Scandal and corruption: A history of Certificate of Need laws
Certificate of Need laws have ruined governors and exiled the wealthy and the powerful to federal prison. Millions of dollars have changed hands, and more than a few political campaigns have been fueled by corruption in the CON system.
CON laws are the reason hundreds of cardiac patients couldn’t get care in Maui, forcing doctors to fly critical patients to Honolulu. They’re blamed for restricting cancer patients’ access to treatment. They made Louisiana’s “Cajun King” rich, and then they staggered the governor’s hayride. They keep an army of specialized lawyers employed.
They’ve also helped to worsen the shortage of hospital beds during the coronavirus pandemic.
In North Carolina, CON laws give control over the supply of health care to 25 people, an advisory body with members appointed by the governor. The state then dictates where new hospitals can be built, who owns expensive medical equipment, who can expand to treat more patients.
CON laws are the source of immense power and immense frustration in the medical community. The process exposes applications to lawsuits from competitors, and hospitals have wrestled over CONs for more than a decade. Independent doctors complain hospital administrators use CON laws to hamstring the competition.
North Carolina entered the pandemic crippled on a key metric for reopening. States with CON laws have 30% fewer hospitals per 100,000 residents, compared to non-Certificate of Need states.
The state legislature plans to make another stab at repealing CON laws this session. But lawmakers face intense pushback from industry special interests; reforming the laws will be no small fight.
Here’s a look at effects of Certificate of Need laws:
1970s: Health insurers have a dilemma, and Uncle Sam is about to get involved. At the time, insurers pay hospitals for their costs. Hospitals go on buying sprees, and everyone else foots the bill.
1971: North Carolina decides hospitals have a spending problem, and they need a budget. Lawmakers require providers to get state permission before making any big purchases — and Certificate of Need laws are born.
1973: Not so fast. The N.C. Supreme Court axes the first version of CON laws for “establishing a monopoly.”
1974: Congress picks up the idea, and it passes a Certificate of Need mandate. But Congress does nothing to fix the underlying incentive to waste money. Instead, Congress pushes states into adopting regulations known as CON laws.
1974: North Carolina lawmakers try again, and this time they justify CON laws with “findings of fact.” The strategy works. Twenty-five people now control the supply of health care in the state. Providers must get their permission to add hospital beds, buy equipment, or launch renovations, along with a host of other items. Market incumbents, including hospital systems, get seats on the board. And competitors can sue to take the battle for CON permission to court.
1980: All states except Louisiana have adopted CON laws, and Louisiana will soon follow suit.
1985: Louisiana’s “Cajun King,” the infamous Gov. Edwin Edwards, gets into trouble with CON laws. In the ”hospital hayride” scandal, Edwards is accused of selling hospital and nursing home permits to friends for $10 million in profits. The feds say Edwards has rigged the CON system, grabbed millions, and threatened the survival of rural hospitals. He faces a maximum sentence of 265 years but jokes that he’s healthy enough to outlive any sentence. “This [the trial] is just an inconvenience for him,” says his press secretary.
1986: The hayride falters. A federal grand jury indicts Edwards, and the man who bragged about surviving 11 grand jury investigations is headed to trial. But the jury deadlocks, and he gets off.
1993: North Carolina updates its CON laws. This is the last time it will adjust the monetary thresholds that trigger CON laws for inflation.
1986: Congress sours on CON laws. As Congress scraps its CON mandate, the feds say it “failed to control healthcare costs and was insensitive to community needs.” By the end of the decade, 19 states will have repealed or shrunk their CON laws.
1996: Pennsylvania eliminates its CON laws, despite protests from the governor and hospital special interests.
2004: The feds slam CON laws for restricting cancer patients’ access to treatment. CON laws are “jeopardizing” patient care and making health care unaffordable, say the Federal Trade Commission and the Department of Justice. They conclude, “CON programs aren’t successful in containing health care costs, and that they pose serious anti-competitive risks that usually outweigh their purported economic benefits.” They worry hospital systems can squeeze any doctors who try to compete.
2004: Scandal stains Illinois’ CON laws. CON board member Stuart Levine flexes his authority to extort millions of dollars from a Chicago medical school and a charity. He also is charged with blocking hospital projects — until they gave a cut of the action to his friends in construction and finance. He is eventually sentenced to more than five years in prison.
2004: Convicted felon and former Illinois Gov. Rod Blagojevich promises a “fresh start” for the state’s CON laws. Blagojevich won’t deliver that fresh start — the same investigation will later put him behind bars.
2005: Federal authorities indict Levine for using the CON process to squeeze hospitals for favors, kickbacks, and cash for his political friends. The president of Edward Hospital testifies that his “pay to play” schemes targeted her hospital because the “temptation for corruption is huge” under the CON process.
2005: The feds charge Alabama Gov. Don Siegelman and HealthSouth founder Richard Scrushy, who are accused of using CON laws to crush competing hospitals and doctors. The prosecution alleges that Scrushy “would and did use his seat on the CON Board to attempt to affect the interests of HealthSouth and its competitors,” and that Scrushy “would and did offer things of value to another Board member to attempt to affect the interests of HealthSouth and its competitors.” A federal grand jury indicts Scrushy and Siegelman. Scrushy spends six years, 10 months in prison, and Siegelman gets five years.
