by Katherine Restrepo
Director of Health Care Policy, John Locke Foundation
Last week, I attended a health care breakfast panel where three North Carolina hospital CEOs talked about how competition brings out the best in their health systems. Competition is healthy. Competition is a beautiful thing.
The tone of the conversation abruptly changed, however, once the moderator posed the question about the legislature’s proposal to relax the state’s restrictive Certificate of Need (CON) law – where medical providers must first ask permission from the state, then ask their competitors to establish or expand their businesses.
Ever since the House filed HB200, a bill where one of its provisions would exempt multi-specialty same-day surgery centers, formally known as ambulatory surgery centers (ASCs), from needing a CON, those affiliated with the hospital association have been quick to counter that scaling back on red tape would put their hospitals at risk. If more provider-led surgery centers were to break ground, these facilities could take away hospitals’ most lucrative outpatient service lines they rely on to cover the losses incurred from providing required indigent care. For example, Novant Health’s surgery center operates on a 26 percent profit margin. Rex Healthcare, a subsidiary of UNC, projects an impressive 40 percent profit margin for its developing surgery center. 40 percent.
No doubt, outpatient surgery is big business for hospitals. According to Guy David, associate professor of healthcare management at Wharton School of Business, ambulatory care currently accounts for roughly 60 percent of hospital revenue, up from just 10-15 percent in the 1990s. Over 70 percent of surgeries in North Carolina and in the US as a whole are performed in some type of outpatient setting – whether it be hospital affiliated, physician owned, or a joint venture.
But what the hospitals don’t mention is that relaxing CON plays a huge break to patients, as independent ASCs are typically reimbursed by Medicare 45-60 percent less for the same procedure being performed in a hospital outpatient setting. Ever since Medicare approved reimbursement for free standing centers back in 1982, there has been a strong shift to outpatient surgical care. And, thanks to technological innovations, more surgeries are minimally invasive and can be safely performed in these focused factories.
While the House’s bill certainly steps in the right direction, the Senate has already filed to fully dismantle the law. Stay tuned for the first committee meeting on the issue on April 15.