It’s going to take a while longer for the North Carolina Legislature to pass its two-year budget. Part of the hold up will be finalizing an agreement on reforming the state’s certificate of need (CON) law, which requires health systems and medical providers to first obtain a hall pass from the state, and then their competitors, before expanding or updating certain services or facilities. Some consider CON laws necessary to help restrain health care cost inflation by preventing an overinvestment in underutilized resources. Others interpret CON as the epitome of protectionism.
For more information on the House’s push for piecemeal reform and the Senate’s plan to do away with the law in its entirety, see my latest Spotlight report here.
A lingering sticking point, brought up by legislators committee meeting after committee meeting after committee meeting, is whether removing CON regulations will exacerbate the demise of rural health care. CON proponents have long argued that the law helps preserve rural infrastructure. Repealing the law, they contend, could lead to a greater concentration of health care facilities such as ambulatory surgery centers (ASCs) in more urbanized areas — ultimately attracting more rural patients and putting rural community hospitals at risk.
But even with the law intact, these patient migration trends have already taken shape. As the Harvard Business Review puts it:
"These hospitals are caught in a vicious cycle: Rural patients with serious health problems are traveling to cities to seek care from medical specialists, causing revenue declines at rural hospitals and clinics, which respond by downsizing and offering fewer services, causing more patients to seek care in major urban centers."
It is therefore questionable whether CON ensures access in medically underserved areas. The graph below highlights six counties representing mostly rural areas of North Carolina that do not have any existing free standing ASCs.
*The data on the above outpatient surgery patient migration patterns was collected from 2014 hospital and ASC license renewal applications. These applications must be submitted annually to the Division of Health Service Regulation, an arm of the state’s Department of Health and Human Services. With this data, the Division documents a statewide inventory of the varying types of health care entities, assets, equipment, and services offered. As mentioned in my previous posts, this inventory is used to calculate what health care resources are "needed" and is published in the annual state medical facilities plan. It should be noted that the number of outpatient surgery cases is self-reported.
Anson County, with a population of roughly 26,000, may not have sufficient volume to support a free standing ASC, but it does have a high outpatient migration rate of 95 percent. A majority of these patients are forgoing care at Anson County Hospital and are seeking outpatient surgery treatment at the Carolinas Medical Center’s outpatient department. Both facilities are subsidiaries of Carolinas Healthcare System, but this shift explains the phenomena that more rural hospitals are merging or being acquired by larger health systems to survive the challenges of caring for an overwhelming number of elderly and uninsured patients with chronic health conditions. The North Carolina Medical Journal reports that there are just 18 independent hospitals remaining in the state — down from 24 since 2012.
Meanwhile, Onslow County’s population size of 194,000 holds promise for a viable ambulatory surgery center that could help offset its 61 percent patient migration rate to six different counties. Patients are traveling 40 miles to either the Surgery Center of Morehead City or Carteret General Hospital — both located in Carteret County. Others are traveling up to 140 miles to the University of North Carolina Medical Center in Orange County.
Patients are not just migrating to seek care because of access barriers, but also for a better bargain. To the extent that market forces can operate under CON, the Blue Cross and Blue Shield cost estimator tool tells us that policyholders living in Onslow County can undergo a cataract removal for less than half the cost at the independent surgery center in Carteret County compared to their county’s hospital.
If the market itself determines a demand for more ASCs, not only will this enhance patient access, but it can also mean lower health care costs for patients.
The Senate has made some politically savvy moves to solidify CON reform. Not only do they want a complete phase out of the law’s 25 regulated services by 2019, but they’ve also proposed a reduced sales tax exemption limit for non-profits and a Medicaid reform plan that does not fall in line with the House’s interest (on behalf of the Hospital Association).
It will be tough for the House of Medicine to walk away with all of its wants from the negotiating table.
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