As Reforms Open Health Care Floodgates in SC, Rural Areas Remain Parched

A major change in health care regulation is causing many South Carolina hospitals to redo plans for expansion and could lead to a flurry of activity from pent up demand, experts and hospital officials said.

But it may not be the catalyst for investing in underserved areas that legislators had hoped, as states like Texas saw many of its rural hospitals close following its reform.

As restrictions on South Carolina health care facilities go away, a gleaming new surgery center popping up next door to a struggling rural hospital would actually be a dream scenario for Lari Gooding.

“We don’t do any surgery here at our hospital so if an ambulatory surgery center did decide to open up next door, that just benefits us,” said Gooding, CEO of Allendale County Hospital.

But in one of the poorest counties in the state, “I am not sure that we are going to see a lot of outside investment,” he said.

Gov. Henry McMaster signed a bill May 17 doing away with much of the state’s Certificate of Need law in stages, eliminating some rules on July 1 and most of the rest on Jan. 1, 2027. That law required state approval for new hospitals and many other facilities, significant changes in the number of beds or purchasing expensive new equipment.

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

Health care restrictions in each state were enforced by a federal law in 1974 as a way to curb overspending due to a generous Medicare formula. But by the mid-1980s, when that funding was tightened, agencies backed away from the program and many states began to repeal or modify their rules. South Carolina was among 35 states that still had some form of the regulations in place, including neighbors Georgia and North Carolina.

The restrictions have been defended by hospitals and others as necessary to keep down health care costs and prevent cherry-picking of insured patients and profitable procedures that many hospitals need to off-set losses from less lucrative services and indigent patients. The most profitable health services are those that involve procedures, like surgery or catheterizations, while services like pediatrics and primary care are the least profitable but necessary, said Thornton Kirby, CEO of the South Carolina Hospital Association.

But for at least the past decade, conservative and free-market forces have aggressively targeted the laws, complaining that they are stifling competition and inhibiting growth in much-needed areas. It comes down to choice, said Dr. Marcelo Hochman, past president of the Charleston County Medical Society and president of the Independent Doctors of South Carolina. He has spent the past several years lobbying against the law “just to open the doors for patients and doctors to have more options.”

That view finally prevailed in the legislature.

“It was a good idea perhaps at the time, but it was time to be repealed,” said Rep. Sylleste Davis, R-Moncks Corner, who championed the reforms. “South Carolina is growing at such a rapid rate that we can’t even keep up with the … health care services and health care options that people need and want.”

Even the hospital association, which had opposed various repeals over the years, saw it was time for the law to change.

The law “has always been a two-edged sword,” Kirby said. “It inhibits you from doing things you might want to do but it also prohibits potential competitors from doing the same.”

Immediate Impact

After July 1, many of the restrictions come off facilities that provide health care outside the hospital setting, such as the surgery centers. Restrictions on new hospitals and adding new beds will continue for another three years. The full regulations continue for nursing homes.

Some projects that are currently being blocked by appeal, such as a Free-Standing Emergency Department that MUSC Health wants to build in Berkeley County, would be able to proceed, CEO Patrick Cawley said.

The delay for hospitals was deliberate and intended to “level the playing field” between the established health care systems and potential new entrants, Davis said. Part of that was also requiring new surgery centers to provide indigent care as well, she said, of at least 2 percent of adjusted gross revenue if they accept Medicaid patients or 3 percent if they do not.

There was one notable exception to the hospital rules that takes effect this year: hospitals can move within their current county without getting approval. The biggest beneficiary of that exception is Roper Hospital, whose move from downtown Charleston to a new campus in North Charleston could have been held up for years by appeals under the current system.

“We think it is important to get moving with our new site and this allows us to get going, which is great, without any undue delay,” said Dr. Jeffrey DiLisi, CEO of Roper St. Francis Healthcare System. MUSC Health also has a project moving a hospital within Lancaster County where the exemption could potentially apply.