2006: Patients in Maui don’t have critical medical services, but they won’t get a hospital, either, because of CON laws. The island’s only hospital is state-run, needs renovation and can’t handle cardiac cases or premature infants. Doctors must fly patients to Honolulu for critical care. A private hospital wants to set up in Maui, but the incumbent hospital objects to the competition. The state shoots it down, forcing more than 350 cardiac patients to fly off-island each year.
2008: The Federal Trade Commission and the Department of Justice take a swing at Illinois’ CON laws, saying they “undercut consumer choice, stifle innovation and weaken markets’ ability to contain health care costs.”
2008: Florida Gov. Charlie Crist escalates his quest to repeal CON laws and achieves some reforms.
2009: North Carolina’s governor puts the CON State Health Coordinating Council under some ethics requirements. This is the first time they can’t vote on issues that concern themselves or their employers.
2011: The CON process earns itself some unflattering epithets. The system, a study says, is described as a “food fight,” a “valuable tool to block physician-owned facilities,” an engine for mediocrity, and a crony-capitalist bludgeon. “Certificate-of-need programs tend to be influenced heavily by political relationships, such as a provider’s clout, organizational size, or overall wealth and resources, rather than policy objectives,” says a study from the National Institute for Health Care Reform. Researchers say hospitals use CON to “‘keep tabs’ on competitors and block new entrants.” Worse, they report seeing large hospitals keep “smaller hospitals out of a market by tying them up in CON litigation for years.”
2015: New Hampshire axes its CON program.
2015: Iowa’s mental health system might be “in crisis,” but no one is going to do anything about it. Two incumbent providers shoot down a proposed 72-bed inpatient mental health facility. They block its application for a CON, ignoring their own published warnings that “[t]he needs of the sickest and the poorest of our community are not being met.” They delay any decision on the CON for more than two years.
2017: West Virginia frees telehealth, remedial care, ambulatory health facilities, and imaging services from CON restrictions.
2017: Trouble is brewing for North Carolina. States with CON laws have 30% fewer hospitals per 100,000 residents, finds a study from the Mercatus Center. States with CON laws have 131 fewer acute hospital beds per 100,000 people than non-CON states. Rural residents also find themselves with fewer rural hospitals.
2018: A doctor wants to offer affordable medical scans to poor patients in Winston-Salem. But CON laws block him from buying an MRI machine — even though he would save patients thousands of dollars. Surgeon Dr. Gajendra Singh sues to overthrow the CON regime as unconstitutional and monopolistic. He becomes locked in a legal battle against the state and its most powerful hospital systems.
June 2019: Florida discards entire sections of its CON laws.
January 2020: If Singh wants an MRI scanner, he will have to get a CON from Novant Health or Wake Forest Baptist Medical Center. The two boast billions in unrestricted reserves, and they hold all the CONs for Forsyth County’s 17 MRI scanners. “I have no doubt that his odds of getting an MRI against those two companies, once they’ve decided to knock him out, is zero,” says Superior Court Judge Gregory McGuire.
February 2020: It might have taken 15 years of legal battles with the competition, but a South Carolina hospital system finally wins permission to build a medical center. It had to appeal all the way to the state Supreme Court for the privilege, due to the CON process.
March 2020: North Carolina diagnoses its first case of COVID-19.
March 2020: Experts warn CON laws could cripple North Carolina’s response to the COVID-19 pandemic. Hospitals can’t add beds without getting state approval — and the State Health Coordinating Council doesn’t meet until June.
March 12, 2020: Gov. Roy Cooper waives CON restrictions on hospital beds.
March 24, 2020: But North Carolina is still critically behind the rest of the nation. States with CON laws have 1.3 fewer hospital beds per 1,000 people than states without CON laws. That’s deprives them of almost 50% of the national average of 2.8 hospital beds.
March 27, 2020: Cooper shuts down the state and orders people to stay at home for 30 days. He says the state must slow the spread of COVID-19 or risk running out of hospital capacity.
April 8, 2020: Cooper waives more CON regulations.
April 24, 2020: Singh’s imaging center folds. He couldn’t survive the combined pressure of fighting CON laws, the shutdowns, and the coronavirus pandemic. The middle class and the poor lose their access to affordable medical scans. But a new challenger steps forward. Ophthalmologist Dr. Jay Singleton sues to overthrow CON laws after his patients can’t afford cataract surgery. Singleton could fix cataracts for less than $1,800 in his office. But the local hospital CarolinaEast charges almost $6,000 for the facility fee alone, the lawsuit says, and some hospitals charge as much as $12,758 in the Triangle area.
Dec. 8, 2021: Cooper enacts a curfew, citing concerns about the spread of COVID-19 and hospital capacity.
Jan. 2021: The pandemic has effectively suspended CON laws across 24 states that have kept them.