News: CJ Exclusives

Physicians Remain Unhappy With Certificate of Need Reforms

Doc group says hospitals still have unfair advantage in adding facilities

RALEIGH — A bill intended to reduce medical-related lawsuits and expenses stemming from the state’s certificate of need process and to make it easier for private physician clinics to compete with hospitals is getting pushback from an organization representing doctors.

The House Regulatory Reform Subcommittee on Business and Labor approved House Bill 83 last week, and it is awaiting action in the Appropriations Committee.

This is one of two reform bills filed this session to untangle certificate of need regulations that determine whether many medical facilities and services get state approval. The other, House Bill 177, is sponsored by Rep. Marilyn Avila, R-Wake.

State Rep. John Torbett, R-Gaston, a primary sponsor of H.B. 83, said he was not surprised that the North Carolina Medical Society continues to have some issues with his bill. “It is a $53 million industry a day in North Carolina, so right now I’m not surprised at anything,” Torbett said, despite 18 months of special committee research and a series of stakeholder meetings around the state.

“Both physicians and hospitals have bills to pay. They have market share to acquire. So it’s a very tender subject with both entities,” Torbett said. “Their primary focus is on the care of the patient. To be able to do that, they have to be able to stay in business. So the tug of war that’s going on right now is a market-driven tug of war.”

Because the state “unfortunately provides some oversight” through the certificate of need process, Torbett said, “you don’t have the free market that you have in most businesses. … So we’re trying to work within those parameters. We’re trying to make it more affordable to North Carolinians.”

Critics contend the certificate of need process — which was intended to reduce health care costs by refusing the approval of projects that duplicated existing services — actually increases costs because of the lengthy approval process. It is not uncommon for legal turf wars to erupt among hospitals, further driving up costs.

“We have to do with it what we can to decrease litigation, decrease state costs, and make it easier on taxpayers, especially with the advent of health care changes coming in 2014. This bill, after 18 months, begins that process,” Torbett said.

Among its “common sense” provisions, Torbett said, the bill removes the requirement for a medical facility to have to go through the certificate of need process when simply replacing outdated medical equipment with new models.

“This makes it easier to expand” by raising the thresholds that trigger a certificate of need review from $2 million to $4 million, Torbett said. Raising the cap applies to new institutional health services or facilities, and for renovation only of nursing homes, adult care homes, and intermediate care facilities for the mentally retarded.

The bill also is designed to remove lawsuits from the certificate of need process initiated by a competitor seeking to delay a competing project.

Those petitioning for an appeal would have to file a bond equal to 5 percent of the project cost — no less than $5,000 and no more than $100,000. If a judge deems the contested case to be frivolous, attorneys’ fees and costs would be awarded from the bond to the aggrieved facility.

Dave Horn, legislative counsel for the North Carolina Medical Society, told Regulatory Reform subcommittee members the society has “a continuing concern” with the bill.

The current certificate of need process already makes it difficult for physician groups to compete with hospitals, Horn said.

“Raising thresholds in the current CON without making some other compensating changes further restricts competition and opportunity for new participants to participate as owners in our health care delivery system,” Horn said.

“Raising the $2 million threshold to $4 million will, in fact, exacerbate a government agency-created loophole” that favors hospitals, he said.

He said hospitals already have certificates of need that allow them to operate on-site and off-site facilities. Hospitals will be able to expand services swiftly and expand market share, while physicians trying to open competing facilities would be tied up trying to obtain an initial certificate of need, Horn said.

“Leaving the law as it is, we don’t object to,” he said.

Eliminating the replacement equipment threshold also favors hospitals “and will make it less likely that new participants will be able to come into this,” Horn said.

“We think that the bill, as it’s worked out, the changes that were made, we continue to support the bill as it is,” said Hugh Tilson, senior vice president of the North Carolina Hospital Association.

Martha Frisone, assistant section chief of the Certificate of Need Section in the state Division of Health Service Regulation, rebutted Horn’s contention.

“Yes, it could impact existing providers who already have CONs, but it would also impact someone who doesn’t already provide a health service [and] wants to develop one,” by exempting them from the process so long as the project does not exceed $4 million, Frisone said.

However, she said, a certificate of need process still will be required “whether it costs $1.00 or it costs $100 million to acquire certain types of equipment” such as an MRI scanner, linear accelerator, CAT scanner, or cardiac catheter equipment. “This bill would not change that.”

Operating rooms still would require a certificate of need because they are specifically licensed and regulated. Procedure rooms would not be subject to a certificate of need and would fall under the $4 million threshold exemption, Frisone said.

That discussion opened another debate when Avila asked Frisone the difference between a procedure room and an operating room and what services each provides.

“I don’t believe there is a definition of procedure room in current CON law,” Frisone said.

The law regarding regulation of an operating room “talks about surgical procedures and incisions, and procedure room is not defined. So we have had applicants who propose procedure rooms and basically what we ask them to do is to demonstrate to us that it’s not an operating room. We don’t have a definition,” Frisone said.

“You’re not doing surgeries in a procedure room,” which is a “less invasive setting” than an operating room, Tilson said. “They are medical procedures you’re doing in (a procedure room), but they’re not sterile fields. They’re not the type of procedure you would do in a surgical suite.”

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