Certificate of Need Laws on Healthcare

Abstract

The rising cost of health care and access to quality health care has been an issue for many of us. One of the reasons for this that many states have what is called certificate of need regulations. The regulations dictate how the health care industry can operate. The question is what can “we the people” do address our health care concerns? Do these certificates of need regulations really address a need or do they just waste a resource? Some states have relaxed or repealed their certificate of need laws. Should the states that still have these regulations, follow the trends of the repeal states and do away with them? These are questions I hope to answer as I explore the certificate of need programs and how they impact us.

Key Words: Health Care, Certificate of Need, Repeal

Introduction

Are certificate of need (CON) programs really beneficial to quality health care and having access to facilities that provide needed services or does the CON hinder and create dilemmas on what is needed and what is not. The CON program was originally intended to stop construction of two many medical facilities and to control health care costs by restricting that construction. It was an attempt to only have services that were needed in a community. (Simpson, 1985)

Background Statement

There have been many studies on CON programs and how they impact different areas of the health care industry. Studies have shown that there is little evidence that CON programs provide quality health care or access to health or that they are cost efficient. In an abstract from the Medical Care Research & Review, CON regulations are supposed to  reduce duplication of services but in reality, CON regulations are ineffective in reducing costs and they deprive people of getting the health care that they need.(Rosko & Mutter, 2014)

Statement of the Problem

The research that I have encountered will clearly show that CON regulations should be adjusted to fit the true needs of communities or just be repealed and permanently done away with. According to Rosko & Mutter, “there are both practical and theoretical reasons why certificate of needs are possibly ineffective”. (Rosko & Mutter, 2014)

Michael Rosko and Ryan Mutter did an empirical study on the CON. The study involved comparing inner city hospitals in those states which have CON programs to those who don’t. A Stochastic Analysis was done using a pooled time series, cross-sectional data from 1,552 hospitals in 37 states in a period from 2005-2009, using controls for variation in hospital services, quality of care and services, and patient level of sickness. It was determined that in CON states that the average of estimated costs were lower (8.10%) than those in non-CON states (12.46%).The results showed that a wider scope of analysis is needed to determine what effects CON regulations would have on efficiency, quality, access, price, and innovation before a policy recommendation is made.(Rosko & Mutter, 2014)

Significance of the Assignment

The purpose of this research is to determine if CON programs reduce health care spending at nursing facilities and other health care organizations and if it affects the quality of care.

Research Questions

I hope to answer the following questions in my paper:

Are CON regulations cost efficient?

Do CON regulations promote quality health care?

Should CON laws be repealed?

Hypothesis

CON regulations are not cost efficient and do not provide quality in health care.

Literature Review/Discussion

Historically, a Certificate-of-Need (CON) is a law on the state level which requires business in the health care industry to get permission to do anything major such as construction, renovation, expansion, or anything that they feel can keep the cost of health care from rising.(Cauchi & Noble, 2012)

The states were introduced to CON laws in the 1970’s as part of the federal National Health Planning and Resources Development Act. This Act was repealed in 1987. Today 36 states have a form of CON law. The usefulness of CON laws is highly debatable for the health care industry. (Cauchi & Noble, 2012) Some will argue that CON laws reduce waste and duplicative services, while others say that CON does not reduce costs of health care, but in fact contributes to higher costs. CON laws are just barriers to keep entry of competitors and consumer choice low. (Cauchi & Noble, 2012)

After World War II, there were shortages of health care facilities and a demand to build more community hospitals. In light of this demand, congress passed the Hill-Burton Act, which was a plan to give states federal funds to build community hospitals. In order to get these funds, the states had to put into place a health policy planning initiative. (Cauchi & Noble, 2012) However by the late 60’s and early 70’s the Hill-Burton Act was found to be ineffective on keeping health care costs down, so two more federal laws were passed in an attempt to control rising health care costs. This is Section 1122 of the Social Security Act, which is the law that allows the federal government of hold payments for health care facilities and service expansion that do not have approval from the state planning agency. The other law, (NHPRDA) the National Health Planning and Resource Development Act of 1974 established a policy on the national level regarding health planning, which in turn withheld federal funds from states that did not pass CON laws. (Cauchi & Noble, 2012) By 1978, 36 states had CON laws in place.

