South Carolina chips away at nanny-state healthcare

Story by Andrea Ruth • Jun 2

South Carolina healthcare providers no longer have to seek permission from the state government to offer new services, expand facilities, or invest in technology.

On May 17, Gov. Henry McMaster (R-SC) signed a repeal of the state’s certificate of need rules. A staple of healthcare regimes in many states, certificate of need laws requires a hospital to get government permission before adding beds or a new wing, expanding their offices to include OBGYN services, or procuring ultrasound transducers, among others.

Certificate of need regulations were put in place by the federal government in the 1970s. The goal is to promote cost containment and prevent unnecessary duplication of healthcare facilities and services. But problems with these rules have been apparent almost from the start, with a growing list of bureaucratic rules quickly burdening hospitals, doctors, and other healthcare providers. By 1986, with evidence piling up showing certificate of need laws were ineffective, the federal government repealed the mandate.

In response, a handful of states did away with their certificate of need laws. But the bulk of states kept them in place. Today, 34 states and the District of Columbia still have certificate of need laws on the books, in full or in part. That’s necessary, say certificate of need supporters, because they help constrain healthcare costs and provide fairer access to facilities.

South Carolina’s repeal, though, highlights criticism of this approach, and it could be an inspiration to other states considering lifting certificate of need laws, particularly following the COVID-19 pandemic in states where more significant percentages of the population live in rural areas.

According to the American Hospital Association, 136 rural hospitals closed between 2010 and 2021. Six of those hospitals were in South Carolina. To reverse this trend, and help rural hospitals achieve financial stability, the AHA called for “flexible models of care,” along with a “decreased regulatory burden,” among other solutions.

Moreover, states with certificate of need laws still on the books have a range of healthcare problems, according to a 2021 study by the Mercatus Center at George Mason University, including rising healthcare costs and fewer hospitals overall.

According to Mercatus, rural states with certificate of need laws have 13% fewer rural hospitals than those with such laws and 30% fewer hospitals overall for every 100,000 residents. A separate study found states with certificate of need laws have 99 fewer hospital beds per 100,000 people than those states without.

A Mercatus analysis found that South Carolina, by repealing its certificate of need laws, will increase the total number of hospitals from 82 to 116 and, perhaps more importantly, grow the number of rural hospitals in the state from 21 to 30. That would be a significant rise since eight Palmetto State counties out of 46 do not have a hospital.

State Sen. Wes Climer, the lead sponsor of the certificate of need repeal law, said in a statement it would have a prompt impact.

“Over the last, I think, five or six years, certificate of need has been used to block over $400 million in healthcare investment in South Carolina,” Climer said. “So, there’s a lot of pent-up demand for healthcare investment in our state.”

In a statement released after signing the bill, McMaster said, “South Carolinians will have greater access to affordable health care services with the repeal of the Certificate of Need laws. Everyone benefits when the proven power of the free market is unleashed in our state.”

The repeal of the certificate of need law in South Carolina represents a significant shift in the state’s healthcare policy. It’s one likely to appear more attractive to governors and legislators in other states as they evaluate the advantages and disadvantages of certificate of need laws.

The only other option is to continue living with laws that stifle innovation, expansion, and investment, which leads to fewer choices and lower quality of care for patients, critics say. Several states are considering proposals such as the South Carolina repeal law. If they follow through, proponents say the future of healthcare regulation in the United States is likely to prioritize market dynamics, consumer choice, and improved access to care.