FORBES: Tennessee Could Follow South Carolina’s Lead With Cost-Reducing Reform

March 26, 2024

Palmetto Promise Senior Fellow Dr. Oran Smith is quoted in this article on Certificate of Need Reform written by Patrick Gleason and originally published in Forbes.

South Carolina is a red state where Republicans have long held statewide offices and majorities in the state legislature, but the Palmetto State has not been a national leader in free market reform or conservative policy innovation. That has changed in the past year, however, with the South Carolina Legislature and Governor Henry McMaster’s (R) enactment of bills cutting the income tax rate for the first time in history, providing school choice to families, and repealing certificate of need (CON) requirements in order to bring down health care costs.

Under CON laws, which have been around for decades and are still on the books in 35 states and the District of Columbia, health care providers, firms, and investors must obtain permission from state government in order to open new facilities, as well as expand or upgrade existing equipment and operations. The determination of need and the state’s decision to grant a certificate is often influenced by incumbent, competing health care providers. “Like clockwork, a CON application for a needed service will be contested by all of the other providers in the market and sometimes outside it, in the process enriching lawyers and delaying healthcare access, sometimes for a decade or more,” notes the Palmetto Promise Institute’s Dr. Oran Smith.

In 2023, South Carolina lawmakers passed and Governor McMaster signed S.164, legislation that repeals all CON mandates in the state by 2027. At the time of its passage, S.164 was the most aggressive repeal of CON in decades among states. In enacting this reform, South Carolina blazed a trail for complete repeal. Since CON laws first took root in the 1970s, they’ve been repealed at the federal level and in 12 states. Legislation to repeal or reduce CON mandates has been introduced in Alabama, Alaska, Kentucky, Maine, Mississippi, Missouri, North Carolina, Oklahoma, and West Virginia in recent years.

“South Carolinians will have greater access to affordable health care services with the repeal of the certificate of need laws,” Governor McMaster said when signing S.164. “Everyone benefits when the proven power of the free market is unleashed in our state.”

CON repeal efforts have garnered bipartisan support, demonstrating a cross-ideological consensus about the inflationary effects of CON mandates. The South Carolina effort hit a brick wall of opposition in the first few legislative sessions it was proposed, but eventually passed both houses unanimously as opposition melted away during the roll call. States with CON requirements have 30% fewer hospitals per 100,000 people, with CON states averaging 131 fewer hospital beds per 100,000 residents, according to a Mercatus Center study.

That Mercatus Center report found that states with CON laws, on average, have fewer rural hospitals. In fact, states without CON laws also have more hospitals per capita in urban areas than do CON states. Mercatus researchers found the likelihood of a patient not finding a hospital bed is 27% greater in states with a CON mandate.

Policy reforms enacted in nearby Tennessee and North Carolina are often held up as models for South Carolina lawmakers to emulate. That traditional dynamic, however, has been reversed when it comes to CON repeal. With CON repeal, South Carolina has taken a lead that lawmakers in Tennessee, North Carolina, and other states hope to follow. Tennessee lawmakers are planning to advance legislation this year that would repeal all CON mandates in the Volunteer State, just as their counterparts in South Carolina did last year.

“The Certificate of Need Reform Working Group, made up of Republican Tennessee lawmakers, will file a bill this legislative session that will overhaul the current Certificate of Need Program (CON), according to a Feb. 26 email sent to 36 senators and representatives,” the Nashville Business Journal reported on March 4. “To come up with the reform plan, in the summer of 2023 the group began meeting with representatives of 19 health care companies in Tennessee, including Nashville-based Ascension Saint Thomas, HCA Healthcare, Vanderbilt University Medical Center, Community Health Systems, Lifepoint Health and the Tennessee Hospital Association.”

A group of “healthcare providers, practitioners, patients and taxpayers across Tennessee” sent a joint letter to Governor Bill Lee (R-Tenn.) and Tennessee lawmakers last month commending them “for passing CON reforms in 2021 that allowed our healthcare system and infrastructure to better respond to community needs.” The coalition letter went on to urge Tennessee lawmakers to build upon that 2021 reform, noting that “Tennessee’s Certificate of Need (CON) laws are a primary factor slowing the necessary expansion of healthcare services in the state, as they actively limit access to affordable, high-quality care.”

