Officials at the Centers for Medicare and Medicaid Services (CMS) have said they would seek to support changes at the state level to strengthen competition, including addressing uncompetitive certificate of need (CON) laws.

While CMS didn’t elaborate at the time, nursing home leaders said incentives to do away with such laws may be likely, despite CONs being up to the states. It would take legislation tied to F-MAP funding – the federal government’s share of Medicaid – or an addition to the One Big Beautiful Bill Act (OBBBA) to incentivize competition, according to Pete Van Runkle, outgoing executive director for the Ohio Health Care Association (OHCA).

“Funding is really the only hammer they have,” said Van Runkle. And they can’t withhold funding just for having a CON law,” said Van Runkle. “That leaves them with not a whole lot more than just saying, ‘Hey, we’d like you to do this.’”

Howard Sollins, senior counsel at law firm Baker Donelson Bearman Caldwell & Berkowitz, said the federal government could use the Medicaid waiver program or managed care models to create exemptions from reimbursement incentives tied to the level of market competition..

“Those changes would have to take into account introducing additional actors into the marketplace, and also evaluating the extent to which there are constraints on existing providers undertaking projects to make themselves more competitive,” said Sollins.

An extra layer of government oversight

The original intention of CON laws drawn up in the sixties was to regulate the introduction not only of new construction, but also new services, new technologies and changes to existing health care facilities via federal law, according to Sollins.

“That law was essentially repealed, and some states abandoned their certificate of need laws and let market forces constrain and control competition,” Sollins said. “Others kept their certificate of need laws, but they were free to modify them to a greater extent than they had been in the past.”

Now, states utilize CON laws to control development of new health care facilities, major capital projects, and vet proposed owners and ownership change transactions, he said. They’re designed to control competition, and have been a concern of the Federal Trade Commission (FTC) in the past.

“There’s always been a concern by some about the degree to which certificate and need laws are good or bad because they interpose government control over the entry of new facilities into the marketplace,” said Sollins. “Some people are averse to them because they’re anti-competitive, and others favor them because they protect major capital investment in expensive health care facilities.”

Either way, there’s a need for greater capital investment in existing nursing home stock, which is aging, Sollins said.

In terms of population characteristics, there’s a greater need for nursing home services, and there’s a lot to be said for lifting government constraints on the ability of nursing homes to expand, renovate, relocate and invest in capital improvements to meet the needs of the marketplace.

States split on CON laws

For Ohio, CON laws are in place to foster stability and prevent over-bedding in nursing homes, according to Van Runkle.

“We believe that it creates or fosters stability in the system,” said Van Runkle. “The state has for many years been concerned about over-bedding going back 15 years and even longer, when Medicaid agencies were particularly concerned about it. That remains to be the case, although we’ve made progress over the years in finding incentives for taking beds out of the system.”

Medicaid agencies have also been concerned about the “efficient use of existing capacity,” meaning existing beds would go to a beneficiary with an insurance plan and condition that could get them the most reimbursement. Or, high acuity Medicare residents when there are more Medicaid residents needing placement.

Other states, like North Carolina, Nebraska and West Virginia, have actively been trying to remove their CON laws, with West Virginia earlier this year failing to pass legislation to repeal its CON laws by one vote in the House, and is being reviewed by the state Senate.

West Virginia Gov Patrick Morrisey named CON law repeals as a priority in his State of the Senate Address in February, according to a report from the West Virginia Watch.

In Nebraska, legislation introduced this year would repeal CON laws altogether but there hasn’t been movement on the bill since spring. The state currently requires providers to prove a need for a capital project via CON laws, the Pacific Legal Foundation found.

North Carolina seems to have the most luck seeking to repeal CON laws, which require approval from the North Carolina Department of Health and Human Services before a provider can build new facilities, expand services or add specialized equipment, WRAL News said in a report.

The legislation passed the state Senate and has been in review by the House since March.

New York, meanwhile, recently established a task force to look at CON laws, specifically the CON laws’ use in determining ownership changes, according to a report from law firm GreenbergTraurig. The state is considering whether CON laws are the best tool for ownership change oversight, or if there’s another regulatory tool that would be better suited for the job.

Van Runkle said CON laws in Ohio haven’t affected competition, since operators are still able to move beds around to build new buildings. This is the case even across county lines, if an operator is looking to expand its footprint.

“It’s not like everything is locked in place exactly as it is now,” said Van Runkle. “Providers all along have been able to replace buildings. A new provider can come in and if there are excess beds in an area, they can acquire those beds.”

What they can’t do is increase the total number of beds in the state, he said, but Ohio is still about 10,000 beds below the allotted number in the state.

“It’s just not the wild wild west. [CON laws] draw a good balance between free-form competition versus, not allowing it at all. We allow it, but it’s within guardrails,” Van Runkle said of competition in the state.