Certificate of Need: Protecting Public Interests

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Certificate of NeedProtecting Public Interests
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on behalf of the Missouri Health Facilities
Review Committee

• Thomas R. Piper

Director, Missouri Certificate of Need Program
a presentation to the Missouri State Senate
Interim Committee on Certificate of Need Senate
Hearing Room 2, State Capitol Building,
Jefferson City, Missouri 100 pm, Tuesday,
August 1, 2006
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Certificate of NeedProtecting Public Interests
Topics
CON Background Significant State ChangesFederal
Trade Commission Study
Free Market and Competition Business Health
Studies Rationale
Benefits
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Milestones in Health Planning Early History
pre-WWI Flexner report (revolutionized medical
education) pre-WWII Social Security Act
(universal health ins.) post-WWII Hill-Burton
(develop modern hospital infrastructure) Middle
History mid-60s PL 89-97 Soc. Sec. Act
Medicare Medicaid (Titles 18 19)
PL 89-749 Comp. Health Planning Act
(quality, cost, access) mid-70s SSA-1122
Capital expenditure controls
PL 93-641 Natl. Health Planning Res. Dvlpmt.
Act new authority for health
planning regulation Recent History mid-80s
DRGs control through purchasing, not supply
Federal support for planning CON
regulation terminated Managed
care emerges (popularizes competition) Today
Striving for BALANCE . . . regulation
competition
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Milestones in Certificate of Need The Concept
1964 Rochester, New York (model for the
nation) Marion Folsom (prev. of DHEW), works
with Kodak (and other businesses) and Blue
Cross to establish community health planning
council (grass roots movement of payers,
consumers and providers who initially evaluated
hospital need) Voluntary Regulation
1966-1975 New York State, followed closely by
Maryland, Rhode Island and the District of
Columbia, lead the establishment of CON
programs in 58 of the states before the
federal mandate. Mandatory Regulation
1976-1983 the remaining 21 states (except
Louisiana) complied with PL 93-641 Health
Planning law
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(No Transcript)
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broadly diverse regulation
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capacity boom
Ohio
Impact of Deregulation (first 4 years) 19 new
hospitals (15 were LTCHs) 137 surge in outpat.
dialysis stations 280 increase in radiation
therapy 548 jump in freestanding MRIs 600
explosion in ambulatory surg. ctrs.
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restoration?
IndianaPennsylvania
Reinstate CON Indiana repeated efforts
Pennsylvania strong efforts (experiment in
quality control through licensure not
effective)
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July 2004 FTC/DOJ Report AHPA
CritiqueImproving Health Care A Dose of
Competition
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July 2004 FTC/DOJ Report Specific
Certificate of Need Message

• Report encourages movement to a consumer driven
  health care system that relies on market forces
  to determine costs (prices), access, and quality
  it clearly cautions against
• CON regulation and health planning
• Over-reliance on health insurance
• The system-distorting effects of Medicare and
  other
• administered pricing schemes
• Economic cross-subsidies within the system
• Government-imposed service mandates
• Attempting to control prescription drug prices
• Permitting collective bargains by physicians
  and
• Any other action or process that might limit
  competition
• or the full application of market forces.

Healthy competition equals healthy consumers.
Consumers want high-quality, affordable,
accessible health care, and the challenge of
providing it requires new strategies, said FTC
Chairman Timothy J. Muris
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July 2004 FTC/DOJ ReportIntent of the Message

• Recommendation 2. States should decrease barriers
  to entry into provider markets.
• a) States with Certificate of Need programs
  should reconsider whether these programs best
  serve
• their citizens health care needs.
• b) States should consider adopting the
  recommendation of the Institute of Medicine to
  broaden the
• membership of state licensure boards.
• c) States should consider implementing uniform
  licensing standards or reciprocity compacts to
  reduce

The Agencies (FTC and DOJ) believe that, on
balance, CON programs are not successful in
containing health care costs, and that they pose
serious anticompetitive risks that usually
outweigh their purported economic benefits.
Market incumbents can too easily use CON
procedures to forestall competitors from entering
an incumbents market. As noted earlier, the vast
majority of single-specialty hospitals a new
form of competition that may benefit consumers
have opened in states that do not have CON
programs. Indeed, there is considerable evidence
that CON programs can actually increase prices by
fostering anticompetitive barriers to entry.
Other means of cost control appear to be more
effective and pose less significant competitive
concerns.
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• Marketplace Issues Revealed

• Capital costs in health care are passed on to the
  consumers.
• Competition in health care usually does not lead
  to lower charges
• providers control supply
• demand is determined by providers
• consumers lack adequate information.
• Consumers do not (and usually can not) shop for
  health care, at least, not based on price or
  quality (usually unavailable).
• Increased capacity costs lead to higher delivery
  charges.
• Consumers do not pay most of the cost, and do not
  really know the true cost of, or charges for,
  most care (third-party payers do).
• Providers have no direct incentives to lower
  charges or utilization.

