How Certificate Of Need Laws Endanger Americans

The Federalist posted an article today about Certificate of Need (CON) laws and how they are hindering America’s response to the coronavirus.

The article reports:

During a Tuesday press conference, Cuomo lashed out at the federal government for not sending enough ventilators as the Wuhan coronavirus continues to rattle the state. “Four hundred ventilators? I need 30,000 ventilators,” Cuomo said. “You want a pat on the back for sending 400 ventilators?” The state is projecting it will need approximately 140,000 beds in 14 to 21 days, which is higher than its previous estimation of 110,000 beds by early to mid-May.

However, New York, along with 35 other states and the District of Columbia, have in place what are known as certificate-of-need (CON) laws. According to Reason, “Their stated purpose is to keep hospitals from overspending, and thus from having to charge higher prices to make up for unnecessary outlays of capital costs. But in practice, they mean hospitals must get a state agency’s permission before offering new services or installing a new medical technology. Depending on the state, everything from the number of hospital beds to the installation of a new MRI machine could be subject to CON review.”

The article notes the impact of CON laws on patient mortality rates:

In addition to causing a lack of proper equipment, these rules harm patients. According to a study by the Mercatus Center at George Mason University, states with CON laws have a 2.5 to 5 percent higher mortality rate than those without. Wait times have also been affected, with the average delay in New York City emergency rooms ranging from seven to 10 hours before the virus outbreak added strain to an already poorly operating medical system.

The article concludes:

Luckily, efforts to eradicate this onerous red tape have already begun, as South Carolina Gov. Henry McMaster issued an executive order suspending CON law enforcement in the state. Governors like Cuomo would be wise to follow suit and slash these burdensome regulations to allow for the expansion of new medical facilities and COVID-19 treatments.

More government control of our health-care industry is the exact opposite of what should be happening in Washington, D.C, and states around the country. Instead, lawmakers across the nation should be focusing on getting rid of these big-government barriers that make it more difficult for doctors and medical experts to treat patients. Letting the market solve its own problems is the answer to many of our problems in health care. The government needs to know when to step out of the way.

On March 23, I posted an article about how CON laws are impacting New Hampshire’s response to the coronavirus. Hopefully the problems caused by these laws during this health crisis will cause states to revisit them. Unfortunately, hospitals like the monopolies the laws give them and are willing to put forth massive lobbying efforts. Lawmakers need to rise above the politics and lobbyists and do what is best for the people they are supposed to represent.

When Regulations Interfere With Solutions

Yesterday The Union Leader, a New Hampshire newspaper, posted an article about the possible shortages of medical supplies and hospital beds during the coronavirus epidemic.

The article notes:

ACROSS the country, state leaders have raised the alarm over the lack of enough beds should the COVID-19 pandemic create a surge in serious and critical cases. They are concerned that they simply won’t have enough hospital beds to care for ill patients and are taking drastic steps to “flatten the curve” – spreading out the timeline of the disease so that the health care system can manage the influx of new cases.

This is just as true in New Hampshire as across the country. However, the prime reason we don’t have more hospital beds is not a lack of demand, but government regulation.

According to U.S. Census data, New Hampshire’s population has grown by 48% since the 1980 census. However, the last new hospital to open in the Granite State did so in 1983.

The reason why our state hasn’t built more hospitals since then isn’t lack of demand. With a growing and aging population, our health care needs have gone up, not down.

The answer why we haven’t seen more hospitals and, thus, more hospital beds is because of government regulations that were intentionally designed to limit competition and choice. Sadly, these regulations have been effective in achieving those goals.

For many years, the prime culprit from new hospital development was the state’s Certificate of Need (CON) board. For someone to get a license to build a new hospital, they would have to go before this board and hope to get a government permission slip to have the opportunity to begin. Unsurprisingly, the CON board became a protection racket for the state’s existing hospitals to stop new development.

Thanks to the work of Americans for Prosperity activists and critical policy champions like Senator John Reagan and former Representative Marilinda Garcia, New Hampshire was able to put an end to the CON board in 2016.

The article cites some other regulations that limit the number of hospital beds:

One regulation forces anyone who wants to open a hospital to have a 24 hour per day, seven day per week emergency department. Given that emergency departments are the most expensive and toughest to staff part of any hospital, this is a huge barrier to opening a new facility.

