News: CJ Exclusives

Politics Battles Principles in CON Debate

Hospitals don't want competition, and conservative lawmakers hear about it

The conflict conservative legislators face between satisfying constituents and staying true to free-market principles is playing out in the debate over the scope of North Carolina’s certificate of need law, a set of rules governing where a host of medical facilities — diagnostic centers, psychiatric beds, and free-standing clinics known as ambulatory surgery centers — can operate.

Republicans have trumpeted deregulation as a goal since taking control of the General Assembly. But while easing or repealing the CON law would allow a larger, more varied number of medical facilities — potentially expanding patients’ options for treatment — the most vocal backers of certificate of need are hospitals, and they are major employers in many Republican-controlled districts.

Expect to hear more about that political tension in coming weeks as the House resumes debate on House Bill 200. Primary sponsor Rep. Marilyn Avila, R-Wake, said she was waiting for the House budget to pass before advancing the bill for a vote.

As discussion last month in the House Health Committee illustrated, there is a deep divide among GOP members when it comes to supporting legislation their local hospitals oppose.

Many of those leery of the bill are from rural areas. They expressed concerns that allowing doctors to offer alternative clinics would undermine the profitability of small hospitals already operating on the margins or in the red.

“It’s a common occurrence in politics that legislators sort of subscribe to basic views of the world, whether you call it political ideology or philosophy, so they think about things in general principles,” said Andy Taylor, a political science professor at N.C. State University.

“But often when policy is being implemented, and it has direct effects on their constituents, they can often come out in favor of a policy that seems inconsistent with that general philosophy,” Taylor said.

Doctors and hospitals are generally on opposite sides in this debate. Hospitals panned H.B. 200 the day it was introduced.

The current system requires nearly all medical surgeries and diagnostic procedures to be done at hospitals, where costs often are higher. Researchers at the Mercatus Center at George Mason University say the CON system makes health care services in North Carolina harder to get.

At an April 20 committee meeting Connie Wilson, representing the North Carolina Orthopaedic Association, North Carolina Surgeons, and Eye Physicians Society, and Cody Hand, vice president and deputy general counsel of the North Carolina Hospital Association, presented conflicting arguments.

“All we’re asking you today is allowing us to compete,” Wilson said. The CON law “artificially forces folk to go to facilities that are higher cost.”

Critics contend allowing doctors to compete at lower cost would put small hospitals out of business, so H.B. 200 has a provision for licensing that says applications for ambulatory surgery centers must get the approval of the local hospital if they would be located in a county with fewer than 100,000 residents.

Many rural counties already lose between 40 percent and 90 percent of their ASC procedures to larger hospitals in neighboring counties. In Anson County, it’s 95 percent. Allowing the same-day clinics would allow residents to get care closer to home and keep the health care dollars in-county, Wilson said.

The bill requires an ASC to perform at least 7 percent charity care or risk losing its license. The state’s hospitals average only 3.9 percent charity care, so it’s tough to argue an ASC would cherry pick a hospital’s patients, Wilson said.

While Wilson presented handouts with specific figures and facts tailored to each committee member’s district to show current dynamics and how CON repeal for ambulatory surgery centers would benefit their constituents, Hand argued more in general terms and suggested potential harms that could result from repeal.

He noted that hospitals have to be open around the clock, unlike an ASC, and must be prepared for a variety of medical situations that a freestanding clinic may not be equipped to handle. He said there are concerns physicians could stop practicing at a hospital if they open their own clinic.

“That means they’re not available to take calls when you have a trauma patient coming in to the emergency department” to treat a head injury or reattach an accidentally severed digit, Hand said.

“I can’t tell you that repealing CON will cause rural hospitals to close. But I can’t tell you that it won’t,” Hand said. “I would ask you not to take that gamble.”

He said more Medicaid patients likely would go to hospitals if doctors were permitted to open their own clinics, and Medicaid allowable costs “will probably go up. Now I can’t say for sure they will go up.”

“What we envision is that there’s going to be a lot more opportunity for these Medicaid patients” by expanding the number of sites to serve them, and requiring ASCs to provide a minimum of 7 percent charity care, Wilson countered. With ASCs charging lower rates than hospitals, state taxpayers would save money.

Another bill sponsor, Rep. Dan Bishop, R-Mecklenburg, asked Hand why he opposed allowing a limited relaxation of the CON regulations to gauge outcomes.

Bishop noted that the Federal Trade Commission issued a report saying CON laws “impede the efficient performance of the health care market. They create barriers to entry and expansion to the detriment of health care competition. Are they wrong?”

“It’s not wrong,” Hand said, and he’s not arguing the CON regulations contain costs. But he said the concern is about access to health care. “I can tell you [H.B. 200] will hinder our ability to transform health care for the next century.”

Wilson said hospitals are pleading poverty as they seek to bar competition.

“I can tell you Carolinas Medical Center [in Charlotte] is making hundreds of millions of dollars in income a year. You’ve got these dichotomies” between large hospitals and rural hospitals, Wilson said.

“And then you have the poor patients stuck in the middle paying way too much for health care,” often with high Obamacare policy co-payments on expensive procedures “that could be done at a third or half of the cost” outside of a hospital, Wilson said.

Rep. John Szoka, R-Cumberland, said allowing ASCs to operate in Cape Fear Medical Center’s coverage territory “would have a significant negative impact on their ability to continue operations to serve the population that walks through the [emergency room] doors 24-7.”

“I think you’re missing a very important picture here. It’s what your constituents pay for care in Cumberland County,” Wilson said. “Doctors in Fayetteville tell me it’s one of the most expensive hospitals in the state.”

Wilson reminded Szoka that hospitals are businesses, “even though they don’t want you to look at them as businesses. They want you to look at them as nonprofits that are just there for the good for the society.”

They are “going out and buying doctor practices all over the place, which is not cheap,” Wilson said. When that happens, the same patient immediately pays more “for the exact same health care service.” Allowing ASCs to operate would help reverse that trend, she said.

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