Tennessee lawmakers passed legislation in 2021 raising the dollar figure threshold below which CON requirements no longer apply, thus subjecting fewer proposals to such mandates. “The state’s remaining CON regulations, however, continue to limit patients’ access to care,” the coalition letter added. “Many states across the nation, including some of our neighbors in states like South Carolina, Florida and others, have already recognized the harmful effects of CON laws and have repealed them with noticeable benefits.”

“Tennessee still has 26 CON regulations that continue to limit access to care across the Volunteer State,” Jeffrey Mazzella, president of the Center for Individual Freedom, noted in a 2023 column in the Tennessean. “Tennessee’s remaining CON requirements are governed by 12 government bureaucrats – unelected and unaccountable to everyday Tennesseans – who act as gatekeepers for private companies working to expand healthcare access in the state.”

While Tennessee lawmakers seek to repeal their CON requirements, legislation to repeal North Carolina’s CON mandates has been introduced in recent years but has been unable to pass. North Carolina lawmakers, however, might not need to take another stab at CON repeal. That’s because a pending court case could overturn the state’s CON requirements.

After having a CON application denied, Dr. Jay Singleton, a New Bern-based eye surgeon, filed a lawsuit seeking to overturn North Carolina’s CON requirements as a violation of the state constitution. Dr. Singleton’s lawsuit, initially filed in 2020, is now pending before the North Carolina Supreme Court. Singleton’s lawsuit contends CON requirements violate the follow provisions of Article I of the North Carolina State Constitution:

  • § 19: “No person shall be … deprived of his life, liberty, or property but by the law of the land.”
  • § 32: “No person or set of persons is entitled to exclusive or separate emoluments or privileges … but in consideration of public services.”
  • § 34: “Perpetuities and monopolies … shall not be allowed.”

“Singleton could have spent multiple years and hundreds of thousands of dollars chasing a CON,” notes Mitch Kokai, senior political analyst for the John Locke Foundation, a North Carolina-based think tank. “There’s no guarantee regulators ever would have allowed him to perform standard eye surgeries in his office. Instead Singleton challenges state rules that force him to perform most surgeries at a nearby hospital holding the region’s only CON.”

The North Carolina Supreme Court has scheduled oral arguments in Singleton’s case for April 17, with a ruling expected to be handed down later this year. If the North Carolina Supreme Court, which is comprised of five Republicans and two Democrats, rules in favor of Dr. Singleton, North Carolina will become the latest state to repeal its CON requirements.

“The plaintiffs’ claims in this case are not based on a vaguely defined right to substantive due process,” noted the brief filed by the John Locke Foundation and University of North Carolina Law Professor John V. Orth in support of Dr. Singleton’s appeal to the North Carolina Supreme Court. “They are, instead, based on what the North Carolina Constitution explicitly declares to be ‘great, general, and essential principles of liberty and free government.’ Not only are those principles clearly defined and affirmed in the Constitution itself; they also have deep historical roots in our state.”

“By failing to recognize that the plaintiffs’ claims are based on fundamental principles protecting fundamental rights, the Court of Appeals committed a dangerous error,” the Locke/Orth brief added. “If its reasoning is allowed to stand, it will mean that the General Assembly has effectively nullified several express provisions of the state constitution simply by enacting a statute with an appended list of legislative findings. That cannot be right. This court has an opportunity not only to correct the Court of Appeals error, but to rectify tiers of scrutiny practice in North Carolina in a way that brings it into proper alignment with the history and text of the North Carolina Constitution.”

There are plenty of indicators that times have changed in South Carolina. Add to CON repeal scope of practice reforms and rolling back unnecessary occupational licensing. Dr. Smith at the Palmetto Promise Institute, whose policy expertise is accompanied by a deep understanding of South Carolina political history, points to a deeper cultural change.

“We have always known that politics and legislative action is downstream of culture,” Smith says. “South Carolina used to say ‘How have we always done it?,’ now legislators are asking ‘How can we get government out of the way and let the free market lift all boats?’” Chief among the indicators of that cultural change is the fact that lawmakers in Tennessee and North Carolina are now seeking to adopt reforms first enacted in Columbia, something that would’ve seemed unthinkable only a few years ago.

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