News: CJ Exclusives

Senate Committee Considers Repealing Certificate of Need

Law requiring medical providers to get state approval before expanding services under fire

Katherine Restrepo, health and human services policy analyst at the John Locke Foundation, speaks against certificate-of-need regulations at a Tuesday meeting of the Senate Health Care Committee. (CJ photo by Dan Way)
Katherine Restrepo, health and human services policy analyst at the John Locke Foundation, speaks against certificate-of-need regulations at a Tuesday meeting of the Senate Health Care Committee. (CJ photo by Dan Way)

State Sen. Ralph Hise, R-Mitchell, said the state’s certificate-of-need law, a major regulatory barrier to reducing costs and competition in health care, would be repealed under a bill working its way through the Senate Health Care Committee.

House Bill 161 “is very simple. All CON regulations with the state will end Jan. 1, 2021,” Hise said.

Critics of the state’s certificate of need law told members of the committee on Tuesday the law protects incumbent providers while it severely restricts competition.

“Simply put, this law is outdated,” Katherine Restrepo, health and human services policy analyst at the John Locke Foundation, told the committee.

The payment structure in place for hospitals 40 years ago was “an incentive for this medical arms race to [obtain] this latest and greatest technology and equipment, which led to health care costs and inflation,” the opposite effect of the law’s intention, Restrepo said.

That payment structure has changed dramatically today, one of many reasons North Carolina should follow the lead of the federal government in doing away with CON regulations, she said.

The state-level agency limiting the supply of medical services harms rural health care by requiring patients to travel longer distances, and has forced a “major outflow” of patients from one area to another to receive treatments such as kidney dialysis or breast cancer screening, she said.

Hise, co-chairman of the Senate Health Care Committee, noted that every year he’s been in the General Assembly, regulatory reform bills have been passed.

“Nowhere is that [government interference] more prevalent than in health care,” he said.

H.B. 161 originally passed the House as an act designating the bobcat as the state’s official cat. That language was stripped from the bill in the Senate, and replaced with the certificate-of-need repeal. No vote on the bill was taken in Tuesday’s hearing, which was designated for discussion only.

“With everything else that’s been going on, we’ve not been able to sit down and have a couple of internal discussions that are important with our caucus and others,” Hise said in explaining why no vote was taken.

“I think it’s a bad omen for something happening this week, but I think we still have enough time in this session” to pass CON repeal, Hise said.

A more targeted CON repeal could occur in the mental health arena, Hise said. Psychiatric and substance-abuse facilities could be carved out of CON requirements under a budget measure allocating $12 million from the state’s sale of Dorothea Dix Hospital property to Raleigh to build such facilities.

“Wherever they can be built will be exempt from the CON,” Hise said.

Supporters of the CON law argue that health care is not a free market, so the process of obtaining permission from the state before allowing new facilities is vital to protect hospitals and large provider systems.

Hise agrees, but said it is government’s fault health care is not market-driven.

“We put in laws like CON to determine where the practice of medicine is allowed, and to the level it’s allowed in a particular community, and we guarantee those who hold those certificates have a market,” he said.

“I think that total repeal is unnecessary,” said Sen. Floyd McKissick, D-Durham.

“I think it will have a terrible impact, particularly on small hospitals, rural hospitals,” because smaller clinics will open on their periphery, McKissick said. They will drain patients from the most profitable services a hospital provides, but unlike hospitals they would not be open round-the-clock, or be required to provide charity care.

“It appears we are going to a far extreme here,” said Sen. Don Davis, D-Greene. Like McKissick, he said lawmakers should meet with stakeholders and seek to revise rather than abolish the system.

Sen. Trudy Wade, R-Guilford, said with the state’s aging population, she is concerned that CON requirements are restricting the supply of assisted living facilities. She said one tried to open in her district, but was denied a certificate of need. She said it seems that a provider without competition has no incentive to provide the highest quality of care.

Hise agreed, saying a provider with monopoly powers doesn’t have to worry about convincing families its facility is the best option for their loved ones.

Joseph Kiser, spokesman at Americans For Prosperity North Carolina, advocated repealing CON laws.

Hospitals argue that repeal would result in patients fleeing to smaller clinics and surgery centers for more accessible and personalized care, Kiser said.

“That means these large providers know these patients are seeking more options, and lower costs, so they collaborate with state bureaucrats at the State Health Coordinating Council to deny them that opportunity, to preserve unhappy patients as a revenue stream,” Kiser said. “This is wrong from every angle.”

Dr. Charles Ford, an ear, nose, and throat surgeon from Boone, said CON laws are an obstacle to quality surgical care in the right location at the right cost.

“Thousands of dollars are wasted with every case I perform” because he must operate in a high-cost hospital setting because CON restrictions bar a lower-cost, same-day surgery center, Ford said. As an example, it costs him $5,200 to put tubes in a child’s ears to deal with infections. At a freestanding ambulatory surgery center in Hickory, the cost would be just $1,700.

“No wonder we face a crisis in health care spending,” Ford said. CON allows “the most costly models of care to flourish.”

“Certificate of need repeal right now I think would be short-sighted,” said Cody Hand, a spokesman for the North Carolina Hospital Association. That’s because the health care industry is changing so swiftly with mandates coming down from Washington, insurance industry transition, and uncertainty about the Affordable Care Act.

The General Assembly should protect the hospital industry from market volatility and federal mandates, and the stability the CON process offers is an important bulwark, Hand said.