- North Carolina could see up to $1.2 billion in capital investment and as many as 1,000 new inpatient rehabilitation facility (IRF) beds over the next decade, mirroring growth seen in Florida following repeal of Certificate of Need.
As North Carolina policymakers weigh changes to the state’s Certificate of Need (CON) laws, health-care investors are watching closely. Legislative efforts to repeal or scale back CON restrictions are advancing, while a high-profile lawsuit — Singleton v. North Carolina Department of Health and Human Services — is also moving forward in the courts.
According to two new new industry analyses, these policy shifts could position North Carolina for a significant expansion in rehabilitative-care infrastructure. The state could see up to $1.2 billion in capital investment and as many as 1,000 new inpatient rehabilitation facility (IRF) beds over the next decade, helping to close a gap in access and mirror growth seen in states like Florida following deregulation.
Meantime, a follow-up report this week from the Americans for Prosperity Foundation indicates that repeal is long overdue. After finding the North Carolina Department of Health and Human Services (NCDHHS) denied almost $1.5 billion in healthcare investment under CON regulations between 2012-2022, a fresh analysis reveals CON denials of nearly $3 billion in the last three years .
Wall Street is watching North Carolina — and KeyBanc Capital Markets is among those keeping a close eye on policy talks underway in Raleigh. With the idea of repealing the state’s decades-old Certificate of Need laws gaining traction, they sees a promising opening for major investment in the state’s health-care infrastructure.
In particular, the bank is tracking opportunities in the inpatient rehabilitation facility (IRF) market. In their report, North Carolina is flagged for a low IRF bed count and aging population as key indicators of unmet demand. Repealing CON restrictions, the analysts say, would lower barriers for providers looking to build or expand facilities — potentially delivering faster access to care for stroke patients and others who need intensive rehab.
Backing up its optimism on potentially expanding in North Carolina, KeyBanc recently raised its price target for Encompass Health Corporation (EHC) — a leading IRF operator — from $122 to $135. The firm, which actively trades EHC stock, believes a more flexible regulatory landscape in North Carolina could lead to both investor gains and better healthcare access for patients statewide.
Understanding CON Laws
CON laws were introduced in the 1970s as a way for the state government to manage health-care resource allocation. They require providers to obtain state approval before building or expanding facilities. However, critics argue these laws now hinder competition, innovation, and access to care.
This week’s report finds that North Carolina is significantly lagging behind states like Florida, which repealed its CON laws in 2019 and has since seen more than 650 new beds added by Encompass Health alone.
According to KeyBanc Capital Markets’ May 2025 analysis, the US averages 0.65 IRF beds per 1,000 residents over age 65. North Carolina, however, only provides 0.38 beds per 1,000 — placing it far below the national average.
This shortage is critical as the population ages. IRFs primarily serve patients between 75 and 85, and the number of Americans in this age group is projected to grow by 36% through 2035. the report argues that, without additional beds, thousands of North Carolinians may be unable to access proper rehabilitative care.
Legislative and Legal Momentum
North Carolina has among the most restrictive CON laws in the nation, but there is growing political and legal momentum to eliminate and reform them. Senate Bill 370, embedded in the state’s Senate budget proposal, calls for a complete repeal of CON laws.
A separate court case, Singleton v. North Carolina Department of Health and Human Services, challenges the constitutionality of these laws.
In October 2024, the North Carolina Supreme Court unanimously ruled that Dr. Jay Singleton’s lawsuit challenging the state’s CON law should proceed to a three-judge panel in Wake County Superior Court. Singleton, an ophthalmologist based in New Bern, argues that CON laws prevent him from performing certain surgeries at his own facility despite having the required equipment and qualifications. A decision from the court panel is expected in 2025.
“If Singleton argues successfully that the CON law violates his rights by preventing him from providing services to his patients, the state might be forced to gut or discard CON restrictions,” said Mitch Kokai, senior policy analyst for the John Locke Foundation. “That would likely lead to greater access to care at lower cost. The competition that improves almost every other consumer experience would work its way into North Carolina’s health sector.”
If either effort succeeds, it could open the door for immediate private investment and facility expansion. Health-care providers may be able to bypass decades-old regulatory hurdles.
Investment Potential: Billions on the Table
The study from the Americans for Prosperity Foundation adds to the growing body of analysis supporting reform. The report estimates that North Carolina’s CON laws blocked as much as $1.5 billion in health-care investment from 2019 to 2022 alone. Drawing on 2020 modeling from the Mercatus Center, the study concludes that the state could have added 4,900 hospital beds, 142 new facilities, 15 MRI machines, and 35 CT scanners during that period.
