Nursing Home Construction, Innovation Stymied By CON Laws and Tariff Threat

Existing and new roadblocks to construction and innovation in the nursing home sector are being felt across the country, with the repeal of certificate of need (CON) top of mind for providers in certain states, as higher tariffs are also expected to impose challenges down the road. 

The CON law generally requires providers to receive specific permission from the government before building skilled nursing facilities, as well as hospitals and other sites of care. And in the midst of these CON laws, U.S. President Donald Trump’s tariffs – expected to be around 25% on goods from Canada and Mexico, and 10% tariffs on goods from China pose just another hurdle for nursing homes to overcome.

“This is going to create another hurdle … and we need new development. Our infrastructure is horribly dated and demand continues to increase,” Steve LaForte, director of corporate affairs and general counsel with Cascadia Healthcare, told Skilled Nursing News. “We need more beds, and we need more access, and increasing the cost of construction is not going to help us. There needs to be a way to get to a broad-based solution for limited sectors of the economy.”

And so, between CON laws and tariffs, nursing home operators have their work cut out for them when it comes to new construction, even as closures mount, and rising demand amid staffing shortages is likely to exacerbate access issues.

The American Health Care Association and National Center for Assisted Living (AHCA/NCAL) in August reported that at least 774 nursing homes have closed since 2020, displacing 28,421 residents. About 20% of nursing homes have closed a unit, wing, or floor due to labor shortages.

Idaho-based Cascadia, operates 58 facilities across five western states, including Washington.

Washington was notoriously difficult for new nursing home construction – that is, until the state had dozens of closures brought on by a confluence of interest rates, Covid and labor shortages, said LaForte.

Now, it’s much easier to get a CON in Washington despite the law itself still being in place, but then operators still need to contend with inflated labor costs and material costs, he said. And that doesn’t even take into account potential tariffs.

The pros and cons of CON

While 35 states have CON laws, about 12 states have fully repealed their CON programs, according to the National Academy for State Health Policy.

The latest to join the bid is West Virginia. State legislators are considering repealing their certificate of need law, with some experts explaining that it limits access to health care, increases costs and fails to improve quality – all while stifling innovation.

Other leaders in the state argue that the CON law provides a “balanced methodology” to maintain staffing needs in a rural state like West Virginia, as nursing homes and other CON settings are still experiencing a staffing shortage.

While building newer facilities improves access, some argue that there may not be enough workers to operate them. Meanwhile, others argue that even if workers were available, the newer facilities would threaten the existence of older ones, as resident admissions would favor the newer facilities, potentially impacting the margins of the older properties.

Marc Zimmet, CEO for Zimmet Healthcare Services Group, said CONs are in place to keep an even playing field for all nursing homes in a state. For example, a new facility would likely feature private rooms and spa-like amenities to attract more Medicare admissions, but there aren’t any pricing differences to the customer or payer, since Medicare rates are fixed and co-pays are universal, he said.

The older facilities lose Medicare admissions, Zimmet said.

“The argument for allowing new facilities is based on normal economic theory where competition drives down price and improves quality,” said Zimmet. “Skilled nursing does not follow normal economic principles. Prices are established by the payer, and quality is theoretically upheld by state surveyors.”

The right time to repeal CON?

Nevertheless, President Trump and lawmakers in many states believe the CON law is infringing upon the rights of business owners.

The first Trump administration called on individual states to eliminate CON laws. In 2018, the secretaries of the Health and Human Services, Treasury, and Labor departments at the time accused states of holding back innovation in health care through CON.

“It fits in ideologically with their philosophy. From an industry perspective, CON laws are anachronistic,” said LaForte. “I didn’t live through that time in health care, when a lot of [CON laws] were implemented. I suppose that there was reasonable policy rationale. But by and large, definitely for post-acute care, the rationale has been gutted.”

West Virginia Gov. Patrick Morrisey campaigned on repealing CON, and conservative free market groups have been lobbying the last several years to have CON repealed. The state House of Delegates’ Health and Human Resources Committee last year recommended for passage a House bill which would eliminate CON requirements for all health care services except hospice, but it wasn’t picked up at the time.

With so many leaders weighing in on the issue just in interim meetings, including one with the Joint Standing Committee on Health, it’s clear the fight over CON will be a major topic during the 2025 legislative session in the state, if not across the country.

And, CON laws aside, new construction faces many challenges, high interest rates notwithstanding.

Even non-CON states like Idaho still have processes that make it difficult to build, said LaForte. Cascadia couldn’t get an initial state survey secured for 18 months initially for one build, translating to millions of dollars in carrying costs until the building was in operation.

The wait “puts the project underwater forever,” said LaForte. “We were able to, through lobbying, get that knocked down to 60 days, which made it doable.”

Incentivizing the reimbursement of construction costs into the reimbursement rates could help new construction take off, said LaForte.

“I think it’s unfortunate that we can’t see a way to segregate some things relative to industries and persons most in need, like seniors and affordable housing,” said LaForte.