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South Carolina Enacts Major Reform to Certificate of Need Law

Changes eliminate CON requirements for new ASCs

BY STEPHEN ABRESCH | MAY 2023

South Carolina Governor Henry McMaster signed SB 164 into law in the middle of May, eliminating certificate of need (CON) requirements for almost all health facilities in the state, including ASCs but excluding nursing homes and the Medical University of South Carolina. Passage of SB 164 marks the culmination of four years of concerted effort by an array of organizations and state legislators to secure major reforms to the state’s CON program and is the most significant change to the program in its more than 50-year lifespan.

The law adds new licensing requirements for ASCs. To be licensed by the state, any ASC established or constructed after the law takes effect must provide indigent/charity care to patients in an amount equal to 2 percent of their adjusted gross revenue if they provide care to Medicaid beneficiaries, or 3 percent of their adjusted gross revenue if they do not treat Medicaid beneficiaries. ASCs subject to this requirement that fail to meet it will have to pay a monetary penalty in the amount of the difference between the indigent or charity care services they are required to provide and the amount actually provided. The South Carolina Department of Health and Environmental Control is directed to promulgate regulations within one year of the law taking effect setting forth the necessary duties to comply with the new indigent/charity care requirements for ASCs.

Background

South Carolina first enacted CON requirements in 1971 with the passage of the State Certification of Need and Health Facility Licensure Act, seven years after New York became the first state to impose CON requirements in 1964, and four years before President Gerald Ford signed the National Health Planning and Resources Development Act of 1974—signed January 4, 1975—enacting federal CON requirements. By 1980, every state but Louisiana had a CON program in place. Congress would ultimately sour on the effectiveness of CON programs to control the growth of healthcare costs and repealed the federal requirements in 1986. Since that time, only 15 states have opted to fully repeal their own CON requirements.

Former Governor Nikki Haley nearly ended South Carolina’s CON requirements in 2013 by using her line-item veto power to eliminate funding for it from the fiscal year 2013–2014 General Appropriations Act, calling the program “an intensely political one through which bureaucratic policymakers deny new healthcare providers from offering treatment.” A group including the South Carolina Hospital Association and the South Carolina Health Care Association filed suit to force the South Carolina Department of Health and Environmental Control to continue the program, with the South Carolina Supreme Court ultimately allowing the program’s continuation in a 2014 decision.

Following the 2014 fight at the supreme court, Representative G.M. Smith introduced legislation in the House during the 2015–2016 session. If passed, the law would have eliminated the CON program beginning in 2018, but it failed to advance in the Senate. During the 2019–2020 session, Nancy Mace, then state representative, introduced legislation (HB 3823) alongside a Senate measure (SB 990) that would fully eliminate the state’s CON program. The measures represented the start of a major legislative push to roll back the state’s CON program. Despite a strong list of cosponsors, support from McMaster and physicians, and a 2016 joint report from the Federal Trade Commission and the US Department of Justice that endorsed repeal of the state’s CON program, both measures died in their original committees of referral.

During the 2021–2022 legislative session, Senator Wes Climer and Representatives Bill Taylor and Sylleste Davis introduced similar legislation. One of the Senate measures, SB 290, made it to the House but could not make it out of its committee of referral after House members failed to coalesce around a full repeal of the program. McMaster had even become personally involved in the efforts that session, sending a letter to members of the House arguing that the CON program delayed access to healthcare services in rapidly growing areas of the state, provided no incentive for investment in rural counties and provided no relief to South Carolinians from rising healthcare costs.

Success in 2023

Buoyed by increasing support in the legislature and the governor’s backing, Climer reintroduced the legislation in the 2023–2024 legislative session in both the House and Senate. Taking lessons from past attempts, SB 164 did not include a complete repeal of the CON program, proposing instead to leave nursing homes subject to the requirements. An amendment adopted in the Senate before passage in February added CON requirements back in for the construction or establishment of an ASC with more than eight operating rooms.

Negotiations in the House resulted in language that both chambers could agree on, achieving passage in the House on May 3 and concurrence in the House amendments by the Senate the same day. The House amendments also maintained CON requirements for the construction or establishment of a hospital, or the addition of beds to a hospital, until January 1, 2027, included ASCs in the exemption from CON requirements and added new licensing requirements for ASCs. In addition, the House added language creating a Certificate of Need study committee to examine the effect of the broad repeal of CON requirements on quality and access to healthcare in rural areas of the state.

McMaster announced signing the legislation on Twitter, saying the law gives “South Carolinians greater access to affordable healthcare services.” Even the South Carolina Hospital Association, which has long opposed repeal efforts in favor of changes to the appeals process and an increase to monetary thresholds for capital expenditures, issued a statement indicating its support for the new law due to the CON process for hospitals being preserved until 2027 and the new indigent care requirements for ASCs.

Write Stephen Abresch with any questions.