Certificate of Need: Protecting Public Interests

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Certificate of NeedProtecting Public Interests
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on behalf of the Missouri Health Facilities
Review Committee

• Thomas R. Piper

Director Missouri Certificate of Need Program
a presentation to the Missouri State Senate In
terim Committee on Certificate of Need
Senate Hearing Room 2 State Capitol Building
Jefferson City Missouri 100 pm Tuesday August
1 2006
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Certificate of NeedProtecting Public Interests
Topics
CON Background Significant State ChangesFederal
Trade Commission Study
Free Market and Competition Business Health Studi
es
Rationale
Benefits
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Milestones in Health Planning Early History
pre-WWI Flexner report (revolutionized medical
education) pre-WWII Social Security Act (univ
ersal health ins.) post-WWII Hill-Burton (dev
elop modern hospital infrastructure)
Middle History mid-60s PL 89-97 Soc. Sec.
Act Medicare Medicaid (Titles 18 19)
PL 89-749 Comp. Health Planning
Act (quality cost access) mid-70s SSA-1122
Capital expenditure controls P
L 93-641 Natl. Health Planning Res. Dvlpmt.
Act new authority for health plan
ning regulation Recent History mid-80s D
RGs control through purchasing not supply
Federal support for planning
CON regulation terminated Ma
naged care emerges (popularizes competition)
Today Striving for BALANCE . . . regulation
competition
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Milestones in Certificate of Need
The Concept 1964 Rochester New York (mode
l for the nation) Marion Folsom (prev. of DHEW)
works with Kodak (and other businesses) and B
lue Cross to establish community health plannin
g council (grass roots movement of payers co
nsumers and providers who initially evaluated h
ospital need) Voluntary Regulation 1966-19
75 New York State followed closely by
Maryland Rhode Island and the District of Colu
mbia lead the establishment of CON programs in
58 of the states before the federal mandate.
Mandatory Regulation 1976-1983 the
remaining 21 states (except Louisiana)
complied with PL 93-641 Health Planning law
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(No Transcript)
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broadly diverse regulation
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capacity boom
Ohio
Impact of Deregulation (first 4 years)
19 new hospitals (15 were LTCHs)
137 surge in outpat. dialysis stations
280 increase in radiation therapy
548 jump in freestanding MRIs
600 explosion in ambulatory surg. ctrs.
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restoration
IndianaPennsylvania
Reinstate CON Indiana repeated efforts Penn
sylvania strong efforts (experiment in quality
control
through licensure not effective)
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July 2004 FTC/DOJ Report AHPA
CritiqueImproving Health Care A Dose of
Competition
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July 2004 FTC/DOJ Report Specific
Certificate of Need Message
Report encourages movement to a consumer driven
health care system that relies on market forces
to determine costs (prices) access and quality
it clearly cautions against CON regulation an
d health planning Over-reliance on health insur
ance The system-distorting effects of Medicare
and other administered pricing schemes
Economic cross-subsidies within the system
Government-imposed service mandates
Attempting to control prescription drug prices
Permitting collective bargains by physicians
and Any other action or process that might limi
t competition or the full application of mark
et forces.
Healthy competition equals healthy consumers.
Consumers want high-quality affordable
accessible health care and the challenge of
providing it requires new strategies said FTC
Chairman Timothy J. Muris
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July 2004 FTC/DOJ ReportIntent of the Message
Recommendation 2. States should decrease barriers
to entry into provider markets.
a) States with Certificate of Need programs shou
ld reconsider whether these programs best serve
their citizens health care needs.
b) States should consider ad
opting the recommendation of the Institute of
Medicine to broaden the membership of state
licensure boards. c) States should consider imp
lementing uniform licensing standards or
reciprocity compacts to reduce
barriers to telemedicine and competition from
out-of-state providers who wish to move
in-state. www.ftc.gov/opa/2004/07/he
althcarerpt.htm AHPA rebuttal www.ahpanet.org/ar
ticlescopn.html
The Agencies (FTC and DOJ) believe that on
balance CON programs are not successful in
containing health care costs and that they pose
serious anticompetitive risks that usually
outweigh their purported economic benefits.
Market incumbents can too easily use CON
procedures to forestall competitors from entering
an incumbents market. As noted earlier the vast
majority of single-specialty hospitals a new
form of competition that may benefit consumers
have opened in states that do not have CON
programs. Indeed there is considerable evidence
that CON programs can actually increase prices by
fostering anticompetitive barriers to entry.
Other means of cost control appear to be more
effective and pose less significant competitive
concerns.
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• Marketplace Issues Revealed

