In March 2020, health experts warned the American public about the need to “flatten the curve” of coronavirus cases to avoid overwhelming the country’s healthcare systems. But what if we had had more healthcare capacity in the first place?
Also in March 2020, the state of North Carolina denied a request from Atrium Health to build a new hospital with 30 beds and two operating rooms in Cornelius, North Carolina. A month later, five healthcare facilities in Wake County were prevented from purchasing a new MRI machine because the government determined that the county only needed one and there were six facilities that applied.
These examples happened during a global pandemic. But the practice is not a new one.
North Carolina policymakers and government officials need to own up to their role in suppressing healthcare supply for decades. Then, the state needs to change it going forward.
The culprit: CON laws
The hospital in Cornelius and the MRI machines in Wake County never came to fruition because they were denied their requests for Certificates of Need (CON). CONs are essentially government permission slips that are required to open or expand healthcare facilities or utilize certain healthcare equipment. Healthcare providers in North Carolina are required to obtain a CON for things such as MRI machines, helicopters to transport patients, a variety of hospital or treatment beds, and much more. In fact, in 2016, North Carolina had the fifth most restrictive CON laws in the country, behind only Vermont, Hawaii, the District of Columbia, and New Jersey.
CON supporters claim that the practice ensures there is an adequate supply of healthcare resources and that those resources are distributed appropriately, especially in rural areas. On their face, these claims are counter-intuitive (ensuring adequate supply by restricting supply?). They’ve also been empirically disproven. For a full overview of how CON laws fail to meet their stated goals, check out the research review on the subject from the Mercatus Center.
CON laws can often prevent healthcare providers from expanding their capacity to meet the demand they perceive for their services. The requirements can also prevent new providers from joining the marketplace, shielding industry incumbents from the downward pressure on prices that comes from increased supply and competition. For more information about how government intervention drives up healthcare costs, check out an earlier article in this series on that topic here.
Current coronavirus response
In March, when North Carolina had less than 20 confirmed cases of COVID-19, the state took action to ease the regulatory burden on existing CON holders. The Department of Health and Human Services (DHHS) issued a temporary waiver on acute care beds, the technical name for hospital beds. The waiver was a positive step that allowed hospitals to exceed their number of approved hospital beds without getting an additional CON. Typically, hospitals cannot increase their bed capacity by more than 10 percent without going through a CON process.
However, the waiver still puts parameters on bed expansion and gives DHHS the ability to revoke approval for the expansion if it is not satisfied that the hospital meets the stated criteria. For example, the hospital administrator is required to “provide an explanation and certify that the increase in bed capacity is necessary for public health and safety in the geographic area served” (page 2, PDF below). So, while hospitals are granted reprieve from the full CON process, they are still under threat of government strangulation – even during a global pandemic.
Waiver of 10A NCAC 13B.3111 (2)
In addition, the temporary waiver could do nothing to address the facilities that do not exist due to CON requests for acute care beds – and other healthcare facilities – that have been denied for years.
Pushback: government hesitant to relinquish any power
As illustrated by the CON “waiver” that still keeps a tight grip on healthcare service providers, state regulators are extremely hesitant to give up any of their power in this area. This is unsurprising given the amount of central planning that is involved with CON regulation.
The “need” element of CON is determined by the State Health Coordinating Council (SHCC), which prepares an annual assessment of healthcare capacity across the state known as the State Medical Facilities Plan (SMFP). The SHCC is a 25-member board appointed by the governor that includes doctors as well as representatives from hospitals, health insurance, business, and government. The SHCC works in tandem with DHHS to develop the plan and administer the CON review and regulation process.
Carolina Journal was able to speak with one member of the SHCC on the condition of anonymity at the beginning of the pandemic. The member had this to say:
“The CON laws are not your problem. Time is your problem. You cannot build acute care beds in a week. You cannot find staff for them in a week… Nobody is going to build a massive hospital for a spike but have no patients a year later. You can overwhelm a system, but you can’t build a system for a coronavirus every 30 years and support it.”
There is some truth in the SHCC member’s statement, but it lacks a consideration of the big picture.
Hypothetically, let’s suppose a repeal of the state’s CON laws had occurred in March. At first, it may have had marginal benefits not much different from the effects of the waiver issued by DHHS at that time. But as the months of coronavirus response drag on, providers could have been adding the facilities and equipment for which they have been denied a CON over the years. Even non-coronavirus treating facilities expanding could be positive for the state’s pandemic response. The pandemic may be less likely to overwhelm provider capacity if non-coronavirus patients can be treated at alternative facilities, such as ambulatory surgery centers, which currently operate under CON restrictions.
What the SHCC member’s sentiment inadvertently highlights is that CON repeal was needed long ago in order to do the most good. Better late than never.
Also, it is worth noting that a repeal of the state’s CON laws would not require healthcare providers to structure their entire business model around pandemic response, nor would that be the expectation. But the growing pile of denied CON applications proves that the state’s healthcare providers have a desire to provide more care than they are currently allowed to provide.
The hospital in Cornelius that was denied a CON wasn’t being built because of the coronavirus. But the fact that Atrium wanted to build it suggests that they see a need that is not being met in their community. And although it would not have been built in time to help with the pandemic, how many CON applications denied over the decades would have provided needed capacity during the crisis? If we can’t even properly meet standard demand, ramping up for pandemic demand is unnecessarily difficult.
This year’s SMFP was a 536-page document. It takes a tremendous amount of work to develop the assessment and measure CON applications against the requirements. This requires a lot of bureaucracy. Remember also that the SHCC is largely comprised of industry insiders. The stakeholders in this process have a strong vested interest in maintaining the status quo. Therefore, one has to wonder if those closest to the issue can’t see the forest for the trees – that the state’s CON laws are overly burdensome, a waste of taxpayer money to administer, and ultimately harmful to North Carolinians, as CON laws made the state less equipped to handle the pandemic.
Hindsight is 20/20 (no pun intended), but the state should learn from this experience for the sake of improving healthcare access in the “new normal” or whatever else may lie ahead.
