The Healthcare CON

October 24, 2016

Just 30 minutes south of Charlotte, NC, you’ll find the sophisticated, booming suburb of Fort Mill, SC. Adding both citizens and businesses in recent years, the overall Fort Mill experience is a pleasant one. Of concern, however, is the healthcare situation. Because it lacks a hospital, Fort Mill residence often must travel out of state to Charlotte or to the neighboring town of Rock Hill to receive their medical care.

Thankfully, South Carolina’s Department of Health and Environmental Control (DHEC) identified Fort Mill’s need for a full-featured hospital in 2005.[i]  But 11 years later, all Fort Mill has to show is a full-featured website about a future hospital.[ii] Why is that? Quite simply—South Carolina has Certificate of Need (CON) laws.

CON laws require healthcare providers to gain approval from the state’s healthcare planning agency before making any major capital expenditure, which gives the state final say in the placement of health facilities, expansion of current facilities and even the purchase of new medical equipment. Decisions are based on the “need” of the community.[iii]

But demonstrating a need does not guarantee a community will see that need met. Such is the case for Fort Mill.

The Fort Mill Story

After awarding a Fort Mill certificate of need to Piedmont Medical in 2006, DHEC heard appeals from both Carolinas Healthcare and Novant Health. Following a five-year legal battle, Carolinas Healthcare was instead granted the certificate of need in 2011.

But after this ruling, both Piedmont Medical and Novant Health appealed the appeal decision. By 2014 Piedmont Medical was re-awarded the certificate of need. But more court jockeying has prevented any further action to take place.[iv]

So despite the real need for local medical care, Fort Mill residents are still without a hospital.

Which begs the question: why did South Carolinians cede their local community’s healthcare decisions to the state bureaucracy in the first place?

The original purpose of CON laws was to control where hospitals located and how much equipment they could purchase. This system allowed state regulators to try to prevent hospitals from passing along the cost of unnecessary treatment and equipment to consumers. In addition of preventing duplication of services, CON laws were also designed to encourage providers to build facilities in locations with limited access.

More recently, the case has been made that CON laws raise healthcare quality, first by allowing regulators to set standards and monitor compliance, and second, by limiting entry into the healthcare market. According to this line of thinking, limiting entry allows more procedures to be channeled through fewer hospitals, allowing them to gain expertise.[v]

As is so often the case, however, good intentions don’t always yield good results. And in this case the evidence has never been clearer—Certificate of Need laws just don’t work for South Carolinians.

Here’s Why CON Isn’t Working in South Carolina

CON laws are ineffective at controlling healthcare costs. A partial explanation is the price tag associated with the arduous task of obtaining a Certificate of Need. One can fathom the legal cost for the decade-long Fort Mill CON application process cost each healthcare supplier hundreds of thousands of dollars. For concrete numbers just turn to our northern neighbors.[vi]

Besides the pricey application process, CON laws create a barrier to entry, reducing competition and protecting established healthcare providers. With no competition for its services, established healthcare providers lack incentives for keeping prices low and never need to worry about a more innovative, cheaper competitor.[vii]

A lack of competition also helps explain the lower quality of healthcare in states with CON laws.[viii] When shielded from more advanced competitors, why would established healthcare providers spend extra money upgrading its equipment and services? The evidence backs the idea that CON laws actually worsen the quality of healthcare. Hospitals located in states with CON laws report more deaths and serious post-surgery complications.[ix]

For rural areas, the common misperception has been that CON laws could increase access and preserve existing healthcare infrastructure, when the evidence contradicts this claim. States with CON laws have 30% fewer hospitals per 100,000 residents of rural areas.[x]

Paul Valone of the Civitas Institute explains a simple reason why:[xi] “CON laws do not provide any additional incentive to medical providers to locate in areas where medical facilities have determined they cannot raise the revenue to sustain their business.”

Perhaps the most damning evidence against CON laws might be that the national government actually de-incentivized states from adopting them in 1986, and since that year 14 states have repealed their CON laws.

In a day when South Carolinians are struggling to find high-quality healthcare, shouldn’t we be enacting policies that expand access to good healthcare options? It’s time South Carolina got out of the way of giving its citizens—like those in Fort Mill—the healthcare they need and deserve.

[i] Charlotte Business Journal
[iii] Mercatus Center Study: Certificate-of-Need Laws and Hospital Quality
[iv] The Charlotte Observer
[v] National Conference of State Legislature
[vi] Civitas Institute: The Cost of the Process
[vii] Mercatus Center: Do Certificate-of-Need Law Limit Spending?
[viii] Mercatus Center: Certificate-of-Need Laws and Hospital Quality
[ix] Ibid
[x] Mercatus Center: Entry Regulations and Rural Health Care: Certificate-of-Need Laws, Ambulatory Surgical Centers, Community Hospitals
[xi] Civitas Center: Access Denied