Capital costs in health care are passed on to the
consumers. Competition in health care usually
does not lead to lower charges
providers control supply demand is determined
by providers consumers lack adequate informati
on. Consumers do not (and usually can not) sho
p for health care at least not based on
price or quality (usually unavailable).
Increased capacity costs lead to higher delivery
charges. Consumers do not pay most of the cost
and do not really know the true cost of or
charges for most care (third-party payers do).
Providers have no direct incentives to lower cha
rges or utilization.
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• CON Unique Regulatory Concept and Tool

Planning-based analytically-oriented fact-driv
en Open process with provision for direct publ
ic involvement Structured to compensate for mar
ket deficiencies and limitations and foster
market efficiency Unlike licensure and certific
ation with their leveling effects designed to
highlight and accentuate quality
Promotes economic and quality competition within
the context of health care market realities
Doorway to excellence rather than barrier to mar
ket entry
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• CON Unique Regulatory Concept and Tool
• What the record shows (part I)

CON focuses on access and quality CON seeks t
o improve economic and social access
promotes equal access to health care
advocates community patient and provider
equity CON elevates quality best practices hi
gh standards CON promotes fiscal responsibility
by requiring the use of sound economic and
planning principles
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• CON Unique Regulatory Concept and Tool
• What the record shows (part II)

CON responds to the realities of market forces a
nd related circumstances CON discourages marke
t segmentation cherry picking and monopolistic
practices CON opposes anti-competitive forces a
nd actions such as community abandonment
CON realities actual experience of business . .
.
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Big-Three Automakers Health Care Costs non-CON
vs. CON states
up to 164 lower
CON states have lower health care costs than
non-CON states!
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Big-Three Automakers Health Care Costs non-CON
vs. CON states
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nearly a third less
CON states have lower health care costs than
non-CON states!
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Big-Three Automakers Health Care Costs
non-CON vs.
CON states
about 20 less
CON states have lower health care costs tha
n
non-CON states!
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Big-Three Automakers Health Care Costs
non-CON vs.
CON states
11-39 lower
CON states have lower health care costs tha
n
non-CON states!
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Freestanding Ambulatory Surgery Center Charges
non-CON vs. CON states
over 25 lower
CON states have lower freestanding ASC charges
than non-CON states!
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CABG Mortality non-CON vs. CON states
20 diff.
CON states have lower mortality for CABG surgery
than non-CON states!
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Missouri CON has been effective
Saves money by restraining 145 in unneeded
expenditures for every 1 invested
Ensures accountability through public meetings
notices and other transparency
Protects the community by limiting unnecessary
health care services and Promotes planning
through sound management and community need
assessment.
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CON applications intended . . . but not submitted
MHFRC actions
Missouri CON 1991-2005
application fee net revenue in excess of expenses
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Consequences of Eliminating
Public Oversight
Splinters the provider delivery network which
causes staffing shortages which in turn lowers
quality and fragments the health care support
system. Threatens safety net facilities like
trauma centers medical education hospitals
low-income neighborhood facilities . . .
over 600000 uninsured in Missouri.
Creates high-profit niche markets such as speci
alty hospitals and outpatient service centers
for diagnostic imaging ambulatory surgery and
radiation therapy. Supply drives demand! sup
ply generates demand putting traditional
economic theory on its head. Areas with more
hospitals and doctors spend more on health care
services per person. - Hospitals Health Ne
tworks review of the Dartmouth Atlas April 5
1996.
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• Health Care Public Oversight is Needed

Prices for health care services going up almost
8 annually compared to less than 3 inflation
for most other services. Health care spending d
ivides out to 6280 per person which is 16 of
the gross domestic product . . . this spending is
projected to reach 20 by 2015 if current levels
continue. Employer insurance premiums increased
by 9.2 which threatens the ability of
business to effectively compete in the domestic
and world markets. High cost of health care dip
ping into retirement reserves.
Average cost of nursing home care is over 6000
0 per year.
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Balance Regulation and Competition Protect
Public Interests
Promote the development of community-oriented
health services equipment and facility plans
Achieve cost containment reasonable access an
d local accountability through public oversight
and Provide a public forum to ensure that the
community has a voice in health care
development.
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Certificate of NeedProtecting Public Interests
Thank you any questions