Doctors and Patients Strike Back Against Hospital Monopolies

South Carolina will now only require a certificate of need for long-term care facilities, opening the health care market to smaller providers

By Jaimie Cavanaugh and Daryl James of Reason. 

"Starting your own medical practice is hard. In some states, it's almost impossible due to the monopoly power of politically connected hospital associations. Independent doctors and patients tried for 10 years in South Carolina before finally scoring a victory last month.

On May 16, South Carolina Gov. Henry McMaster signed legislation to repeal most of the state's medical certificate of need (CON) laws. A CON is a government permission slip that health care providers must obtain before they can launch or expand services. Spending money to provide safe, affordable care is illegal without this piece of paper.

Big hospitals love the red tape. Instead of competing with would-be rivals on a level playing field, they can claim their turf and defend it using government interference on their behalf. Many states even allow established providers to object to rival CON applications, giving them something like veto power.

If McDonald's had the same authority, local franchisees could block mom-and-pop burger joints from opening nearby. The Home Depot could block family hardware stores. And LA Fitness could block independent gyms.

Many times, smaller health care providers give up without applying for a CON application because the process is expensive, cumbersome, and rigged. North Carolina, for example, uses a formula that counts doctors and patients like data points on a spreadsheet. "Need" is not based on what will save people time or money but on how many nearby providers already exist.

Ophthalmologist Jay Singleton got trapped in this environment. He owns a state-of-the-art vision center in New Bern, North Carolina, where he can treat patients at a fraction of big hospital costs. But the state blocked him from using his space for certain procedures because he lacked a CON. 

Application would have been futile for Singleton. Regulators decided in advance that CarolinaEast Health System, a $1.2 billion hospital network, could not handle more competition.

Singleton refused to submit the paperwork for formal denial. Why bother? Yet the North Carolina Court of Appeals faulted him for not trying when he sued to break up the CON monopoly with representation from our public interest law firm, the Institute for Justice.

Independent doctors and investors with Danbury Proton took a different approach in Connecticut. They played by the CON rules and asked for permission to open a proton therapy center to treat cancer patients. More than three years later, they are still waiting. The state denied their initial application, denied their appeal, and is now forcing them to watch from the sidelines while the state's two largest health care networks team up to open a proton therapy center 45 miles away.

Singleton tried litigation. Danbury Proton tried compliance. Neither approach worked to tear down the CON barriers. A third option is legislative reform.

Many states have considered repeals, but victories like the one in South Carolina are rare. Part of the reason is opposition from the American Hospital Association and its affiliates, which began pushing for CON laws in the 1960s and have defended them ever since.

These groups are well-funded and good at what they do. They knock on lawmakers' doors, describe alarmist scenarios, and provide talking points. They claim CON laws are necessary to prevent redundant investment, which they say would drive up costs and lower quality. Sometimes they even claim existing hospitals would close or be ruined without CON protectionism.

What these groups don't provide is evidence to back up their claims. They can't. "By their very nature, CON laws create barriers to entry and expansion to the detriment of health care competition and consumers," the U.S. Department of Justice and Federal Trade Commission concluded in a 2008 joint report.

Decades of real-world experience confirm this finding. California, Texas, and 10 other states eliminated their CON laws years ago with good results. Elsewhere, lawmakers passed substantial CON repeals in Arizona, Ohio, Indiana, and Montana.

CON monopolies took more hits in 2023. Besides South Carolina, which will soon require a CON only for long-term care facilities, North Carolina and West Virginia passed recent CON reforms. Iowa almost joined this list with a repeal package that advanced out of the state Senate before dying. Kentucky and Georgia, meanwhile, approved task forces to study CON repeal.

Beating a hospital monopoly is difficult. But these states show it's possible."