“North Carolina’s CON law has acted as a financial firewall between patients and the care they need,” said Brian Balfour, senior vice president of research at the John Locke Foundation, which partnered with AFPF on the analysis. “We’re not just talking about paperwork and red tape — we’re talking about billions in blocked investment and real people left waiting for treatment.”
AFP’s findings reflect the look forward in the KeyBanc report. KeyBanc estimates that, should North Carolina aim to match the national average of 0.75-1.0 beds per 1,000 seniors, it would need to add between 470 and 1,000 beds. Using industry estimates of $825,000 to $1.2 million per bed, this translates to potential investment between $387 million and $1.2 billion over the next decade. At the high end of the scale, the report says that statewide expansion could exceed $2 billion if more ambitious capacity targets are pursued.
Health-care companies like Encompass Health (EHC), Select Medical (SEM), and Lifepoint Health are already poised to build. These providers have been driving the majority of new IRF development nationally, with a focus on both expanding existing facilities and launching new joint ventures with nonprofit hospitals.
“We believe EHC, Lifepoint, and SEM have been driving the lion’s share of new IRF development over the past several years,” the report found.
“Cream skimming”
That could present a problem for the North Carolina Healthcare Association, a powerful lobby that represents hospitals and other medical groups that are incumbents in the state’s health-care industry. NCHA opposes CON repeal arguing that the regulations laws help ensure equitable distribution of health-care services. They say the existing CON framework allows regulators to coordinate the planning of new health-care services and construction projects to meet community needs, particularly in rural and underserved areas.
“Repealing CON would clear the way for ‘niche healthcare businesses’ that offer services with profitability as their top priority rather than community need,” NCHA says in their legislative agenda brief.
According to repeal opponents, CON helps prevent “cream-skimming” by specialty providers who serve only profitable patients, leaving hospitals with uncompensated care burdens; burdens that were dramatically multiplied when the state agreed to expand federal Medicaid in 2023. NCHA advocated for Medicaid expansion, saying that North Carolina hospitals and health systems provided $1.1 billion in charity care in 2022. Medicaid expansion added more than 600,000 able-bodied working-age adults to the entitlement program.
NCHA also argues that when other states eliminated CON, they saw increased spending on health care because, with more options in health-care facilities, people used them more.
Still, reports from the John Locke Foundation have found CON laws have not achieved their intended goal of controlling health-care inflation — and may now act as regulatory bottlenecks. In 2024, Forbes magazine rated North Carolina as the most expensive health-care system in the nation.
While the Senate budget repeals CON laws, the House version does not. The two chambers are currently negotiating a final state spending plan for 2025-2027. The new NCHA president and CEO, Josh Dobson, is a former NC House member and stepped down as the state’s labor commissioner in 2024, the day after November elections.
“NCHA is grateful the House did not include many of the harmful policies being considered or levy new taxes on hospitals,” the NCHA said in a statement released last week, after the House budget came out. “Although there is more work to be done towards the development of a compromise budget, we look forward to our continued work with legislators to ensure critical support for healthcare is included in the final budget.”
Florida as a Case Study
Florida repealed its hospital CON laws in 2019. By 2021, new freestanding IRFs began development. Encompass Health alone has added around 650 beds in Florida since then. Analysts see North Carolina potentially following this trajectory, especially since both states have aging populations and growing demand for stroke rehabilitation services.
Expanding IRF capacity would bring more than just infrastructure investment — it would also mean new jobs. According to the North Carolina Healthcare Association, hospitals and health systems in the state already employ roughly 500,000 people. Industry leaders say each new IRF facility would add to that workforce, employing teams of health-care professionals including physical therapists, nurses, and speech pathologists. Just as critically, more IRF beds would give stroke patients and others in need of intensive rehab the chance to receive specialized care in appropriate settings, rather than being diverted to nursing homes due to lack of space.
Despite the optimism, hurdles remain. Budget negotiations are ongoing at the state legislature with multiple priorities on the table. Construction timelines for facilities can stretch up to 24 months. Labor shortages may complicate staffing. And rising costs triggered by tariffs or inflation could affect return on investment if reimbursement rates don’t keep pace.
As North Carolina lawmakers and courts consider changes to the state’s Certificate of Need laws, the health-care sector is closely watching for potential impacts. Proposals to repeal CON could reshape how and where future health care is delivered.