Regulatory changes could clear the way for further U.S. healthcare expansion

healthcare professional discussing regulatory changes impacting real estate expansion in america

In our series examining industry-specific drivers for changes in U.S. healthcare delivery, and how those changes affect real estate needs, we have highlighted consumerism, financial pressures and America’s shifting demographics simultaneously forcing providers to play catch-up and providing opportunity for significant growth.

One additional driver that significantly overlaps real estate is the slow and steady weakening of Certificate of Need (CON) regulations at the state level. As states relax or outright repeal their respective CON laws, a significant barrier to entry is removed, making way for a likely increase in competition for outpatient surgery, inpatient rehabilitation, nursing homes and many other services. 

CON laws require healthcare providers to receive permission from state governments before adding or expanding specific types of facilities. These regulations were originally introduced with the stated intention of controlling healthcare costs by limiting unnecessary growth and improving the quality of some specialty procedures. Many analyses have been conducted on the effectiveness of CON laws, but the results are mixed according to BMC Health Services Research’s 2020 review of 90 studies on the topic. What is more obvious, however, is that the presence of CON regulations generally impedes competition by allowing incumbents to use their lobbying power to successfully appeal when another party is awarded a CON.

Although the CON framework is generally believed to dissuade potential new entrants in a market, the results are no less frustrating for communities when only local incumbents are involved in a competitive CON bid. The CON awarded to Piedmont Medical Center for a 100-bed hospital in Fort Mill, South Carolina, is a prime example.  Piedmont originally won the CON in 2006. Atrium Health and Novant Health appealed, and the state awarded the CON to Atrium in 2011. After another appeal by Piedmont, the state re-awarded the CON to Piedmont in 2014. Atrium filed further appeals, and ultimately Piedmont retained the CON. The new hospital finally opened in September 2022, 16 years after the initial CON was awarded. Cases like these serve as strong examples of a well-intended regulation not serving its community well and ammunition for those interested in repealing or weakening existing regulations. 

More attention on the Sun Belt

As noted in our recent analysis of U.S. population shifts, several Sun Belt states are experiencing significant population growth. Some of these same states have strong CON restrictions and their legislatures are discussing changes to the restrictions up to and including complete repeals. 

Heat map of regulated healthcare services by state in 2020

The South Carolina Senate voted to repeal their CON regulation in January of 2022, but the bill stalled in the State House. As widely expected, the topic of CON repeal is back in front of South Carolina legislators early in 2023. Similarly, legislators in North Carolina are making noise about weakening their CON laws, perhaps to be packaged with a long-discussed expansion of Medicaid. And followers of state politics in Georgia are expecting CON discussions to be prominent in 2023.

The timing and scope of potential changes to CON regulations in these states, and others, may be unknown but it is safe to assume the changes will only weaken current laws, providing significant opportunities for investors and unlocking a new level of competition in strong and growing markets.

The compass to navigating regulation

With CON regulations likely to weaken in multiple states also experiencing significant population growth, proactive investors and healthcare providers will begin to acquire land in optimal areas. More cautious participants will wait until the regulatory changes are imminent before making their moves. But both groups will need targeted and predictive data to help prioritize markets, neighborhoods and parcels for specific clinical services. Fortunately, there are readily accessible tools, like Avison Young’s AVANT suite, that leverage demand and competition while simultaneously tracking and optimizing footprints for stronger, more transparent decision making.

Reach out to our experts to discuss and analyze your portfolio using our AVANT suite.

Jacob Crawford

    • Global Product Owner - AVANT, Healthcare
    • Research
[email protected]

Todd Ohlandt

    • Principal, Avison Young Consulting Services
    • Consulting & Advisory
[email protected]

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