Debate intensifies over role of charity care in CON discussion

by Dan Way, Carolina Journal Online, May 21, 2015.

North Carolina hospitals argue that dismantling regulations in the state’s certificate of need laws would impair their ability to treat indigent patients. A research scholar at George Mason University’s Mercatus Center says empirical studies conclude such dire warnings are little more than a scare tactic.

“In states with certificate of need regulations there is zero relationship between that certificate of need program and increased charity care,” said Christopher Koopman, a Mercatus Center research fellow.

Koopman co-authored a study, “Certificate-of-Need Laws: Implications for North Carolina,” concluding that North Carolina’s restrictive CON laws are responsible for 12,900 fewer hospital beds, 49 fewer hospitals offering magnetic-imaging (MRI) services, and 67 fewer hospitals offering computed tomography (CT) scans.

He said Mercatus Center colleagues Thomas Stratmann and Jacob Russ developed the most comprehensive database available, allowing a thorough study of how CON laws affect the level of a state’s charity care.

They “took all the numbers of the presence of certificate of need, the number of regulated devices and services in practice areas, whether or not charity care was a requirement, and compared all states with and without [certificates of need], and they found that the presence of certificate of need programs does not increase charity care,” Koopman said.

Two bills under consideration by the General Assembly would alter the state’s certificate of need laws. State Rep. Marilyn Avila, R-Wake, has introduced House Bill 200, reducing the scope of CON law. Senate Bill 702, by Sen. Tom Apodaca, R-Henderson, would abolish certificate of need entirely.

The North Carolina Hospital Association has been arguing for years that they are required to provide charity care. Abolishing certificate of need programs, it contends, would allow newly authorized competitors to steal away their more lucrative services sought by paying customers that offset the costs of nonpaying patients.

But Sen. Jeff Tarte, R-Mecklenburg, a co-sponsor of S.B. 702, isn’t buying that.

“Even though the hospitals may tell you as a general rule they would prefer just leave it as is, I believe most of them will be just fine with no CON, and I think that they think so, too,” Tarte said.

“I’m completely, 120 percent supportive of repealing CON in its entirety. No halfway point. Halfway is dangerous,” Tarte said. “It’s a time whose idea has come. It is ready.”

While S.B. 702 sponsors have been waiting to see what happens with Avila’s reform bill in the House, Tarte said he is encouraging Apodaca to push the repeal bill as soon as the budget is hammered out.

Avila is in the same position, while remaining confident there is support to pass H.B. 200.

“It's pretty much in a holding pattern until I get through with the budget,” Avila said.

Meanwhile, the state Department of Health and Human Services is not commenting on pros and cons of either bill.

“It would be inappropriate to speculate on any pending legislation regarding the present certificate of need system,” said DHHS spokesman Olivia James.

“It is the role of [Division of Health Service Regulation] regulators to enforce the state’s current CON laws, and we will monitor for any regulatory changes that may be enacted during the legislative session,” said spokesman Jim Jones.

Avila’s bill would exempt ambulatory surgery centers from CON laws if they agreed to provide at least 7 percent charity care, while leaving the definition of charity care unclear. But Koopman says repeal is a better approach than demanding a set level of charity care that comes with staff and paperwork costs of enforcement.

“We have years of evidence now that the cost-control justification just doesn’t work,” he said, and as cost-control arguments have evaporated, CON advocates “have turned now to this charity care justification.”

Most hospitals “will readily admit” that CON increases prices, some studies say by as much as 5 percent, Koopman said. “What [hospitals] say is it’s worth it” to raise prices on some because it increases care for others.

“This isn’t just hospitals where you’re seeing this. This sort of argument goes hand-in-hand with what you’re seeing with Uber and taxis,” Koopman said.

“You have taxi industries, which have been protected from competition for decades, are now unresponsive to consumer demands. They’re old, they’re clunky, they’re outdated, and they’re otherwise not what someone’s first choice would be if they had an option,” he said.

“But they don’t have an option” due to regulations that prevent would-be competitors from entering the market, he said.

“We don’t know what the ideal makeup of the health care market looks like in North Carolina, or any state for that matter,” Koopman said. “But it’s important to note that neither do the CON regulators. It is nearly impossible for a central planner to get all of the information necessary to decide” what is needed, where, and provided by whom.

As part of the permission-granting process, regulators “invite incumbents and they invite current established providers to challenge applications that come to the CON board,” he said. They are “determining success not based on who’s creating value for patients … but who’s most adept at surviving this process.”

The hospital lobby contends it supports a free market, but the health care market is not a free market. By deregulating CON laws, they say, it helps doctors open competing facilities, but leaves hospitals hamstrung with other rules and laws.

Koopman rejects the notion that one can be a free market advocate and not champion a free market advance.

“The way to climb Mt. Everest is one step at a time,” Koopman said.

“This is one area where a state can actually take sort of their own destiny in their hands, and make a decision for themselves that they do actually believe in having more competition, more entry, more choices, that they believe in getting more quality care to more people at the least amount of cost that they can,” Koopman said.

Opponents of relaxing or repealing certificate of need laws raise the specter that rural hospitals might be forced to close in the face of competition.

Koopman rejects that contention, noting that Western states with “huge, wide expanses, remote cities and towns” were the first to repeal their CON laws after the federal government lifted the mandate of imposing them, because they saw it as a way to increase care to rural residents.

“Have they imploded the same way that proponents of CON are claiming that North Carolina’s is going to fall apart?” he said. “I don’t think anyone’s really talking about a crisis of hospitals in these states that have repealed CON.”

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