A complicated swirl of factors dictates how expensive the United States’ healthcare system is today, and chief among them – according to legislators and healthcare officials advocating for their reform – are Certificate of Need (CON) laws.

A CON law prohibits healthcare providers from building certain medical facilities, developing new health services or acquiring certain medical equipment without approval from the state body that oversees CON applications.

Three healthcare providers are competing for CON approval for 225 acute care beds in New Hanover County.

Originally enacted in North Carolina in 1971, CON laws originated in New York in 1964 to address concerns that healthcare providers were overbuilding facilities.

“The fundamental premise of the CON law is to control increasing healthcare costs by placing government restrictions on perceived unnecessary duplication of such healthcare facilities, services and equipment,” said Michael Fields, a healthcare attorney at Ward and Smith.

Sen. Michael Lee is one legislator advocating to reform North Carolina CON laws and is sponsoring Senate Bill 1040, which would repeal CON requirements for ambulatory surgical centers and inpatient rehabilitation facilities.

“At its core, CON reform is about improving the patient experience by expanding access, increasing choice and creating an environment for more affordable care,” Lee wrote to the Business Journal.

He added, “North Carolina is already facing some of the highest healthcare costs in the nation, and to make meaningful headway on cutting costs, we need to reform our state’s archaic CON laws.”

The laws are active in 35 states plus Washington, D.C., to varying degrees, as some states have significantly reformed CON laws to allow some medical facilities to be built without state approval.

In North Carolina, the State Medical Facilities Plan (SMFP) identifies healthcare facilities or service needs in various regions of the state. It is posted once a year and takes effect on Jan. 1.

Of the three healthcare providers vying for the 225 acute care beds, two providers – UNC Health and Advocate Health’s Atrium Health – are proposing community hospitals which, if approved, would be either provider’s first major facility investment in the area.

Novant Health, the region’s incumbent healthcare provider since the acquisition of the county’s flagship hospital in 2021, proposed to build a 225-bed heart and vascular tower on the hospital campus.

As the applicants submitted their proposals on June 15, the N.C. Department of Health and Human Services’ (NCDHHS) Division of Health Service Regulation (DHSR) has between 90 and 150 days to decide how to allocate those 225 beds – meaning a decision could come as late as the end of November, depending on the review timeline.

In a highly competitive CON battle, however, like the one unfolding in New Hanover County, any affected person can file a petition for a contested case hearing with the Office of Administrative Hearings. If an administrative law judge makes a decision an applicant is unhappy with, they may appeal again to the N.C. Court of Appeals.

The appeals process involved in CON battles can drag out for several years – and is one reason critics call for the law’s reform or repeal.

“It’s taken us a long time to get to this place where we have 225 beds (in the SMFP), which is very exciting,” said surgeon Ellis Tinsley, founder of Tinsley Surgical. “But it’s going to be five years before we even get close to any of those beds being ready for patients.

“One of my real concerns is, ‘What do we do for the next five years? And what do we do tomorrow?’ is what I like to say,” he added.

Other critics point to the expenses associated with a CON application, especially in the event it becomes embroiled in litigation.

“If it’s uncontested, you’re probably talking tens of thousands of dollars,” Fields said. “If it’s contested and litigated, you’re probably talking hundreds of thousands of dollars.”

Main arguments for repealing or reforming CON laws are that the regulation stifles competition, favors incumbent providers and drives up healthcare costs.

Maureen Ohlhausen, former acting chair of the Federal Trade Commission – which has often taken up the mantle against CON laws – wrote in 2015 that CON laws were enacted when Medicare and Medicaid reimbursements operated on a “cost plus” basis.

In a vastly different healthcare reimbursement landscape, providers aren’t incentivized to make unnecessary capital improvements, Ohlhausen argued. Meanwhile, Tinsley pointed out that today, the costs of delivering care are increasing along with demand, while reimbursement rates have not necessarily kept pace.

Once intended to lower healthcare costs, Ohlhausen said CON laws have since become ineffective.

“There are good reasons to suspect that some of the least deserving providers may be benefiting the most from these laws,” she said.

As for who sits on either side of the CON reform debate, Fields explains that large hospitals typically advocate keeping CON laws in place, while independent medical practices tend to oppose them.

The N.C. Healthcare Association, which represents over 130 hospitals and healthcare systems, has been a notable supporter of CON laws. In a statement on its website, the association wrote that “The Certificate of Need law ensures that healthcare services are right-sized for their communities, guaranteeing access for all patients.”

It added that the organization “opposes any changes that undermine patients’ access to care.”

North Carolina has reformed some aspects of its CON process, including, most recently, removing CON requirements for certain ambulatory surgical centers in counties with populations over 125,000.

Still, Tinsley said he is hopeful that the process for determining need, specifically the difference between licensed and staffed beds, can be updated over time.

“It’s easy to sit in a boardroom, or it’s easy to sit in a political arena, and not understand the urgency of the individual that is in pain or has lost function,” Tinsley said of the debate surrounding CON law reform. “The great part about healthcare is that the guy who lives under the bridge gets the same appendectomy that the mayor gets. We want to keep it that way.”