And, like most cronyism, existing hospitals made sure this requirement doesn’t apply to any hospital that had its license before the law was passed.

Another regulation forces any new hospital to take reimbursement from all payers, regardless of whether doing so makes sense for that hospital’s business model. Across the country, cash-only facilities are thriving, providing lower cost alternatives to patients. But, under state law, they can’t operate in the Granite State.

Finally, one state regulation provides for a 15-mile radius monopoly zone around smaller hospitals in more rural areas. This guarantees that anyone outside of the southeastern part of New Hampshire will never see another hospital being built in their community, or anywhere near them.

While changing these laws won’t help us fight the COVID-19 virus, it’s high time the state legislature begins to remove these barriers to help us deal with the next pandemic. Our public health infrastructure has been unnecessarily hobbled, not by disease, but by special interests.

North Carolina is one of the states with Certificate of Need (CON) laws. According to the National Conference of State Legislatures, 35 states and Washington, D.C. operate a CON program with wide variation state-to-state. I suspect that number is high–they may be including laws that are not technically CON laws. At any rate, North Carolina has been trying to repeal its CON law for a number of years. CON laws interfere with the free market and artificially inflate medical costs by creating monopolies. One way to lower medical costs without sacrificing quality of care would be to remove CON laws. However, hospitals like their monopolies.

Bad Day at Black Rock

Below is a guest post by Raynor James, an eastern North Carolina resident who has followed the debate on North Carolina House Bill 184 very closely:

Tuesday, April 3rd was a sad day in the North Carolina House of Representatives.

Let me tell you about it. Dale Folwell is North Carolina’s Treasurer. He’s a very popular fellow for all the right reasons. He did a good job when he served in the North Carolina General Assembly. He got North Carolina’s unemployment insurance out of debt to the Federal Government when he served in Governor McCrory’s administration, an accomplishment that continues to save North Carolina’s employers significant sums annually. He’s known as a problem solver.

North Carolina’s State Health Plan (which pays for medical expenses of current and retired state employees) is seriously underfunded and is projected to be bankrupt by the year 2023.When Dale Folwell was elected Treasurer, many who voted for him expected him to solve the Plan’s problems as its administration was in the Treasurer’s portfolio.

Enter HB-184 which if implemented will tie the Treasurer’s hands and not allow corrective action to be taken while a committee studies the situation.

HB-184 was debated on the floor of the House April 3rd. Let’s look in on how some conservative House members tried to kill the bill.

First, Representative Michael Speciale offered two amendments to the bill. Representative Speciale’s first amendment would give the Treasurer a vote on the study committee and would make it impossible to expand the size of the committee (something that is sometimes done when the “powers that be”don’t like the direction a committee seems to be taking).

That amendment passed by a vote of 106 to 5.

Representative Speciale’s second amendment would remove Section 2 from the bill. Section 2 requires that Blue Cross-Blue Shield continue to be used during the study period.

It also prevents the Treasurer from switching the Plan to using referenced based pricing for medical services to the Plan during the study period.That amendment failed by a vote of 88 to 23.

During debate on HB-184 itself, Representative Larry Pittman cited a memo from the Plan’s Board of Trustees that projects that the plan will be out of money in 2023, and said that we can’t wait on a two year study. He talked about how hospital groups were groaning about how burdensome the Treasurer’s planed payment changes would be on them [tie pricing of medical services to 172% of the average Medicare pays for the same service], and pointed out how well funded many hospitals are. In support of his assertion, Representative Pittman mentioned that the hospital at East Carolina has given $10 million dollars to fund a stadium.

Representative Pittman asked that members not pass the bill and added that when Treasurer Folwell had requested info from the hospital groups, they had sent him the schedules he asked for with page after page blacked out. “They might as well have slapped him in the face and spit on him,” Representative Pittman said.

He continued by saying passage of the bill would hurt both members of the Plan and taxpayers who pay the freight and pointed out that members of the Plan are also taxpayers, so they get hit two ways.

