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Zoe Devine

South Carolina CON Repeal Law – Impact on ASC Value Multiples

On May 16, 2023, South Carolina Governor Henry McMaster signed SB 164 into law. SB 164 removes the CON requirements for most health facilities in the state (except nursing homes, home health agencies, and the Medical University of South Carolina). This means new facilities and expansions can proceed without state approval through the CON process.



Certificate of Need (CON) laws are state regulations that require healthcare providers to obtain state approval before establishing or expanding healthcare facilities such as ambulatory surgery centers (“ASCs”). The goals of CON laws are to ensure the availability of healthcare services and safeguard against overutilization and unnecessary duplication of services that increase costs.

 

There are many arguments that CON laws do the opposite of what they are intended to do. South Carolina is just one state that has repealed its CON law to decrease barriers to entry and improve access to healthcare services. Despite these arguments, generally speaking, CON laws positively influence values for established businesses, as they make it more difficult and costly for competitors to enter a market. This is especially true in the ASC industry, where valuation multiples are higher for centers in CON states. 

 

So, what happens to valuation multiples when CON laws are repealed? Interestingly, in South Carolina, along with the repeal of SB 164, came some new requirements for ASCs entering the market. For example, ASCs established after May 16, 2023, must provide some amount of charity care (2% to 3% of adjusted gross revenue[1]). Facilities that offer invasive cardiac procedures must obtain accreditation from the American College of Cardiology, Accreditation for Cardiovascular Excellence, or another nationally recognized accrediting organization. ASCs must also have a written transfer agreement with at least one hospital that ensures a patient can be transferred to a hospital in case of an emergency.

 

So, even without a CON requirement, entering the South Carolina ASC market still involves some pretty significant administrative and financial burdens, which we expect will offset, at least partially, the impact of CON repeal on business values. South Carolina is also an indication of what to expect in other states considering CON reform – basically, that CON repeal may not mean unfettered growth and expansion for all healthcare businesses.


 

[1] If the ASC does provide care to Medicaid beneficiaries, it must provide equal to or greater than 2% of its adjusted gross revenue to charity or indigent care. If the ASC does not provide care to Medicaid beneficiaries, it must provide equal to or greater than 3% of its adjusted gross revenue to charity or indigent care.

 

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