News: CJ Exclusives

Certificate of Need Law Under Microscope

Hospitals, surgeons square off in battle on regulating new facilities

North Carolina surgeon and physician groups are squaring off against hospitals in a regulatory reform battle with potentially hundreds of millions of taxpayer and insurance dollars at stake.

Private surgeons and physicians want to reform the state’s certificate of need law — the legal process to obtain state approval for a variety of equipment, facilities, and procedures to ensure they are not duplicative of existing situations.

The surgeons want to make it easier to establish lower-cost, single-specialty ambulatory surgery centers that markedly would reduce payments the state makes to hospitals for Medicaid patients and for state employees under the state health plan. Hospitals say specialty surgery centers will cherry-pick the insured patients hospitals need to cover the costs of treating the indigent and uninsured.

They want to eliminate hospitals’ ability to monopolize the surgery market and collect higher government-paid hospital rates at off-campus surgery centers.

“Hospitals in North Carolina have had many years of very limited competition from the few existing ambulatory surgery centers and diagnostic centers, and it’s time for us to allow for competition,” said Cathy Wright, a lobbyist for the North Carolina Orthopaedic Association.

“Competition will increase transparency, help the patients be more aware of the actual costs of their health care, and, I think, ultimately it will drive down costs,” Wright said.

The North Carolina Hospital Association is among the most ardent opponents of allowing an easier process for creating new standalone operating rooms and imaging centers.

“No law is perfect, and the certificate of need law certainly could be updated in a way that would benefit the people of the state of North Carolina,” said Hugh Tilson, senior vice president of the Hospital Association.

“Our big concern is that given the implementation of Obamacare and all of the uncertainties that are in the world of health care right now, messing with the regulatory environment … makes a lot of folks very nervous,” Tilson said.

“The provisions related to operating rooms are incredibly problematic for hospitals,” he said.

The House Select Committee on Certificate of Need Process and Related Hospital Issues conducted hearings on the complex topic last year.

State Rep. Marcus Brandon, D-Guilford, a member of the select committee, said it was the most difficult job he’s undertaken as a legislator — a balancing act between the need for competition and potential effects on hospitals’ quality of care.

“You’ve got hospitals that are trying to monopolize areas, but [regions] that don’t have care,” Brandon said. “I think what we did was try to make the process more efficient” and instill transparency in what is “not an open process.” It can take three to four years for a certificate of need review, and by the time it’s granted it could be out of date, he said.

State Rep. John Torbett, R-Gaston, select committee co-chairman, filed House Bill 83 to enact a number of the committee recommendations. Attempts to reach him for comment were not successful.

Torbett’s bill would remove replacement equipment from the certificate of need process. The dollar-amount triggers for a certificate of need review would be increased from $2 million to $4 million for capital expenditures for new institutional health services, and the monetary threshold would be raised from $750,000 to $1.5 million for major medical equipment.

There no longer would be a monetary threshold required to receive an expedited review for capital expenditures. It currently is any project less than $5 million.

The bill would require those contesting certificate of need approvals to file separate bonds for each item being appealed. It would award costs and reasonable attorneys’ fees to an applicant for a frivolous appeal or an appeal designed to delay a new institutional health service.

Rep. Marilyn Avila, R-Wake, a select committee member, is working on a second bill adopting other committee recommendations. Attempts to reach her for comment were not successful.

“This bill will allow for single-specialty ambulatory surgery centers to open,” said Wright. The North Carolina Orthopaedic Association is helping to draft the bill.

It is being modeled after a 2005 update to the certificate of need law that allowed endoscopy units performing upper and lower GI procedures to open.

“It’s been very successful,” Wright said of the 2005 change in the law. The net Medicare savings related to that shift from hospitals to ambulatory surgery centers over the past six years is estimated at nearly $225 million in North Carolina, she said. That is because Medicare reimburses hospitals 43 percent more than it does ambulatory surgery centers.

“If this bill passes, [hospitals are] not going to be able to charge the higher rates” at their off-campus facilities for Medicare patients, Wright said.

At present, the hospital-ambulatory surgery center mix of procedures is 80-20.

If the state allows a wider array of ambulatory surgery centers, savings would occur in Medicaid and state health plan payments. Adding 50 new ambulatory centers and shifting 10 percent of patients from hospitals to the centers would save $16.7 million in Medicaid payments from 2014 to 2020, according to the Orthopaedic Association. At 100 new centers and with a 20 percent shift of patients, the savings would be $33.1 million.

The association’s projections for the state health plan coverage for state employees, under the same scenarios, would save the state $53.3 million with 50 new centers and $114.3 million with 100 new centers.

Avila’s bill “will make it easier for communities to have access to ambulatory surgery centers,” Wright said.

Currently, North Carolina has 0.98 ambulatory surgery centers per 100,000 population. The national average is 1.72. North Carolina also lags behind South Carolina (1.62), Florida (2.24), Tennessee (2.55), and Georgia (3.44), but has a higher rate than Virginia (0.64).

Only 23 of 100 North Carolina counties have ambulatory surgery centers, and 18 counties have neither a hospital nor an ambulatory surgery center. The other 59 counties are served by one or more hospitals.

New ambulatory surgery centers could provide cataract surgery, lens implementation, retina and glaucoma procedures, Wright said. They could provide surgery for tonsils and adenoids, hernias, foot procedures, carpal tunnel, cystoscopy, lower back epidurals for pain management, urology, or ear, nose, and throat.

“Competition will increase quality of care” through free-market principles, create more jobs, and make North Carolina a more physician-friendly state that would help in recruiting doctors, Wright said.

“There’s not currently a free market in health care,” Tilson said. “For hospital services, almost 50 percent of our patients are paid for by Medicare. They [government regulators] set the rates below the cost of care.” The same is true with Medicaid patients, who comprise 16 percent of hospital patients. And one in nine patients have no health insurance.

“Just allowing single-specialty [operating rooms] isn’t going to solve that whole problem,” Tilson said. “Making one small change to ORs is just going to undermine our ability to serve the entire community.”

Dan Way (@danway_carolina) is an associate editor of Carolina Journal.