Legislators are looking at a controversial reform to lower patients’ medical bills for surgery in North Carolina. 

Would-be reformers want to introduce more competition into North Carolina’s health care system by partially freeing ambulatory surgery centers from Certificate of Need laws — an obscure regulation that controls the supply of medical care — but they faced significant pushback during a meeting Tuesday, Feb. 11 of the Joint Legislative Oversight Committee on Health and Human Services. 

For patients, the difference in medical bills could be extreme. For a minimally invasive ACL knee repair surgery, patients pay $9,964 at a physician-owned ambulatory surgery center in Raleigh. That price tag soars to $20,389 for patients at a Duke Raleigh Hospital, according to Blue Cross Blue Shield of N.C.’s treatment cost estimates. 

Reformers say CON laws prevent patients from accessing affordable prices by restricting the supply of medical care. They revisited House Bill 126, which would have allowed ambulatory surgery centers to expand from single-specialty to multi-specialty surgical offerings, without applying for a CON. The bill would also would have given providers more spending room before meeting CON requirements. (A different version of H.B. 126 became law.)

“It’s after the surgery that the shock hits you, because that’s when the bills start coming in,” said Connie Wilson, N.C. Orthopaedic Association lobbyist. “You can see the price difference. Why that’s important for patients is that with Obamacare and the way insurance policies are working out, they have a 40% co-pay.”

But defenders of CON laws say overthrowing state restrictions isn’t going to help anyone. They argue CON laws promote rural health care, prevent over-treatment, and protect patient safety. 

“The reality is that free-market in health care, particularly in rural and lower-populated areas, just doesn’t work,” said Jay Briley, Vidant Community Hospitals president. “These CON laws provide the necessary balance … and keep from severely compromising the sustainability of rural providers and health systems by siphoning off profitable business.”

Critics say CON laws keep business profitable by keeping prices high. Health care costs are 11% higher in CON states, according to data from the Kaiser Family Foundation. And states with CON laws have 30% fewer rural hospitals per capita, but greater racial disparities in care, according to a study by the Mercatus Center at George Mason University.

“This is probably the worst example of government bureaucracy that I’ve ever run into,” said Sen. Ralph Hise, R-Mitchell. “There is a relationship between supply and demand that comes across in costs. CON is a regulation, a throttle of supply.”

CON laws give the N.C. State Health Coordinating Council — a 25-member group representing hospitals, academic medical centers, nursing homes, insurers, and others — control over the distribution of medical care. 

They decide who needs operating rooms, nursing homes, MRI scanners, inpatient opiate treatment centers, or a host of 30 services. Anything that involves building new medical facilities and buying major medical equipment falls under their purview. 

Applying for their permission can cost $500,000, and health systems wage legal battles over CON. The council approved 186 of 203 applications in 2018, while 28 of its decisions were appealed.

“These methodologies are data driven. They are not arbitrary,” said Dr. Christopher Ullrich, chairman of the SHCC. “The goal is better access across the state, a balanced system, not over built or under built.”

Ullrich seemed skeptical of H.B. 126, which would also allow providers to spend more on equipment and facilities before CON requirements kick in. The bill would exempt psychiatric and substance abuse treatment facilities, and some home health agencies from CON permission. 

Traditionally, ambulatory surgery centers are less expensive than hospitals. But whether ambulatory surgery centers actually save patients money depends on how they structure their reimbursements, said David Hyman, Georgetown Law professor of health law and policy.

Those pushing H.B. 126 say it is a “severe compromise position.” 

“I can see the looks on their faces when you mention changing CON,” Wilson said. “Their eyes kind of bug out because they’ve been lobbied so hard on this issue that the world is going to end with any changes to CON. So, we did something very gentle.”

North Carolina has the fifth most-restrictive CON regime in the nation, the Mercatus Center found

It also has two of the most monopolistic cities in the nation. Durham and Greensboro made the top five in the list of the most consolidated inpatient hospital metro areas in the nation, by the Health Care Cost Institute, a nonprofit research institute with funding ties to major health insurers. 

“It’s a textbook example of a regulation that raises rivals’ costs. The main purpose of the regulation, whatever people may say, is to push off competition,” said Matthew Mitchell, Mercatus Center senior research fellow. “The data seems to be consistent with economic theory, which is that a supply restriction restricts supply, raises prices, and lowers access to care.”