Certificate of Need: Part of Health Care Reform?
By Kevin Dietrich
South Carolina’s certificate of need legislation dates back 50 years, and an array of health professionals, hospital leaders, business advocates and lawmakers say it’s obsolete.
That agreement doesn’t extend to what should be done, however. There’s considerable debate about whether the certificate of need program – in which health care providers must apply for permission to expand, build or acquire certain equipment and facilities – should be fully repealed or just reformed, and, in the case of the latter, what manner reform should take.
Proponents of eliminating the CON program, which is administered by the S.C. Department of Health and Environmental Control, say regulations have hindered competition and reduced the number of hospitals, surgery centers and equipment available in the state.
Others believe the program curtails costs, prevents unnecessary duplication of health care facilities and services, and ensures high-quality service. While some reform may be necessary, an outright repeal would be a mistake, they say.
Several bills were introduced in the South Carolina General Assembly this past session that would have either eliminated the CON program or reformed it. While none of the bills – two in the House and two in the Senate – made it out of committee, all will be carried over to the 2021-22 term, the second year in the two-year legislative cycle.
“CON hasn’t increased access to health care; in fact, to the contrary, when you restrict care through the CON process it reduces care and increases costs,” said John Ropp, a Hartsville physician and executive director of the South Carolina Medical Association, which would like to see CON repealed.
The South Carolina Hospital Association, on the other hand, favors a less dramatic change.
“We recognize that the system has some flaws, but we’re in favor of reform rather than repeal,” said Edward Bender, general counsel for the hospital association. “A repeal would have a tremendously negative effect on the safety net hospitals in South Carolina, which would ultimately hurt those served by those hospitals.”
Efforts to alter the CON process in the legislature stalled this past session. Senate Bill 290, which would eliminate certificate of need requirements in state law, did not advance beyond the Senate Medical Affairs Committee, nor did S 370, which seeks to reform the program.
Two separate House bills, H 3161 and H 3223, which also seek to change the state’s CON program, either through repeal or reform, did not make it out of the House Medical, Military, Public and Municipal Affairs Committee.
The certificate of need program was established to evaluate building plans and medical equipment purchases. New and existing providers must apply for permission in order to expand, build or acquire certain medical equipment and facilities.
CON requests are required, for example, for expenditures by or on behalf of a health care facility in excess of $2 million and the acquisition of medical equipment for diagnosis or treatment if total project cost is in excess of $600,000.
DHEC describes the purpose of the certificate of need program as promoting cost containment, preventing unnecessary duplication of health care facilities and services, guiding the establishment of health facilities and services which best serve public need and ensuring high-quality services are provided in health facilities throughout the state.
Opponents have criticized the certificate of need program for blocking health care providers from offering essential health services across the state, especially in rural and underserved communities.
Among changes those seeking to reform CON would like is increasing the threshold for capital and equipment expenditures before a CON application is required, and speeding the appeals process, which has been criticized for taking too long to produce decisions, sometimes resulting in years of costly and frustrating litigation.
Currently, 35 states, including every state in the southern United States, and the District of Columbia operate CON programs, though guidelines vary from state to state, according to the National Conference of State Legislatures.
At least 10 states, including Florida, Georgia and Tennessee, have recently enacted legislation to modify CON oversight for certain health facilities and services. And 12 states have fully repealed their CON laws, with New Hampshire being the most recent, in 2016.
Debate over CON’s Impact
Under existing regulations, competing health care providers can contest applications and hold up or prevent competitors from entering markets, according to Americans for Prosperity, a free market organization.
DHEC routinely blocks new health care providers from offering essential health services across the state, especially in rural and underserved communities, and CON guidelines reduce available care, Candace Carroll, interim state director for Americans for Prosperity, stated in a May 2021 press release.
“Refusing to repeal our state’s certificate of need laws ensures we have fewer hospital beds, fewer ambulatory surgery centers, and decreases access to critical health care services,” she added.
DHEC declined to specifically answer questions about whether its implementation of CON guidelines hurts competition and blocks essential services and facilities.
It did provide a written response which stated that the agency’s job is to administer the CON program and carry out its purpose.
“DHEC’s CON program uses the guiding principles of CON’s purpose to fulfill its duties and responsibilities under state law as directed by the General Assembly,” the agency added.
Others say that the CON program is critical to the state’s health care infrastructure.
Rural hospitals, for example, would be hurt by a repeal of CON because it would allow new specialized facilities to be set up nearby, according to Bender.
These facilities, unconstrained by federal law that requires hospitals to provide stabilizing care to all, regardless of ability to pay, would siphon off patients with good insurance plans. In this scenario, hospitals would be left providing uncompensated care to the uninsured but see fewer patients better able to pay, who help offset costs.
Officials with Prisma Health, South Carolina’s largest private, nonprofit health care system with 18 acute care and specialty hospitals, believe CON is critical to care in the state.
