ANALYSIS: Abolishing Certificate of Need Laws

EXCELLENT REFORM MADE MEANINGLESS BY ONE AMENDMENT

H.3250 is the most significant health care reform introduced so far this session. At the end of the 2015 session, the bill would have, beginning in 2018, repealed state laws that establish and regulate the Certificate of Needs (CON) program in South Carolina.

The bill was recently made significantly weaker, however. On January 13, 2016 Senator Ray Cleary (R-Georgetown) successfully amended the bill in subcommittee. The amendment removes the provision of the bill that sunsets the CON law in 2018. The removal of that provision may end up rendering the entire bill meaningless.

Now, some background on the Certificate of Need program. CON laws require medical providers to get government approval (a proof of “need”) before offering new medical services, purchasing certain medical equipment, or generally expanding the size of a health care facility. There are currently a combined 20 different medical services and pieces of medical equipment requiring CON approval in South Carolina.

In addition to the repeal of CON laws in 2018, H.3250 would institute reforms to make the laws less burdensome in the interim period before their full repeal. These reforms include:

  • Exempting capital expenditures by health care facilities under $5 million from CON requirements.
  • All medical equipment over a certain dollar amount is no longer required to receive a CON. Instead a CON is only needed for medical equipment that is “new and emerging technology.”
  • Exempting hospital beds from CON requirements: meaning a hospital, nursing home, or rehabilitation facility could expand its number of beds without asking government permission.
  • Exempting from CON requirements a capital expenditure to expand existing health services and associated equipment (other than beds) for which a CON has previously been awarded within a one-mile radius for the same site where such services are located.
  • Requiring CON applications to be preceded by a letter to DHEC rather than a published announcement in a public newspaper
  • Except in the case of competing applications, the Department of Health and Environmental Control (DHEC) must render a decision on a CON application within 120 days of posting notice on the agency’s website that the CON application is complete. If DHEC fails to act in this time period the application will be considered approved and a CON must be issued within 7 days.
  • Requiring both the Administrative Law Court and the Court of Appeals to award attorney’s fees and other costs to parties proposing CON projects who prevail against attempts to reverse DHEC’s decision to grant a CON. This reform may encourage more applications and discourage lawsuits attempting to prevent CON approvals.

Finally, the bill would make several changes not directly related to CON law. The 14-member health planning committee that currently advises in the creation of the state health plan would be abolished. Instead, DHEC would prepare the state health plan internally. One negative provision of the bill would require accreditation and certification (by an agency approved by DHEC) as a prerequisite for applying to install and register an MRI machine. The bill would also impose an annual fee for the registration of an MRI machine.

The rationale behind the CON law is that, by restricting “unnecessary duplication of services,” the state can keep down health care costs, ensure that health care facilities are available where they’re needed, and promote quality health care service.

Sounds great. But artificially restricting supply in a market is no way to contain costs; in fact it ensures higher prices and lower quality of service. The ultimate beneficiary of governmental restrictions of supply is not the consumer but already existing businesses that, thanks to government intervention, are more insulated from competition than they would have been otherwise.

SCPC has explained these effects in detail elsewhere, and documented research that confirms basic economic logic on the CON issue. CON laws haven’t controlled health care spending or hospital costs in states where they’ve been enacted, nor has their repeal led to higher costs. Indeed the Heartland Institute has repeatedly pointed out that Kaiser Family Foundation data shows that health care costs are 11 percent higher in states with Certificate of Need laws than in states without them. Another study by the Mercatus center found that CON laws both raise the cost of medical services and reduce the availability of medical equipment and hospital beds

The health care industry is not an aberrant sector of the economy that operates by different economic rules. The health care sector, like all other sectors of our economy, provides the best quality service at the lowest possible prices when left untouched by government meddling. Entrepreneurs should have the right to create new businesses or facilities providing medical services without government permission, and consumers should have the right to enjoy the lower prices and higher quality of service that accompany this entrepreneurial freedom. Repealing South Carolina’s CON laws would be a major step towards achieving these goals, and a significant victory in the fight for health care freedom.

But all of this may be a mere academic debate if the amendment by Sen. Cleary is allowed to stand. 

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