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• CON Unique Regulatory Concept and Tool

• Planning-based, analytically-oriented,
  fact-driven
• Open process, with provision for direct public
  involvement
• Structured to compensate for market deficiencies
  and limitations and foster market efficiency
• Unlike licensure and certification with their
  leveling effects, designed to highlight and
  accentuate quality
• Promotes economic and quality competition within
  the context of health care market realities
• Doorway to excellence rather than barrier to
  market entry

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• CON Unique Regulatory Concept and Tool
• What the record shows (part I)

• CON focuses on access and quality
• CON seeks to improve economic and social access
• promotes equal access to health care
• advocates community, patient and provider equity
• CON elevates quality best practices, high
  standards
• CON promotes fiscal responsibility by requiring
  the use of sound economic and planning principles

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• CON Unique Regulatory Concept and Tool
• What the record shows (part II)

• CON responds to the realities of market forces
  and related circumstances
• CON discourages market segmentation, cherry
  picking and monopolistic practices
• CON opposes anti-competitive forces and actions,
  such as community abandonment
• CON realities actual experience of business . .
  .

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Big-Three Automakers Health Care Costs non-CON
vs. CON states
up to 164 lower
CON states have lower health care costs than
non-CON states!
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Big-Three Automakers Health Care Costs non-CON
vs. CON states
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nearly a third less
CON states have lower health care costs than
non-CON states!
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Big-Three Automakers Health Care Costs non-CON
vs. CON states
about 20 less
CON states have lower health care costs than
non-CON states!
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Big-Three Automakers Health Care Costs non-CON
vs. CON states
11-39 lower
CON states have lower health care costs than
non-CON states!
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Freestanding Ambulatory Surgery Center Charges
non-CON vs. CON states
over 25 lower
CON states have lower freestanding ASC charges
than non-CON states!
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CABG Mortality non-CON vs. CON states
gt20 diff.
CON states have lower mortality for CABG surgery
than non-CON states!
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Missouri CON has been effective

• Saves money by restraining 145 in unneeded
  expenditures for every 1 invested
• Ensures accountability through public meetings,
  notices and other transparency
• Protects the community by limiting unnecessary
  health care services and
• Promotes planning through sound management and
  community need assessment.

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CON applications intended . . . but not submitted
MHFRC actions
Missouri CON 1991-2005
application fee net revenue in excess of expenses
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Consequences of Eliminating
Public Oversight

• Splinters the provider delivery network which
  causes staffing shortages, which in turn lowers
  quality and fragments the health care support
  system.
• Threatens safety net facilities like trauma
  centers, medical education hospitals, low-income
  neighborhood facilities . . .
• over 600,000 uninsured in Missouri.
• Creates high-profit niche markets such as
  specialty hospitals and outpatient service
  centers for diagnostic imaging, ambulatory
  surgery and radiation therapy.
• Supply drives demand! supply generates demand,
  putting traditional economic theory on its head.
  Areas with more hospitals and doctors spend more
  on health care services per person.
• - Hospitals Health Networks review of the
  Dartmouth Atlas, April 5, 1996.

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• Health Care Public Oversight is Needed

• Prices for health care services going up almost
  8 annually, compared to less than 3 inflation
  for most other services.
• Health care spending divides out to 6,280 per
  person, which is 16 of the gross domestic
  product . . . this spending is projected to reach
  20 by 2015 if current levels continue.
• Employer insurance premiums increased by 9.2,
  which threatens the ability of business to
  effectively compete in the domestic and world
  markets.
• High cost of health care dipping into retirement
  reserves.
• Average cost of nursing home care is over 60,000
  per year.

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Balance Regulation and Competition Protect
Public Interests
Promote the development of community-oriented
health services, equipment and facility plans,
Achieve cost containment, reasonable access and
local accountability through public oversight,
and Provide a public forum to ensure that the
community has a voice in health care development.
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Certificate of NeedProtecting Public Interests
Thank you, any questions?