John Locke Update / Research Brief

North Carolina Senate Budget Forces Certificate Of Need Debate

posted on in Health Care, Health Care & Human Services
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The North Carolina Senate has just released its $22.9 billion budget plan for fiscal years 2017-2019. The Senate proposed spending $5.2 billion of that total on all Health and Human Services (HHS) functions.

This legislative session, lawmakers are using the budget as a vehicle to drive big policy issues. Under HHS, that big policy issue is Certificate of Need, a law in which hospitals and other medical providers must ask the state permission to expand patient services, construct new facilities, or update major medical equipment.

Buried in the special provisions section of the budget are six pages of language that call for a complete phase-out of the law’s 25 regulated services and facilities by 2025, along with recommended reforms in the interim. For example, exempting physicians from the law’s lengthy review process would make it easier for them to engage in a joint venture with a local hospital to operate a surgery center or to invest in one on their own. Community hospitals with fewer than 200 beds would be freed from filling out costly applications to purchase another MRI machine. Ophthalmologists could finally perform glaucoma and cataract surgery for Medicare patients in their in-office surgical suites and get paid a facility fee – a much more cost-effective option for patients.

Why, then, is there a “need” for CON? Not having CON certainly has the potential to lower health care costs and bring better technology to patients living in rural areas of the state.

Over 40 years ago, the federal government mandated that states establish CON under the flawed logic that centralized state planning is the answer for health care resources to be equally distributed across the nation. CON was a strategy to prevent an over-investment of underused facilities and slow the growth of runaway health care spending. Unsurprisingly, the law proved to be ineffective, which prompted the federal government to make CON an option for states to enforce.

Yet, to this day, health care planners who work for North Carolina’s Division of Health Service Regulation are still responsible for ensuring that not too many (or too few) hospitals or long-term care facilities are built. There needs to be the “right number” of outpatient surgery centers, inpatient hospice facilities, kidney dialysis units, and other pieces of life-saving medical technology. The “need” determination process is complex, even requiring hospitals to use, for example, population growth and a projected increase in MRI scans to justify why it makes financial sense to transition from renting an MRI machine to buying one outright.

It’s generally frowned upon when heavy policy lifts are rolled into any appropriations bill. Not only does a contentious issue like CON reform hold up further movement on budget negotiations, it also doesn’t get the full attention it needs to be deliberated over in committee meetings as a separate piece of legislation.

But it’s not that lawmakers haven’t tried to gain momentum on eliminating CON regulations prior to the Senate’s budget proposal. Both House and Senate members filed nine CON bills since the beginning of the session. However, since House committees have historically ignored meaningful CON reform bills, Senate leaders decided to pull the text from the original filed bills and insert it into the budget to force the debate.
What largely stands in the way from further movement on repeal is the powerful hospital lobby. They’re equipped with more than enough resources and political clout to persuade legislators to maintain the status quo. Recently, the North Carolina Hospital Association (NCHA) incorporated Partners for Innovation in Health Care, a nonprofit advocacy arm that will work to preserve existing CON law. They argue that limiting competition is necessary for them to remain financially afloat because hospitals are required by federal law to treat all non-paying patients who enter their doors.

It’ll be interesting to see how the House Republican leadership responds to all of this, as prominent members of the chamber tend to lend their ears to the NCHA’s position.

From a fiscal perspective, CON reform makes sense.  North Carolina lawmakers initiated some small-scale CON reform in 2005, allowing gastroenterologists to perform colonoscopies in their own endoscopy units. The state saved roughly $225 million in Medicare payments within six years, largely because these procedures performed in smaller outpatient settings are reimbursed at a lesser rate than those performed in full-service hospitals.

Lastly, consider the financial relief the State Health Plan would gain if CON eliminated the cap on the number of ambulatory surgery centers (ASCs). Under the assumption that 20-35 percent of government employees would shift from accessing outpatient treatment in hospitals to lower-cost ASCs, the North Carolina Orthopedic Association projects that taxpayers could save an additional $800 million over eight years.

 

Katherine Restrepo is the Director of Health Care Policy at the John Locke Foundation. Before joining the John Locke Foundation, she interned at the Cato Institute under the direction of Michael Cannon, Director of Health Policy Studies. … ...

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