He stated that Dale Folwell is “competent” and “honest” and renewed his request by saying, “Defeat this bill.” Representative Michael Speciale said, “We’re told that if we don’t pass this bill, the sky will fall; we’ll lose our rural hospitals.” He went on to say that they’d heard the same thing when he was trying to get rid of the CON [Certificate of Need] laws [which did not pass] and shortly thereafter they closed one of the hospitals in my district.”

“I hear fake news ads” [on the topic of rural hospitals closing if HB-184 doesn’t pass] when I drive in my district.”

Representative Speciale went on to say that Dale Folwell got the people together who are opposing him [mainly large hospital groups] and asked how much waste, fraud, and abuse there is in the system. The answers they give him ran from 12% to 25%, so he took a middle number and asked them to figure out how they could reduce costs by 15% and said that they needed to get together again as soon as that was done.

After that meeting, Treasurer Folwell tried to set follow up meetings, and time after time he was stonewalled.

Representative Speciale continued, “Now we’re faced with $33 to $36 billion dollars in unfunded liabilities. If we don’t allow him to cut costs, how are we going to cut costs because it’ll be on us!”

“Dale Folwell has increased what would be going into rural hospitals. He’s compromised, but they won’t budge an inch.If we do not pass this bill, then the hospital lobby will sit down and talk to him. Let the state Treasurer do what he was elected to do. Throw the politics aside and vote NO!

Representative Keith Kidwell said, “For the last 10 years, health care costs have gone up and up. We asked Treasurer Folwell to handle it. Let’s not bobble him,or we’ll be faced with taking $235 million to $509 million [dollars] from the general fund to deal with the problem AND $1.1 billion will be added to the unfunded liability.”

“HB-184 will cost us a ton of money!” “Cut through partisanship and look at the numbers! We HAVE to block this bill!’

In spite of those eloquent pleas and others, too, HB-184 passed 75 to 36, and it will now be sent to the North Carolina Senate where it is hoped that wiser voices will prevail.

If you’d like to hear the whole debate, you can go to the NC General Assembly website at which NC House sessions are archived.

Thank you, Raynor. This is a picture of what is going on in the North Carolina state legislature. President Eisenhower warned about the military-industrial complex. What we see here is the result of intense lobbying by the healthcare-industrial complex. We need to stop this bill.

One Way To Keep Medical Costs Down

The News & Observer, a newspaper located in Raleigh, North Carolina, posted an editorial yesterday about one rather obvious way to lower medical costs in North Carolina. It is an easy solution–except for the fact that there are corporate interests who do not like this solution.

The editorial explains:

One important element of the budget recently passed by the N.C. Senate would lower health care costs by reforming North Carolina’s Certificate of Need law and increasing the number of same-day surgery centers across the state.

Currently, North Carolina has one of the most restrictive CON laws in the nation. The Senate proposal would save patients about 40 percent in costs when centers are allowed to be built.

Certificate of Need laws started in the 1970s with the goal of keeping hospitals from overbuilding facilities and acquiring unnecessary hospital equipment – both actions thought to increase costs for consumers. Unfortunately, these CON laws ended up essentially increasing costs because competition was eliminated. In 1987, the Reagan administration recognized that CON laws were a bad idea and spoke out against the federal mandate for CON. States began to repeal CON restrictions.

Today, 71 percent of all surgeries are outpatient or same-day surgery. Of those surgeries, too many – 72 percent – are performed at the highest-cost hospital system facilities.

One very basic example of an outpatient clinic that saves time and money and improves the quality of medical care is in the area of cataract surgery. As our population ages, many Americans face cataract surgery. With today’s medical practices, this is generally very simple and uncomplicated surgery. It is very easily done at an off-site medical facility. In Massachusetts, Surgisite Boston is a facility used by 70 ophthalmologists from throughout the region. The center aims to best serve both patients and physicians by acting quickly to adopt new technologies and create a comfortable, accessible environment for treatment. Having the center outside of the hospital cuts the costs for patients, and because of the specialized nature of the center, allows for the newest technologies. It also allows the surgeons to share the cost of the latest equipment and to offset that cost by having the equipment used every day.

The editorial explains other aspects of the debate:

The Federal Trade Commission staff supports CON reform in North Carolina that allows the freedom to build independent, nonhospital surgery centers that lower costs. The FTC states that “CON laws raise considerable competitive concerns and generally do not appear to achieve their alleged benefits for health care consumers” and that “CON laws can restrict entry and expansion, limit consumer choice, and stifle innovation.”

