrier to entry that drives up price, restricts access, and is maintained by cronyism – would be a great place to start.”

Certificate of Need: State Health Laws and Programs
http://www.ncsl.org/research/health/con-certificate-of-need-state-laws.aspx
The National Conference of State Legislatures outlines the various state CON laws and the positions of CON law proponents and critics.

Entry Regulation and Rural Health Care: Certificate-of-Need Laws, Ambulatory Surgical Centers, and Community Hospitals
https://www.heartland.org/policy-documents/entry-regulation-and-rural-health-care-certificate-need-laws-ambulatory-surgical-ce
Thomas Stratmann and Christopher Koopman of the Mercatus Center at George Mason University evaluate the impact of CON regulations related to ambulatory surgical centers (ASCs) on the availability of rural health care. Their research shows despite the expressed goal of ensuring that rural populations have improved access to health care, CON states have fewer hospitals and ASCs on average—and fewer in rural areas—than states without CON regulations.
 

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 subject, visit 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 Lindsey Stroud, a state government relations manager at The Heartland Institute, at lstroud@heartland.org or 757/354-8170.

Author
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance. In 2012, Glans was named senior policy analyst.
mglans@heartland.org @HeartlandGR