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Certificate-of-need laws: Where they stand and where they’re headed

Patty Newitt – Wednesday, December 13th, 2023

 

Certificate-of-need laws, which govern where providers can build facilities, have been an obstacle to ASC growth for years, but many leaders are hopeful about the policy changes made in 2023.

The certificate of need process is lengthy and costly, deterring surgeons and organizations in many states from even considering opening ASCs.

Nashville, Tenn.-based ASC company SurgNet is struggling to grow in its home state due to certificate-of-need laws. While the new-to-market company has made acquisitions in Ohio and Michigan, it is struggling to do business in other states.

“I think certificate-of-need laws reduce the positive impact ASCs could have on the healthcare system,” Michael Chwalek, senior financial analyst at Ambulatory Surgical Centers of America, told Becker’s“They restrict the number of ASCs through rationing and creating a significant barrier to entry. The time and legal and consulting fees required to gain certificate-of-need approval significantly increase the risk of starting a center.”

The risk is exacerbated by the ability of health systems to contest applications, he added, which incentivizes joint ventures over independent ASCs.

“I think this incentive gives larger health systems and hospitals more influence in the industry, for better or worse,” he said.

Other leaders agree. Adam Bruggeman, MD, CEO of Texas Spine Care Center in San Antonio, told Becker’s he predicts “certificate-of-need states will see higher consolidation while states without certificate of need should see less consolidation when compared to the consolidation we see in the hospital market.”

Some surgeons have taken it upon themselves to challenge states’ laws.

Ophthalmologist Jay Singleton, MD, owner of a New Bern-N.C.-based ophthalmology practice, is challenging the state’s certificate-of-need laws in a suit claiming he cannot perform procedures at his ASC. He argues he can perform only an “incidental” number of surgeries at the center under current law and must instead perform procedures at nearby hospital CarolinaEast, which charges substantially more per procedure for patients. Additionally, Dr. Singleton said he cannot begin the certificate-of-need application process because state regulations have determined the community does not need another ASC.

There are 17 states that do not have certificate-of-need laws, and 10 in which such laws do not apply to ASCs, according to a report from HealthCare Appraisers. But there are 23 states that do require a certificate of need to open an ASC, which some feel curtails an opportunity to lower healthcare costs.

“It would just be a huge gold rush and avenue for lowering healthcare costs if governments could give these physicians an opportunity,” Philip Blair, CEO of Surgery Center Services of America, told Becker’s.

This year, many states took measures to repeal or loosen certificate-of-need requirements.

In October, South Carolina Gov. Henry McMaster repealed the state’s certificate-of-need law. In August, the New York State Department of Health adopted a regulation to require the inclusion of a health equity impact assessment as part of the certificate-of-need process in the state. And in May, a law was passed that allows Mississippi hospitals to establish single-specialty ASCs without obtaining a certificate of need.

Most recently, a Georgia Senate committee recommended in a November report that the state repeal certificate-of-need laws in their entirety.

Additionally, 25 states loosened their certificate-of-need laws during the COVID-19 pandemic, Jaimie Cavanaugh, an attorney at the Institute for Justice, told Becker’s. She said the moves show “that the government knows that it’s a restriction on increasing access to healthcare.”

Many leaders are hopeful that ASCs will have more growth opportunities as states begin to change these laws.

“I think there are independent surgeons that were discouraged by the certificate-of-need process who will come off the sidelines,” Mr. Chwalek said. “They’ll be encouraged by the reduced development time, reduced startup costs and the elimination of potential denials. I think it also strengthens the surgeon’s position with their health system by removing the system’s veto power over a project. I think this leads to more ASCs, more surgeon influence and more ASC cases.”

Read this article and more articles from Becker’s ASC Review here.

Read more about Does Your State Require a Certificate of Need (C.O.N)?