Cost analysis by Blue Cross Blue Shield NC shows patients across the state are paying way too much – sometimes more than double what others are paying – for many surgical procedures:

▪ An ACL repair by arthroscopic surgery in the Charlotte area cost $9,710 at a nonhospital ambulatory surgery center in Concord while the same procedure cost $29,565 at a hospital-run outpatient facility in Charlotte.

So what isn’t the introduction of surgical centers in North Carolina an easy solution to rising health care costs? Unfortunately hospitals like having a monopoly on surgical procedures. Hospitals are telling their employees that if surgical centers are built, the employees will lose their jobs. This is not true, but unless an employee actually takes the time to investigate what surgical centers will do, they will oppose the centers in order to keep their jobs. During a recent visit to Raleigh, one of our state legislators showed me the pile of mail he had received opposing changes to the “CON” law. Oddly enough, much of the mail opposing the changes came in business envelopes with hospital return addresses printed on them. There were two significant piles of mail from people who worked for hospitals who feared losing their jobs.

Changing the “CON” law should be an obvious thing to do. However, when hospitals have a monopoly on surgical procedures both simple and complex, they are reluctant to give up that monopoly. Unless the healthcare consumer becomes more aware of why healthcare costs are rising, things like the “CON” laws will continue to stifle competition in medicine. It is up to the consumer to help fight the monopoly that prevents North Carolina from having the surgical centers it needs.

North Carolina And The Certificate Of Need

I recently was part of a group that traveled to Raleigh, North Carolina, to hear a legislative committee meeting about the Certificate of Need that is required to open a medical facility in North Carolina.

The following write-up of the hearing can be found at the Coastal Carolina Taxpayers Association (CCTA) Website:

The Certificate of Need (CON) hearing was on HB200, a bill sponsored by Representative Marilyn Avila that would remove several types of operating rooms (including those for ophthalmology procedures and colonoscopy) from the list of medical facilities which are required to apply for (a lengthy, expensive, difficult process) and get a CON before they can be set up.

It is our Legislative Action Committee’s position that hospitals have managed to have a monopoly on CON’s for years, have used them to shut individual physicians out of competition, and have used them to drive the cost of procedures up (people who pay for their own health care, and people who are experiencing higher and higher co-pays see this very clearly). This has resulted in higher salaries for some members of hospital staffs and very high retained earnings for some hospitals including the one here in New Bern.

The hearing was fast paced, enormously interesting, and did nothing to dispel our view.

Representative Avila introduced the bill, said a few words about it, and then explained that the group would hear from one person who was in favor of passage of the bill and a second person who was against it.

Connie Wilson, a lobbyist for a group of physicians, spoke first. She was followed by a lobbyist for a group of hospitals. They each spoke for about ten minutes.

Connie speaks fluidly. She’s very clear, concise, and straightforward. She builds her case with facts. She uses charm and humor. (Can you tell I was REALLY impressed?) She made the bill seem like the best thing to come along since sliced bread.

The fellow who spoke for hospitals used platitudes, veiled warnings about what “might” happen if some CON requirements were lifted, and tried to create fear. He did a respectable job for someone who had to defend an indefensible position, but I found myself constantly annoyed by things he said.

Then the questions began.

We’d been given to understand that 5 Representatives were of particular concern to folks who want the bill to pass, and every one of them was at the hearing, and each of them asked one or more questions that seemed to be from a negative perspective.

I’m going to tell you who each of the 5 is, what district he serves, what his contact information is, and then ask you a favor. Here they are…

Representative John Szoka is a Republican serving NC House District 45. His home is in Fayetteville. His office is in Room 2223 of the Legislative Building. His phone is 919-733-9892. His email is john.szoka@ncleg.net.

Representative Josh Dobson is a Republican serving NC House District 85. His home is in Nebo. His office is in Room 1006 of the Legislative Building. His phone is 919-733-5862. His email is josh.dobson@ncleg.net.

Representative Brian Brown is a Republican serving NC House District 9. His home is in Greenville. His office is in Room 604 of the Legislative Office Building. His phone is 919-733-5757. His email is brian.brown@ncleg.net.

