South Carolina House Votes to End Certificate of Need Law

Sam Karnick Heartland Institute
Published May 20, 2015

South Carolina’s House of Representatives voted 103‒1 in April to end the state’s certificate of need (CON) law in 2018.

CON laws are a complex set of regulations that limit health care choices by preventing providers from entering new markets or increasing existing capacity without first gaining approval from state regulators to buy equipment, expand facilities, or open new ones.

When a company applies to enter a new market, existing providers can use the CON process to block them, allowing a few wealthy and large hospital chains to control the market and keep prices high. Opponents argue those decisions should be made by consumers in a free market, not by the government.

‘Ultimate Bulwark’ of Incumbents

Katherine Restrepo, health and human services policy analyst at the John Locke Foundation, says CON laws, rather than consumers, ultimately pick who is able to compete in the health care industry.

“In North Carolina, having a certificate of need is the ultimate bulwark,” Restrepo said. “For health care entities to receive a facility fee reimbursement from Medicare and Medicaid, they must be licensed.”

Restrepo says incumbent CON holders can block potential competitors from entering the market.

“In many ways, the concept of managed competition limits patient access and allows CON holders to artificially raise the cost of certain health care services to subsidize money-losing services,” Restrepo said.

“Basic economics tells us that restricting supply increases costs for consumers, which is exactly what this current law does,” Restrepo said. “Hospitals, however, argue that health care is an exception to economics 101 because the price-controlling government has had such a strong presence since Medicaid and Medicare passed in 1965, and because of this, health care is not a free market.

“To that point, the Hospital Association is correct, but does that mean an already overwhelming and unpredictable regulatory environment needs additional oversight in the form of CON?” Restrepo asked. “Or that attempts to free the market should be resisted?” 

‘Failed to Achieve Goals’

With a near-unanimous vote in its House of Representatives, South Carolina is well on its way to repealing its obstructive certificate of need law, says John Nothdurft, the government relations director at The Heartland Institute, which publishes Health Care News.

“The legislators in the House should be commended for their effort, especially since South Carolina CON laws have failed to achieve the goals their sponsors tout,” Glans said.

Glans says the stated goal of CON programs is to manage health care costs, but research has shown they actually increase costs for consumers by hindering competition and forcing providers to use older facilities and equipment, resulting in health care costs 11 percent higher in CON states than in non-CON states.

CON laws benefit existing providers, providing inappropriate influence to competitors during the vetting processes, says Glans.

“Hopefully the Senate follows soon and South Carolinians will receive the health care options they deserve,” Glans said. 

S.T. Karnick ([email protected]) is the research director for The Heartland Institute.