Without the previous restrictions, Roper is now revisiting plans because much of the previous work was “dependent on what you need to ask permission for or not,” he said.

It will likely change the thinking on a lot of hospital expansions going forward, said Cawley of MUSC Health. Knowing it could take 6-10 years to get a project through all of the appeals under the current system, a hospital would “load up” a request and ask for the maximum amount of beds or equipment it might need for the future in hopes it would not have to come back and ask for more.

“So there is a tendency (under the current system) to maybe to build things a little bigger,” Cawley said. “When there is no (approval), then you start to think about, wait a second, I don’t need to get it correct on the first try. I can go smaller and then simply add on multiple times over the years.”

The new freedom, even if some of it is delayed, is welcomed by Christina Oh, CEO of Trident Health System, which includes facilities in the Charleston area and Colleton County.

“The passage of this bill will allow us to do what we are already doing faster and in more places,” she said. Oh points to the new free-standing Emergency Room on James Island, set to open this summer, as the kind of facility Trident could place faster in areas where it sees a need.

“There are other communities that don’t have access to care services so we will able to do that more quickly,” she said.

Those free-standing Emergency Departments and the surgery centers, concentrated in certain areas, are what typically spring up after the restrictions come off, MUSC’s Cawley said.

“In high-growth states where (approvals) have been repealed, that is definitely one of the things you’ve seen,” he said, although South Carolina already has a number of them.

Where the growth is

In the Palmetto State, that initial spurt of investment will likely be concentrated in a few spots, said Kirby of the hospital association.

“You’re going to see much more investment in health care facilities in the biggest growth markets, the urban centers,” he said, most likely Charleston, Greenville, Spartanburg and Horry County. And it is not going to suddenly “spur a great deal of health care investment in a lot of the really poor counties where there is no hospital currently,” Kirby said.

Getting rid of the restrictions doesn’t seem to help rural counties all that much, based on the experience in other states. In Texas, for example, where the laws have not been in effect since the mid-80s, the state actually leads the country in rural hospitals closing. There have been at least 60 closures since that point, although some appear to be replaced with a free-standing emergency department or re-opened with limited services, according to data from the Texas Organization of Rural and Community Hospitals. And more than one in four rural hospitals in Texas were at risk of closure in 2022, according to a report from the health care analyst firm Kaufman Hall.

In Georgia, significant changes to its health care regulations in 2019 limited who could oppose a provider asking for the state license to build. In many areas of Georgia without a hospital, particularly those counties south of Macon, “you would think people would go into those areas knowing that no one could oppose them and open up new hospitals. And it is just not happening,” said Anna Adams, executive vice president-external affairs for the Georgia Hospital Association. “That’s because there is no payer source in those areas. You have to be able to keep your lights on and your doors open to offer those services.”

Historically, repealing the laws has resulted in new hospitals and existing facilities “offering new types of services that they weren’t before,” said James Bailey, an economist at Providence College in Rhode Island who has extensively researched the impact of CON laws.

But other impacts, such as on health quality and the price of health care overall, is likely to be more modest, he said.

“If you squint, if you look carefully, you might see this reduction in prices and spending,” Bailey said.

Those in the rural areas of great need, like Gooding in Allendale, aren’t expecting a flood of interest when the restrictions come down.

“Investment in Allendale is tough,” he said. And with a patient population that is more than 70 percent Medicare or Medicaid, with few higher-paying private pay patients and the rest uninsured or self-pay, it is unlikely to catch the eye of someone looking for big returns.

But the new law can be a benefit to Allendale as it looks to somehow replace a 70-year-old facility that demands constant repairs. Being able to move within the county means a new hospital could be built closer to Barnwell County, which lost its hospital in 2016, Gooding said. Then again, a similar idea to build a regional medical center for Allendale, Barnwell and Bamberg counties died amid parochial squabbles about where it would be located, with each one demanding it be built there, he said.

“There’s a lot of politics you have to fight through,” Gooding said.

State approval, he said, would be one less headache after that.