Deregulation in the Healthcare Industry Will Open the Door for New Opportunities and Providers Must Act or Be Left Behind
Key Takeaways:
- Outpatient Growth Requires Action: Healthcare is shifting rapidly toward outpatient care. Providers must act now — through partnerships, acquisitions, or new builds — to stay competitive.
- CON Deregulation Creates Opportunity and Risk: Loosening Certificate of Need laws opens markets but increases competition and financial risk for legacy providers.
- New Entrants Are Disrupting the Market: Non-traditional providers and tech-driven models are gaining ground. Traditional systems must adapt or risk losing relevance.
The healthcare industry continues to adapt to new market realities as the site of service continues to evolve away from traditional hospital settings and toward new outpatient settings. This evolution is something that has been discussed for many years, but has been a talking point rather than an action item for many health systems. However, based on the mandate from the payors and the new White House Administration, the message is clear to “reduce costs and improve patient outcomes/experiences now!”
Health systems and other providers who continue to ignore the reality of the new healthcare world will be left behind. These providers must explore ways to get in the outpatient game whether that is DeNovo centers on their own, joint venture opportunities with management providers/physicians or acquisitions of struggling or mothballed centers.
There is one caveat or barrier to entry that has hindered these opportunities historically, which is the CON program red tape that exist in many states. CON programs were well-intended when first established two generations ago, when delivery of care shifted from home-based settings into traditional brick and mortar inpatient facilities. However, technology, patient preference and increased costs have moved today’s delivery of care towards outpatient settings, and state governments are starting to respond by scaling back these CON barriers to entry in order to accommodate.
Six Things to Know about Certificate of Need Program Changes
1. What is a Certificate of Need program?
Certificate of Need (CON) programs are intended to moderate healthcare costs and curtail the duplication of healthcare services absent a demonstrated community need. These programs allow state agencies oversight of healthcare services and facility construction. Not only are CON programs state specific, but they are usually accompanied by a plethora of other state regulatory requirements including licensing. Differences that can vary state to state include facilities/services covered, geographies covered by the CON, expiration dates and the ability to transfer an existing CON. CON programs typically represent the most challenging regulatory hurdle that must be overcome before Medicare licensure can be applied for and services can be provided.
2. Which U.S. States have implemented Certificate of Need programs?
State governments generally began implementing Certificate of Need programs in the mid 1970’s in response to requirements related to Federal funding mechanisms. Today, there are 35 states with CON programs in place, three with CON program variations, and 12 without CON programs. Most states will refer to their programs as “Certificate of Need” while some states have alternative names such as “Facility Need Review” in Louisiana and “Determination of Need” in Massachusetts.
3. Support and Criticism of CON Programs
Supporters of CON laws say that CON programs limit healthcare spending and price inflation, help provide services in areas that might otherwise be ignored and allow public input on the need for new healthcare facilities/services. Critics state that CON laws hinder market competition, and a lack of competition can lead to monopolies and oligarchies that can inflate prices to the end user (patients). In addition, the opposition will argue that these programs lead to reduced access to care and lack of patient choice.
4. What is the future of CON programs?
Half a century after the Federal government’s push for State regulations in the 1970s, Washington has now changed its position. The second Trump administration has a focus on growth through reduced government barriers and oversight. Therefore, it is logical to conclude that the White House’s position will be in favor of reducing hurdles that curtail growth and development, even if these programs were implemented with good intentions originally.
Even if certain facilities are not covered under certain states’ CON programs or the state does not have a CON program at all, local government entities in the past have issued moratoriums on certain facility licenses, which essentially have created an impossible barrier to entry in that state. There is no current or clear insight to whether even if CON were eliminated, would these moratorium capabilities also be limited/removed.
It remains to be seen what the future is for the CON programs, but continued pressure from the payors, patients and White House makes drastic reform seem imminent.
5. What are some current states that are seeing large reform?
In 2024, there were 12 states that passed legislation that in some way modified the state’s current CON law in some fashion. These states included: Connecticut, Georgia, Iowa, Kentucky, Massachusetts, Nebraska, Oklahoma, South Carolina, Tennessee, Virginia, Washington and West Virginia.
Three states passed legislation that commissioned studies to understand further the impact of CON requirements and how they improve/harm patient care and costs. These state commissions vary in terms of size and scope with some of these states being more facility specific while others remain more high-level and further reaching.
At least four states passed legislation in 2024 that exempted psychiatric facilities from state CON requirements as focus intensifies for these facilities to be built and available to their state constituents.
6. What are the opportunities and threats of deregulation of CON programs?
Opportunities:
- Healthcare investment decisions will be driven by demand and supply of healthcare services as operators can enter new markets, expand operations, and offer new service lines without legacy regulatory restrictions.
- Health systems will be able to customize their service offerings to meet the needs of the communities they serve, rather than facing regulatory hurdles.
- Access to healthcare and patient choice is likely to improve.
Threats:
- Existing providers are likely to face increased competition where demand exceeds supply.
- Healthcare systems looking to sell a service line previously subject to CON regulations will likely see a moderation in purchase prices.
- Provider organizations that have grown operations in Florida by purchasing healthcare entities previously subject to CON regulations face potential impairment of any CON assets and goodwill on their books. Elimination of CON requirements as in Florida is considered a triggering event for many entities and will require testing of goodwill impairment, even if the private company alternative was elected.
- Industry trends that threaten traditional providers’ market share include surgical volumes shifting to outpatient settings, private equity investments in outpatient programs and emerging micro hospitals in urban and rural areas.
- Non-traditional new players entering the market also pose a threat to the traditional providers of service which include virtual health providers, payors transforming to providers, at home provider services, etc.
Rethinking Growth: Why Traditional Healthcare Models Must Adapt or Fall Behind
With the technological advances that are coming to market daily, it is important that healthcare providers remain adaptable and move with change rather than resisting. Critics of the CON program would argue that these regulations are antiquated based on the current market and too restrictive given the goals tasked to the overall healthcare market of overall reduction of costs. It seems inevitable that the push will continue for the stripping down of these regulations or the expansion of cost thresholds within the regulations. With the delivery of care models changing right before our eyes and the entrants of new non-traditional providers, traditional healthcare providers are going to have to rethink their growth strategies if they want to maintain the market share that used to be protected somewhat by strict CON regulation.
The healthcare landscape is shifting fast. If you’re evaluating how deregulation or new market entrants could impact your strategy, LBMC’s Healthcare Advisory and Valuation experts can help. Connect with our team to discuss your options and chart a proactive path forward.
Content provided by Cody Taylor, Senior Manager in LBMC’s Valuation practice. He can be reached at cody.taylor@lbmc.com.