John Locke Update / Research Brief

Reforming North Carolina’s Certificate-of-Need Laws

posted on in Health Care, Health Care & Human Services
Featured Image

U.S. Senator Lamar Alexander recently requested input from health policy scholars on ways to lower the cost of health care in the United States. Some of the most well-respected experts on the subject put together a report of bipartisan proposals that both organizations agreed would address issues within the health care sector that contribute to rising prices. One such proposal recommended that states should repeal their certificate of need (CON) laws.

CON laws require that hospitals and other providers must obtain permission from a state planning board to build a new facility or expand on an existing one. North Carolina is one of 36 states that still impose restrictions on the provision of health care in the state. CON laws allow established providers to dictate who can enter the market to compete with them. Restricting the supply of health care leads to artificially high prices through limited competition.

A group of North Carolina Senate Republicans introduced legislation that would fully repeal the law, which is a worthwhile goal.

Another recently introduced piece of legislation would amend North Carolina’s CON laws by removing the requirement for some of the 25 different facilities that require permission from the state to build. North Carolina ranks fourth in terms of the total number of facilities regulated under this law.  SB 646 would remove the requirement of obtaining a CON for ambulatory surgery centers, operating rooms, gastrointestinal endoscopy rooms, diagnostic centers, kidney disease treatment centers, certain home health agencies, chemical dependency treatment facilities, intermediate care facilities for individuals with intellectual disabilities, and psychiatric hospitals.

If lawmakers are unsuccessful in their efforts to fully repeal CON laws through the Healthcare Expansion Act, removing the requirement for the facilities listed above would be a step in the right direction. While these laws had good intentions when they were implemented, even the Federal Trade Commission and Department of Justice urge states to repeal them because of their anticompetitive nature.

Consider the negative impact that CON laws impose on patients by restricting the market entry of diagnostic centers and ambulatory surgery centers, just two of the facilities which would no longer be regulated by the state if CON reform would take place in North Carolina.

Diagnostic centers are freestanding facilities which offer imagining services such as X-rays, MRIs, CT scans, PET scans, among other services. Although the bill isn’t clear about major medical equipment, such as MRIs that are currently regulated by CON laws, a CON repeal or amendment bill is passed to allow diagnostic centers to operate at full capacity should include this component. According to Amino, a company that specializes in price transparency in health care, the national average for a limb MRI costs $1,567 at a hospital compared to a freestanding clinic average of $504. National data collected on the prices of other imaging services that freestanding diagnostic centers could conduct show the same price disparity.

Increasing the number of independent practices that can offer affordable imaging services would benefit patients greatly. I have written in the past about Dr. Gajendra Singh who was denied permission from the state to purchase an MRI machine because the state does not project a “need” for Dr. Singh to provide low-cost imaging services for patients who can’t afford hospital prices for the same services. Not only do patients in Forsyth county lose out on an option for their imaging, Dr. Singh is denied economic freedom to operate his business as he chooses because CON laws still exist.

Ambulatory surgery centers are outpatient facilities that offer several of the same services which hospitals perform, at a lower rate than hospital outpatient departments. A report from Healthcare Bluebook explains:

For example, in Charlotte, NC, the average ASC price for a knee arthroscopy was $6,118, while the average HOPD price was $12,493, more than twice as expensive. That means $6,375 is saved on average in Charlotte, NC, when a patient chooses an ASC for a knee arthroscopy. How those savings are divided between the payer and the patient depends on the plan design.

For a knee arthroscopy in Charlotte, NC, if a patient has a Silver Plan as defined by the Affordable Care Act, with a $2,700 deductible, 80 percent coinsurance and $5,000 maximum out of pocket, the patient would save $1,275— more than the median family’s weekly income. The remaining $5,100 would be saved by the payer. For self-funded employer-sponsored insurance, that is $5,100 directly to the bottom line for the employer.

Opponents of CON reform, especially for ambulatory surgery centers, suggest that allowing unfettered entrance into the health care market will disproportionately affect existing facilities in rural areas. If CON reform were to proceed, it could be done while keeping rural facilities in mind. This legislation has a safeguard for rural facilities. The bill states that “for a license to operate in any county with a population of less than 150,000” the ASC must have “written documentation of support from each hospital located in the county” and a “written transfer agreement with each hospital in the county.”

Additionally, a study published by the Mercatus Center found that CON programs were associated with less access to facilities for rural areas:

We estimate that, when controlling for demographics and year-specific effects, the presence of a CON program is associated with 30 percent fewer total hospitals per 100,000 state population and 30 percent fewer rural hospitals per 100,000 rural population. Moreover, we find 14 percent fewer total ASCs per 100,000 state population and 13 percent fewer rural ASCs per 100,000 rural population.

Former John Locke Foundation Director of Health Policy Katherine Restrepo also found that some patients in rural areas of North Carolina are already traveling outside of their home county to find cheaper services. Moving forward with CON reform could help rural patients gain greater access to services.

Furthermore, as health care costs continue to rise and employers shift more of the cost of health care to employees through high deductible plans, lawmakers should seek to create an environment conducive to more access for patients with more affordable choices to obtain the medical services they need.

Repealing CON laws would benefit patients by allowing the market, rather than government bureaucrats, to determine where there is sufficient need to provide medical services in a community. Whether lawmakers entirely repeal CON laws, remove the requirement for certain facilities, or phase them out over several years, CON reform is necessary. After decades of research has shown that CON laws fail to achieve their primary goal of lowering health care costs, it is time for North Carolina to end this anticompetitive practice.

Jordan joined the Locke Foundation in the summer of 2018 as Health Care Policy Analyst. After two years in the research division, he moved over to the government affairs team. Jordan now works with state decision-makers in the public and… ...

Donate Today

About John Locke Foundation

We are North Carolina’s Most Trusted and Influential Source of Common Sense. The John Locke Foundation was created in 1990 as an independent, nonprofit think tank that would work “for truth, for freedom, and for the future of North Carolina.” The Foundation is named for John Locke (1632-1704), an English philosopher whose writings inspired Thomas Jefferson and the other Founders.

The John Locke Foundation is a 501(c)(3) research institute and is funded solely from voluntary contributions from individuals, corporations, and charitable foundations.