“If CON is repealed, it would challenge the ability of not-for-profit, safety net health systems like Prisma Health – which operates in urban, suburban and rural communities – to provide health care to everyone who needs it, whether or not they have the ability to pay for it,” said Mark O’Halla, president and chief executive officer of Prisma, which favors reforming the system.
The South Carolina Hospital Association has for years advocated for a set of reforms that would subject fewer projects to CON, while producing final decisions much more rapidly and with less litigation than what takes place under the current model.
“CON plays an important role in protecting access to care for rural communities and low-income South Carolinians,” SCHA President and Chief Executive Officer J. Thornton Kirby wrote in a May 11, 2021, letter to Senate Medical Affairs Subcommittee Chairman Tom Davis, R-Beaufort, and other subcommittee members. “It also helps to improve health care quality, contain costs, and create a level playing field when providers from other states wish to enter this market. Repealing CON would make it harder for our state to achieve any of these goals.”
Bender said the SCHA favors raising the expenditure levels for equipment and capital projects before CON kicks in. The SCHA would also like to see the appeals process stop after a decision is rendered by an Administrative Law Court. At present, a case can be litigated all the way to the state Supreme Court.
Certificate of need regulations are protectionist in nature, with states’ CON boards protecting industry insiders from competition, wrote Marcelo Hochman, a facial plastic surgeon and president of the Charleston County Medical Society, and Daryl James of the Virginia-based Institute for Justice, in an opinion piece that appeared in USA Today in May.
“Many jurisdictions let established providers, who already have a CON, contest new applications,” the pair wrote. “When a rival business tries to enter their turf, they can file a complaint based on potential loss of revenue. The result is something close to veto power to stop outside threats.”
A recent study made the argument that the state’s CON regulations have significantly hindered health care availability.
A 2020 study by George Mason University’s Mercatus Center found that without a CON law South Carolinians would have at their disposal:
More than 6,000 additional hospital beds;
Some 34 additional hospitals;
Another 12 ambulatory surgery centers;
More than 300 additional PET scanners; and
An additional 20,000 MRI machines.
In addition, Mercatus, which describes itself as “the world’s premier university source for market-oriented ideas,” also estimated that without the certificate of need program South Carolina would suffer 5.1 percent fewer deaths as a result of post-surgery complications.
Thornton, the SCHA CEO, asserted in his letter to Davis and other members of the Senate Medical Affairs Subcommittee that research shows CON rules, when designed correctly, save lives and money.
Covid-19 Forces CON Changes
Parts of the state’s CON regulations were suspended last year in response to the burgeoning Covid-19 pandemic.
Gov. Henry McMaster in March 2020 signed an executive order which included the provision that DHEC temporarily suspend enforcement of certificate of need regulations necessary to expedite treatment for Covid-19.
In May 2021 McMaster signed another executive order which, among other things, suspended monetary thresholds in the CON program to allow for capital expenditures and the acquisition of medical equipment necessary to address the progression of Covid-19.
It’s likely too early to determine the impact, if any, of McMaster’s CON-related executive orders on the state’s health care system. And given the unusual conditions created by the pandemic, any impact may not be applicable to assessing the influence of CON regulations on health care in South Carolina under non-emergency situations.
For now, the debate between reform and repeal continues.
Health care delivery is vital and complex, and changes to CON regulations should be made with the utmost care, said O’Halla, the Prisma Health CEO.
“We support modernizing the law to streamline the process and shorten timeframes to reach resolution, in order to ensure health care services are efficient, timely and competitive,” he added.
Prisma would like to see several reforms to CON regulations, including:
Requiring the Administrative Law Court to issue decisions within 18 months and not allow appeals of those decisions;
Raising the capital expenditure threshold to $5 million and increasing the threshold for medical equipment purchases to $2 million, with consumer price index adjustments every five years; and
Eliminating the need to file for a CON to replace equipment or to adjust hospital beds.
O’Halla said that were the CON program repealed, “niche competitors would likely enter only densely populated areas to gain commercially insured patients and leave not-for-profit facilities to manage costly trauma, neonatal intensive care, adult intensive care and to offer services in rural areas where fewer insured patients live – all of which are loss leaders for health care providers.
“The existing CON law and its process is not perfect,” he added. “However, we believe strongly that CON should be reformed and not repealed to best serve all of our communities.”
The S.C. Hospital Association believes CON programs improve health care quality for more specialized treatments.
“For a variety of medical procedures, research has shown that patients are more likely to receive better results when they are treated by providers who perform that service more frequently,” Kirby, the SCHA president and CEO, wrote in his letter to Senate Medical Affairs Subcommittee members.
A significant number of doctors, however, say certificate of need regulations are significantly flawed. Among allegations is that restrictions related to the certificate of need program hurts both physicians and patients.
“When you increase physicians’ ability to get equipment, for example, you not only get an increase in the care that’s available, but you also lower costs due to competition,” said Ropp, the South Carolina Medical Association’s executive director who’s been a practicing physician for 17 years. “CON is impeding both physicians’ ability to care for patients and efforts to hold down costs.”