Representative Kelly Hastings is a Republican serving NC House District 110. His home is in Cherryville. His office is in Room 1206 of the Legislative Building. His phone is 919-715-2002. His email is kelly.hastings@ncleg.net.

Representative Nelson Dollar is a Republican serving NC House District 36. His home is in Cary. His office is in Room 307-B of the Legislative Office Building. His phone is 919-715-0795. His email is nelson.dollar@ncleg.net.

If you live in the district of one of these folks, please go to see them, give them a call, or email them (expressed in the order of preference), and ask them to support HB200. Do this as quickly as you can. This bill needs to be reported out of the Health Committee, be heard by 2 other committees, and be voted on on the House floor by “crossover” on April 30 in order to remain viable.

Jay Singleton, DO, FACS, spoke at a recent CCTA meeting in Stanly Hall in New Bern, North Carolina. He is an eye surgeon who is supporting repeal of the Certificate of Need (CON). He sums up the issue as follows, “The CON law is one of the few existing laws that has been ruled unconstitutional by the Supreme Court.  Hospitals have used this law for nearly forty years to become too big to fail in our state.  Many members of the general assembly have been duped by the hospital association and its lobbyists into believing healthcare would collapse and the sky would fall without this dubious law.  Do not fall for the chicken little argument.”

As a resident of Massachusetts, I had cataract surgery on each eye. The first surgery was done in the hospital at Boston Eye and Ear. That is an outstanding hospital, although it has limited available parking and is in the middle of city traffic. The second surgery was done at Surgisite in Waltham, Massachusetts. It was easier to get to, parking was available, and the experience was much easier and less stressful (aside from being much cheaper). Based on my personal experience, I would strongly suggest that the North Carolina legislature repeal the CON law and allow the free market to lower the cost of medical care in the State of North Carolina and to give people the option of receiving quality medical care in small local facilities that specialize in specific areas rather than exclusively in large hospitals.

 

How Crony Capitalism In North Carolina Impacts Medical Costs To Patients

I am a member of an organization called the Coastal Carolina Taxpayers Association (CCTA). The CCTA is essentially a watchdog organization that supports the U.S. Constitution and the concept of free markets. One of the things that has come across the radar of the CCTA lately is the requirement for a Certificate of Need (CON) to build a heath care facility in North Carolina. The bureaucracy surrounding the requirement for a CON prevents competition, innovation, and results in high health care costs for North Carolina residents.

Forbes Magazine posted an article on this subject in December 2014.

The article reported:

Under the existing statute, medical providers often times must ask permission from “The SHCC,” the governor-appointed State Health Coordinating Council, to build or expand an existing health care facility, offer new services, or update major medical equipment. For more on the history and flawed reasoning behind CON laws, see my previous post on the issue here.

The article also reported the state legislature’s desire to change the status quo:

As 2015 approaches, North Carolina legislators have plans to disrupt the health care status quo. Reforming the state’s Certificate of Need (CON) law will hopefully ignite some competition within the health care sector and help to reduce costs for patients.

Approval for another ambulatory surgery center (ASC), a gamma knife, or even a hospital bed is determined in part by a data-driven formula that produces the annual state Medical Facilities Plan, a 450-page inventory that accounts for all types of health care settings and services delivered across the state. North Carolina has one of the most micromanaged CON programs in the country. The SHCC regulates over 25 services, and it can take years for new and established health facilities to break ground. My colleague, economist Dr. Roy Cordato, compares the entire CON with Chinese restaurants:

The commission might have a formula that would look at data regarding how many Chinese restaurants exist per 100,000 or 50,000 or 25,000 in population; how many of those are strictly take-out restaurants and how many are eat-in or ‘sit-down’ restaurants…if it is determined that the community does ‘need’ one more Chinese restaurant…it may not be able to offer take-out service if there are already ‘enough’ take-out restaurants in the area.

The methodology behind the State Medical Facilities Plan may have good intentions, such as preventing underused facilities and incentivize better health care access in underserved areas, but unhealthy limits on competition lets incumbent providers inflate health care costs.

The free market works. Competition lowers prices and promotes innovation. I hope that the North Carolina legislature will follow through on its desire to do away with the Certificate of Need. The Certificate of Need is another example of government interference in the free market that hurts the consumer.