South Carolina regulations guiding health care investment are coming under scrutiny again after a Department of Health and Human Services report found that such laws do not achieve their intended goals.
The law, known as the State Certification of Need and Health Facility Licensure Act, requires any health care system or company that wants to build a new facility, add beds to an existing facility, purchase medical equipment over $600,000 or spend more than $2 million on a capital expenditure to receive approval from the S.C. Department of Health and Environmental Control.
The program, according to DHEC, is meant to contain health care costs and prevent unnecessary duplication of facilities and services.
South Carolina, which has required certificates of need since 1971, is one of 35 states with such a program. On average, states with certificate of need programs regulate 14 different services, devices and procedures; South Carolina regulates 20.
“Without a doubt, you’re ensuring quality,” said Schipp Ames, vice president of communications, education and member services for the S.C. Hospital Association. “It’s been shown that the more procedures that a facility does, the better that they are at that facility. If you’re going to have a heart procedure done, you’d want to do it with a physician who’s done hundreds of these procedures rather than someone who has not done many procedures.”
However, a report (.pdf) released in December by the Department of Health and Human Services found that “there is no compelling evidence suggesting that CON laws improve quality or access, inefficiently or otherwise.”
Additionally, a report from the Mercatus Center, a free-market-oriented think tank at George Mason University, found that states with certificate of need programs have 131 fewer hospital beds per 100,000 people than states without programs and between one and two fewer hospitals that offer MRI services per 500,000 people. This could mean about 6,331 fewer hospital beds and between 10 and 19 fewer hospitals with MRI services across the Palmetto State.
Former Gov. Nikki Haley tried to suspend the certificate of need program in 2013 by vetoing its funding in the state budget, but the S.C. Supreme Court ruled that suspension of the program required approval from the General Assembly. A 2015 bill to roll back, but not eliminate, the regulations passed the House but died in the Senate.
The 2019 effort to repeal the certificate of need program is being led by the Charleston County Medical Society.
Dr. Marcelo Hochman, president of the Charleston County Medical Society and a plastic surgeon based in Mount Pleasant, said the original goal of certificate of need programs was laudable but real-world experience in the last 40 years has proven a disconnect between vision and reality.
“Experience has proved them wrong, and now the public is suffering from that,” he said.
Repealing the certificate of need program, Hochman said, would give patients more options and bring down costs. For example, he said, if a health care facility didn’t have to apply to the state to buy a new MRI machine more facilities would do so.
The Health and Human Services report also recommended that states consider repealing or scaling back certificate of need programs.
“The evidence to date … suggests that CON laws are frequently costly barriers to entry for health care providers rather than successful tools for controlling costs or improving health care quality,” the report said.
The South Carolina bill, co-sponsored by Rep. Nancy Mace, R-Charleston, and G.M. Smith, R-Sumter, at the end of January, would eliminate South Carolina’s certificate of need program but keep in place the parts of the law related to licensure.
“We must find solutions to increase access and provide higher quality health care service to our citizens across the state of South Carolina,” Mace said. “A full repeal of the certificate of need law will break up the health care monopoly of hospitals, lobbyists and government bureaucrats and unleash the free market, creating much-needed competition.”
Lack of consensus
The S.C. Hospital Association, however, opposed repealing the certificate of need program in 2015.
“What many do not understand is that for hospitals, health care is not a free market,” the association said at the time. “Unlike other medical facilities, hospitals are required to provide emergency treatment to everyone who walks through our doors.”
This means, Ames said, that specialty health care facilities could set up shop next to a hospital and siphon away more lucrative services and insured patients, which would leave hospitals to manage only the sickest and most indigent patients. Ames said that would put rural hospitals in particular at risk.
“If a surgery center wanted or an imaging center wanted to go and plop right next to a critical access hospital, that rural hospital is operating on the thinnest margins you could possibly imagine,” Ames said. “It is not rare that hospitals only have days of cash on hand.”
The hospital association in 2015 instead suggested reforming and modernizing the certificate of need program, which Ames said the association still believes in, though what reform might look like remains to be seen. It could be increasing or lifting monetary caps on equipment and capital expenditures, creating space for telemedicine or carving out some of the services that are restricted by the program.
“We’d love to see the program modernized … and really just bring the law into the new age,” Ames said.
Ames said the hospital association at its recent board meeting discussed the newest legislation but did not come to a consensus on whether the association supports repealing the certificate of need program.
“We do have hospitals that are on both sides of this issue,” he said. “We have hospitals that do support repealing the certificate of need, and we have hospitals that would like to see the law stay in place.”
Ames said the association plans to survey its hospital members to develop a clearer position in the near future.
Mark Sweatman, director of legislative affairs for the Medical University of South Carolina, said MUSC is among those that support repealing the program.
“MUSC is supportive of this bill, and enthusiastically endorses the reduction of the financial, legal and bureaucratic costs and burdens that come with the current certificate of need process,” he said.
Lorraine Lutton, president and CEO of Roper St. Francis Healthcare, said, though, that the program keeps a careful eye on overbuilding and redundancy of health care facilities in the state.
“We’re concerned that if the CON program is eliminated, patients will see an increase in for-profit entrepreneurs rushing into this market, creating an overabundance of providers for an insufficient number of consumers and inflated pricing to bridge the gap,” she said.
Trident Health System did not return requests for comment by press time.
Last month, over 100 doctors across the state signed a letter to Gov. Henry McMaster supporting the repeal of certificate of need regulations.
Though Lutton urged the General Assembly to keep a strong certificate of need program in place, she didn’t rule out the idea of reform.
“We have offered and will continue to provide assistance (to legislators) in identifying ways to make this process better serve the health care needs of our community,” she said.
This story originally appeared in the Feb. 18, 2019, print edition of the Charleston Regional Business Journal.