Protection of Physicians Important in Certificate of Need Repeal Debate

April 12, 2023

If you’ve watched Grey’s Anatomy or The Good Doctor, or if you have been admitted to a hospital for any reason, you’ve probably heard of “hospital privileges.” The term simply means that for your doctors to take care of you in any given facility, they must be given the “privilege” of doing so, a right granted by a hospital governing board after vetting your doctors’ credentials. In a perfect world, one that puts patients first, the criteria used to grant hospital privileges would be based solely on credentials such as education, licensure, and history of quality care—criteria that actually have a bearing on the physicians’ ability to provide services to the patient. 

Unfortunately, qualifications alone are no longer sufficient in the healthcare world. Several of the local hospitals at which I have had clinical privileges for over twenty years have instituted a new litmus test to control which doctors may use their facilities. In an ongoing effort to eliminate competition, many hospitals are now basing their privileges-granting decisions on economic self-interest factors, such as whether the doctor or his family members have financial interests in other “competing” medical facilities.

Here’s how this might look: your OB-GYN doctor has privileges at a local hospital where she’s been serving her patients and delivering babies for 20 years. To provide more holistic birthing options, she and other clinicians invest their own funds to create a less “clinical,” friendlier birthing center for their low-risk patients. However, when she applies to renew her hospital privileges, new questions have appeared on her application: Are you or anyone in your family affiliated with any other healthcare facilities? Do you or anyone in your family have a financial interest in a competing facility? Do you or any of your family members hold a board position in any competing organization?

Because your OB-GYN is financially involved in creating the new birthing center, she could potentially be refused or lose her hospital admitting privileges should the hospital deem this a material “conflict of interest.” But the real loss is passed on to you, the patient. If you desire or need a hospital-based birth, you must now choose between your long-term doctor and the hospital. Of course, the hospital is glad to provide their own employed “hospitalists” and specialists who don’t present a threat to their financial well-being. By doing this, the hospital has put its desire to eliminate competition—and increase its profits—ahead of the needs and desires of patients.

Beyond this more transparent rationale, hospitals are increasingly using financial criteria for another reason: an imminent major change in state law. For decades, entry into the healthcare market has been limited by the Certificate of Need (CON) requirement, the necessary “permission slip” awarded by the state to expand or create new healthcare services and facilities. This pernicious process allows current CON holders to block new applicants from even entering the playing field. The hypothetical birthing center would likely be blocked by the hospitals in the area. The predictable result? South Carolina patients have more expensive lower quality care than they would if they had more access to alternatives. But as long as there is CON, patients will not have the benefit of market competition, a benefit they enjoy in every other part of the economy. 

S.164, the Senate-passed CON repeal bill that now rests in the hands of the South Carolina House of Representatives, would eliminate CON requirements for all healthcare facilities except nursing homes and ambulatory surgery centers with over eight operating rooms. Passage of S.164 would be a huge boost to rural communities, where the absence of competing facilities and services has been especially harmful. 

The South Carolina General Assembly has recognized that the Certificate of Need process has failed and the legislature seems ready to repeal—or at least significantly curtail—CON. But hospitals, which currently have broad latitude in what criteria are used for granting privileges, are poised to use legal barriers to further control competition.

Patients should have the ability to choose their doctors as well as where they receive their healthcare. Physicians should be able to practice where they wish and provide the services for which they are medically qualified. The bottom line of healthcare policy should not be maximizing a hospital’s financial health, it should be to enable the doctor-patient relationship to flourish on the patients’ terms.

Marcelo Hochman MD is President of Independent Doctors of South Carolina and is a healthcare policy fellow at Palmetto Promise Institute.