Don't reform Certificate of Need (CON), repeal it

Published September 29, 2015

by Katherine Restrepo, John Locke Foundation, published in, September 28, 2015.

As I write and you read, legislators have allegedly made final closed-door agreements on Certificate of Need (CON) reform — a law in which statists protect established health care facilities and hospitals from competition.

According to Dr. Bob Graboyes of the Mercatus Center, CON fits well with his “fortress vs. frontier” motto. My colleague John Hood refers to CON as not a certificate of need but rather a certificate of greed, or a COG.

North Carolina has in some cases successfully moved the needle on CON in recent years. You can read more about that here. Other reforms made to the law, however, have their flaws.

One example is to a five-year pilot project beginning in 2010 in which the Division of Health Service Regulation (DHSR) issued a special ‘need determination’ for three single-specialty ambulatory surgery centers (ASCs) in the Charlotte, Triad, and Triangle regions. Despite ASCs having already proven to save Medicare an average annual $2.5 billion, operate efficiently, and receive high patient satisfaction scores since the mid 1980s, the state perceived this pilot project to be “innovative” in the year 2010. I’d like to think that this decision was a late wake-up call for North Carolina central planners that patients can access health care in lower cost settings, but I’m more inclined to conclude that the pilot was another delay tactic for future legislation granting ASCs full exemption from CON review. Regardless, innovative care delivery stalled since applicants were still thrown into the lagging approval process. It wasn’t until almost four years and roughly $345,000 in application and legal fees later that OrthoCarolina was able to break ground due to Carolinas HealthCare System and Charlotte Eye Ear Nose & Throat Associates (CEENTA) appealing its initial CON award.

Another example relates to language rolled into the 2013 budget exempting hospitals and other facilities such as nursing and adult care homes from state oversight when undergoing capital improvements or updating major medical equipment exceeding $2 million. The problem here is that these changes only benefit “existing facilities” — two words in the statutory text that distinguish the CON haves from the have-nots.

The “existing facilities” language causes all sorts of problems. A rural hospital that closed last year in Belhaven, North Carolina had plans to reopen, yet was still subject to market entry barriers because it was no longer actively operating. After obtaining the necessary funds to reopen a scaled-down hospital, the state still denied the application. Advocates of reopening argue that Belhaven is in serious need of an Emergency Department, as the nearest one is 35 miles away.

September 29, 2015 at 11:12 am
Richard L Bunce says:

Incompetent government bureaucracies getting it wrong? Of course they are... nobody can say with a straight face that the free market cannot serve the needs and desires of the public when for decades we have not had truly free markets. Certainly not in healthcare where roughly half of all medical payments come from government programs.