Certificate of Need (CON) is a regulation that limits health care supply unless a specific “need” is determined by state health care planners. If medical providers have plans to build or expand an existing health care facility, offer new services, or update major medical equipment, they will most likely have to ask permission from the State Health Coordinating Council, known as “The SHCC.”
History explains Congress’ intent behind enacting CON laws under the federal Health Planning Resources Development Act in 1974 — the goal was to cut down on health care cost inflation. At that time, reimbursements for services were based on the costs of production, or a cost-plus system. Providers therefore had strong incentives to build and expand the capacity of health facilities, knowing they wouldn’t have to assess patient demand.
However, once the reimbursement system shifted to a fee-for-service prospective payment system, the federal government repealed the CON mandate in 1987, citing that the program did not effectively restrain health care costs. Fifteen states have since scrapped their CON programs. North Carolina burdens health care entrepreneurs with one of the most stringent CON programs in the nation, regulating over 25 services that range from kidney dialysis units to mental health services to ambulatory surgery centers (ASCs).
Despite the federal government admitting to CON’s inadequacies, the SHCC argues that centralized decision-making must remain intact to prevent duplicative services and underused facilities that may yield low-quality care.
- CON stifles competition because competing applicants can contest the state’s final CON award. Even parties unaffiliated with the application can appeal the state’s decision. For example, Triangle Orthopedic Associates (TOA), North Carolina’s largest private orthopedic practice, and Duke University Health System filed competing applications for a fixed MRI machine in 2004. TOA ended up winning the bid. While Duke did not petition against the decision, a separate company, Alliance Imaging, did. It had previously provided MRI services to TOA and feared the loss of business that would result if TOA procured its own machine.
- CON supporters agree that limiting health care supply raises health care costs. Hospitals further justify that cost-shifting health care costs onto paying patients helps offset total uncompensated care and ostensibly provides better access to indigent care. However, studies conclude that better metrics are needed to determine whether CON laws directly correlate with health systems providing more indigent care.
- CON supporters argue that the law helps preserve rural health care. For example, they contend that repealing the law could lead to a greater concentration of ambulatory surgery centers (ASCs) in more urbanized areas, which would attract more rural patients and put community hospitals at risk. But to the extent that market forces can operate under CON, patients are already migrating to access ambulatory surgical care outside of rural communities.
- Relaxing CON saves patients money and provides patients with more health care options. For example, independent ASCs – one of the facilities regulated under NC CON law – are typically reimbursed by Medicare 45 to 60 percent less for the same procedure compared to those being performed in a hospital outpatient setting. Today, over 70 percent of the 635,000 annual surgeries in North Carolina are performed in outpatient settings, and 70 percent of these surgeries are conducted in the highest-cost hospital systems.
- North Carolina did execute some reform in 2005, allowing gastroenterologists to perform colonoscopies in their own endoscopy units. Utilization of those services increased by 28 percent over four years, in part due to the state’s baby-boomer population, but overall Medicare savings still amounted to more than $224 million within six years, since procedures performed in free-standing facilities are reimbursed at a lesser rate than those performed in full-service hospitals.
1. Repeal Certificate of Need.