States: Euthanize Antiquated CON Acts

Posted on November 27, 2012


Imagine your company wanted to make a $37 million investment to grow its business.  This decision would make your business stronger and more stable, help serve the community in which it is located in a new way, as well as provide new jobs and boost the economy. The only catch:  there is an expensive regulatory process which could delay your company for an unknown amount of time. 

Does this opportunity for your company still sound appealing? Well, the above scenario is exactly what a North Carolina hospital faced, and it is not uncommon among hospitals.  It happens month after month, in state after state.

The regulatory process, of course, is the Certificate of Need (CON) laws. CON regulations may be familiar to those working in healthcare. They allegedly protect against duplicative healthcare services, and costs to the patient, among other things.  How has that been working out the past 20+ years most CONs have been in effect? I think we all know healthcare costs have been a runaway train, with costs passed on primarily to employers and the public. My healthcare premiums went up 17% for 2013, and that was with PPACA, a supposed insurance reform solution, enforced (which should have included a CON dissection).

Believe it or not, I spend time reading CON applications for hospitals in different states. I am a healthcare geek that way. For background, here are direct quotations from a 2012 CON application ruling in the State of South Carolina as to the Certificate of Need program’s raison d’etre:

B.4. Excerpt:  “The purpose of the CON Act and thus the regulatory program itself are to ‘promote cost containment, prevent unnecessary duplication of health care facilities and services, guide the establishment of health facilities and services which best serve public needs, and ensure high quality services are provided in health facilities in this State.'”

B.5. Excerpt:  “The primary vehicle by which the CON program is implemented, and its stated goals achieved, is the requirement that a health care provider apply for, and receive, a CON from DHEC prior to undertaking certain major projects or providing certain new services…The project review criteria set forth in Regulation 61-15 include thirty-three separate criteria that fall into five general categories:  (1) criteria related to the need for the proposed project; (2) criteria related to the economic considerations of the project; (3) criteria related to the project’s impact on the resources of the health care system; (4) criteria related to the suitability of the site of the project; and (5) criteria related to certain special circumstances, such as the project’s ability to serve medically underserved groups.” [my emphasis added]

I understand healthcare is commonly recognized as an essential human service, and providing access to satisfy that need might be a role that government could help with.  But so is access to food, and I do not see government caring nearly as much, if at all, about (1) whether another supermarket opens; (2) the pro forma for the supermarket; (3) whether the store can be financed and staffed by its owner; (4) if it is in the best location considering other existing supermarkets; and (5) if it is serving an underserved population. Nor should it.

Food deserts still exist, thousands of them, and I imagine supermarkets have legitimate, studied reasons why they locate where they are, the size of the store, the items offered for sale, how much they cost, and what it means for the price of ground beef in that town. It is the role and risk of the business to figure this out and determine whether their venture will succeed. And when the Food Lion in my town closed, it did not affect my grocery bill at Winn-Dixie, Publix or Harris Teeter. I would like to think a healthcare system could do the same—without government intervention, or graft.  And unregulated, free market competition might actually drive costs down.  Hey, I’m just going with the laws of economics on that one.

If I were a political hopeful, the first item on my party platform would be eliminating the Certificate of Need (CON). Most states have them, and most would likely have a difficult time proving they work. Luckily, NC has at least made an inquiry and SC as well. If a hospital is delayed three years as Wake Forest Baptist Medical Center has been on its January 2010 CON application mentioned above (this month it was allowed to proceed, though the project will not likely break ground before January 2013), does the initial reason for doing the project still exist? This CON predated federal healthcare reform.  Obamacare was made law and implemented in the time this application for one, single project was initiated—and this fight and delay was for a simple ambulatory surgery center! 

I ask:  what hasn’t changed in three years?  Time is the most precious resource anyone has, personally or professionally. Time destroys budgets and makes strategy irrelevant.  The time has come to put to sleep regulatory red tape like CON laws that only hinder change and strategy in an industry that struggles with both.