South Carolina is one of the 36 states that have certificate of need (CON) laws intended to slow the growth of health care prices, promote consolidation of health care providers, and limit duplication of services. Recent studies have shown CON laws fail to achieve many of their stated goals and have instead reduced the availability of health care services and driven up costs.
State Rep. Murrell Smith (R-Sumter) is proposing legislation to loosen the strict mandates of the current CON system by creating several new exemptions. The bill would exempt capital expenditures by health care facilities from CON approval requirements if these funds are being used for expanding existing health services or those previously approved. It would also remove the required CON for new hospital beds and define expenditures by a person or healthcare facility exceeding $5 million as “capital projects.” The South Carolina Policy Council (SCPC) says this implies expenditures under this amount may not need CON approval.
CON laws give inappropriate influence to competitors during the vetting process. When a company seeks to enter a new market, competitors often use the CON process to block potential competition. Smith’s bill would shift the responsibility for guiding CON decisions from the state health plan to the Department of Health and Environmental Control (DHEC). To limit the pervasive access CON laws give to competitors in the approval process, the bill would require CON applications be preceded by a letter to DHEC and would award attorney’s fees and other costs to parties proposing CON projects who are forced to respond to frivolous or obstructive appeals of a CON decision.
South Carolina’s CON laws require medical providers to obtain government approval before offering new medical services, expanding the size of a healthcare facility, or purchasing certain medical equipment costing more than $600,000. The SCPC reports 20 different medical services and pieces of medical equipment currently require CON approval in South Carolina. Unlike other licensing laws, CON laws generally are not based on quantifiable criteria such as experience or education.
The stated goal of CON laws is to hold down health care costs, but research shows they actually increase costs for consumers by hindering competition and forcing providers to use older facilities and equipment. According to data from the Kaiser Family Foundation, health care costs are 11 percent higher in CON states than in non-CON states.
In a new study by the Mercatus Center at George Mason University, Thomas Stratmann and Jacob Russ found CON laws not only raise the price of medical care by preventing new medical providers from competing with existing hospitals, but they also reduce the availability of medical equipment and hospital beds. The authors found states with CON laws had 99 fewer hospital beds per 100,000 residents and lower availability of MRI services, CT scanners, and optical and virtual colonoscopies.
South Carolina lawmakers should consider repealing or, at a minimum, reforming the state’s CON laws to end these burdensome regulations that increase the cost of health care while limiting access and benefitting the politically connected.
The following articles examine certificate of need laws from multiple perspectives.
Amending CON Laws
The South Carolina Policy Council examines state Rep. Murrell Smith’s 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 healthcare spending or hospital costs (their stated goal), and harmed consumers by reducing competition in the healthcare 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
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: Implications for New Hampshire
Thomas Stratmann and Christopher Koopman of the Mercatus Center at George Mason University say New Hampshire’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.
Do Certificate of Need Laws Increase Indigent Care?
Thomas Stratmann and Jacob Russ of the Mercatus Center at George Mason University examine certificate of need laws and their effects on pricing and health care access. “While certificate of need laws significantly reduce available health care services for everyone, they do not lead to an increase in care for the needy.”
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
The National Conference of State Legislatures outlines the various state CON laws and the positions of CON law proponents and critics.
Ten Principles of Health Care Policy
This pamphlet in The Heartland Institute’s Legislative Principles series describes the proper role of government in financing and delivering health care and provides reform suggestions to remedy current health care policy problems.
CON Job: State “Certificate of Necessity” Laws Protect Firms, Not Consumers
Writing in Regulation magazine, Timothy Sandefur of the Pacific Legal Foundation argues certificate of necessity (need) laws are not intended to protect the public but instead are designed to restrict competition and boost the prices existing companies can charge.
You Shouldn’t Have to Ask Your Competitors for Permission to Start a Business
Ilya Shapiro of the Cato Institute argues CON laws make it more difficult and expensive for companies to create new jobs or innovative businesses. Even more troubling, Shapiro argues, is the use of CON laws by existing businesses to bar newcomers from competing against them.
Certified: The Need to Repeal CON: Counter to Their Intent, Certificate of Need Laws Raise Health Care Costs
Jon Sanders of the John Locke Foundation argues CON laws fail to lower health care costs and in many instances actually increase costs. Sanders says state leaders could best honor the intent behind CON – preventing unnecessary increases in health care costs – by repealing those laws.
The Failure of Government Central Planning: Washington’s Medical Certificate of Need Program
John Barnes of the Washington Policy Center describes the history of the certificate of need concept, summarizes how the Washington State CON law works, compares its stated goals with actual performance, and offers practical policy recommendations for improving access to affordable health care for the people of Washington.
Certificate of Need Laws: It’s Time for Repeal
Roy Cordato of the John Locke Foundation examines certificate of need regulation, in the first of a series of annual research papers from JLF devoted to explaining the principles of free markets and applying them to current controversies in North Carolina.
Certificates of Need: A Bad Idea Whose Time Has Passed
Writing for the James Madison Institute, Peter Doherty argues federal interventions into the health care market have proven disastrous, and the government’s increased spending on programs has been anything but a boon. He writes, “In the past 20 years, many of us have battled to moderate or eliminate the most egregious of these programs and the artificial controls they place on free markets, but despite our successes, vestiges of the past remain.”
Health Care in the States
Cato Institute Fellow Michael Tanner compares health care reform among the states. There being no universal model available for states to follow, they are undertaking the task of creating their own models of reform. Tanner examines how these various states differ in cost-effectiveness and insurability and cites their successes and failures in providing affordable insurance for all citizens.
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 Health Care News at http://news.heartland.org/health, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database at www.policybot.org.
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