CON Laws & Hospitals: their dirty little secret

By Jay Singleton, M.D.

Restoring the free market to our healthcare system in North Carolina is essential. This is currently being attempted in our General Assembly by repealing our outdated CON laws. Recently, opponents of repeal (hospitals) have suggested that this is not a free market as long as they still have to run emergency departments and see indigent patients. I agree with them on one point. Even without the CON, the market is not free. It will still favor the hospitals.

Our hospital systems were built to see patients. Not just the wealthy and insured, but anyone who walked into their doors. This function keeps our society safe and healthy.   In the 1940’s the Hill Burton Act spurred the building of small community hospitals all over our country to serve our growing post-war population. Knowing that these hospitals could not keep their doors open without help, they were granted a sizable and rare gift. They were exempt from paying any taxes. That means all taxes; no property taxes, no income taxes, and no sales taxes on any purchases.

Since then, hospitals have been amassing massive capital from this free pass. In the early seventies, the federal government offered them even more subsidies if they would adopt the fledgling “certificate of need” (CON) program. This law protected hospitals from any and all competition like an iron curtain, but it did not contain costs, and for that reason the federal government abandoned it in 1987. Many states followed suit, but North Carolina kept their CON laws, and our hospitals have added to their considerable wealth which has allowed them to carve out fiercely guarded turfs across our state.

Hospitals then complained to Medicare (in a now familiar way) that they were losing money on indigent patients, and it worked. Over the past decade, the federal government has steadily decreased the reimbursement of physician owned [ambulatory surgery centers] ASCs while keeping hospital owned ASCs the same, and physician owned ASCs are currently paid only 55% of hospital fees.

All of this history brings me back to my initial point. Even without the CON law, the market still favors hospitals. Physicians who open ASCs still have to contend with property taxes, income taxes, and sales taxes while being paid just over half what the hospitals get paid. All of this while still seeing indigent patients as evidenced by similar indigent care numbers when comparing existing hospital and physician owned ASCs.

Physicians who open ASCs have considerable personal financial risk (including the risk of financial ruin) if they choose to enter into this unfair arms race. Hospitals will still have massive advantages even after NC abandons its archaic CON laws; the market will not be truly free, but it’ll be closer.

The Federal Trade Commission has recently weighed in on North Carolina’s CON laws. Officials there commented, “CON laws raise considerable competitive concerns, and generally do not appear to achieve their alleged benefits for health care consumers.” They further explain that CON laws can restrict entry and expansion into health care markets, limit consumer choice, and stifle innovation. So, I ask you, why do these laws still exist in our state?

The CON law does not make hospitals solvent; it makes them rich. This means that they can expand into other areas and smaller communities absorbing local hospitals or even closing them down if they do not fit their needs. This is already happening at an alarming rate across the U.S.

So the next time you hear our large hospitals complaining about the post-apocalyptic world after CON, remember all the advantages they still have built into our system. Hospitals are flourishing in states without CON laws, and our state will not be an exception. The sky is not falling.

Editor’s Note:

Jay Singleton is an ophthalmologist who lives and practices medicine in New Bern, North Carolina. He has made an extensive study of what is true, and not true, about CON laws.


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