As time went on, it became questionable if state CON laws were actually effective on the control of rising healthcare costs. In a study conducted by Salkever and Bice it was found that “no significant savings in hospital costs were achieved through CON programs” and that costs actually increased. (Cauchi & Noble, 2012, para. 5) They concluded that duplicative services only counted as a fraction of medical cost inflation. Other studies displayed that CON regulations had a negative secondary effect on health outcomes. (Cauchi & Noble, 2012, para. 5) Due to the results of these studies, NHPRDA was repealed by congress which allowed states to drop CON programs. To date, 14 states have eliminated CON programs, while others relaxed their CON policies. However, 36 states plus the District of Columbia and Puerto Rico still have some type of CON program.

Because CON laws control entry into the health care market and require permission to build or make capital improvements, private firms who invest in the health industry want to make sure their decision to invest is a wise one. (Ohlhausen, 2015, p. 1) In a study conducted by Salkever and Bice, a review of questions asked about the effectiveness of CON controls, quantitative estimates were developed on the impact of CON on investment. (Salkever & Bice, 1976, Lines 3-5) These estimates show that CON did not reduce the total dollar volume of investment but altered its composition, retarding expansion in bed supplies but increasing investment in new services and equipment.(Salkever & Bice, 1976, Lines 5-7) These findings are possibly due to (1) the emphasis on CON laws and programs controlling bed supplies and (2) a substitution of new services and equipment for additional beds in response to financial factors and organizational pressures for expansion. The conclusion of the study is that CON controls should be broadened and tightened. (Salkever & Bice, 1976, Lines 7-10)

CON laws vary from state to state, but the common factor for the states that have CON laws is the same. The state is in control of entry and expansion of healthcare facilities. These laws have a significant impact on hospitals, nursing homes, and home health agencies. While searching for different studies and research on CON and its impact, I ran across an article about home health agencies and their entry into the market. It was said that if certain services could be provided at home, it would be more cost effective than to have the same services performed in a hospital or nursing facility. (Ohsfeldt & Li, 2018, para. 1) Quality is what is measured in the competition of home health agencies. In hospitals, competition is based on improvements to measure quality. Consumers look for quality by observation. They tend to research different agencies by recommendations and by word of mouth. There is one published study which examined the impact of competition among home health agencies on quality of service. This study was conducted by Polsky et al. in 2014. (Ohsfeldt & Li, 2018, p. 4) For this study, Medicare claims data was used and found that state CON for home health agencies was associated with substantially lower rates of home health service utilization. (Ohsfeldt & Li, 2018, p. 4) The data that was analyzed in the study was quality ratings of home health agencies from (CMS) Medicaid and Medicare services. Nine performance metrics were used which included three measures of process quality: (1) timely initiation of care; (2) drug education on medications provided by a caregiver; and (3) influenza immunization. Six outcome measures (1) improvement in ambulation; (2) improvement in bed transferring; (3) improvement in bathing; (4) improvement in pain interfering with activity; (5) improvement in dyspnea; and (6) acute care hospitalization.(Ohsfeldt & Li, 2018, p. 4)

Star ratings were assigned according to decile rank for each of the nine measures. Those in the top 10 percent were assigned a score of 5, while those in the bottom 10 percent were assigned a score of 0.5 for each performance measure. (Ohsfeldt & Li, 2018, p. 4) The end result was that in states with CON for HHAs will likely receive lower quality ratings than those states without CON. (Ohsfeldt & Li, 2018, p. 15)

Let’s examine what will happen if CON regulations were removed. In an article I read which asked the question of will removing CON regulations lead to a surge in health care spending. This article discusses a study on the impact of CON regulation for hospitals on different measures of health spending per capita, hospital supply, services innovations, and the hospital industry organization. (Conover & Sloan, 1998, p. 455) The study used a time series cross-sectional methodology. The authors estimated the net impact of CON policies on the above the above mentioned measures, controlling for area characteristics, the presence of other forms of regulation, such as hospital rate-setting, and competition. (Conover & Sloan, 1998, p. 455)

In this article will give provide empirical evidence that focuses on acute care services, which includes nursing homes, hospices, and home health care. It will examine the effects of removing CON through 1993, and its success in cost containment compared to other approaches.

The dependent variables in this study was (1) total expenditures on personal health care services; (2) total acute care expenditures (defined as total spending minus nursing and home health expenditures); (3) expenditures on hospital care; and (4) expenditures on physicians’ services per person for a state’s resident population.(Conover & Sloan, 1998, p. 458-459) Also obtained were estimates of Medicare spending per elderly enrollee which included total Medicare expenses and Part A and Part B expenditures. (Conover & Sloan, 1998, p. 459) Other estimates that are unpublished of personal health care expenditures by state and year in total were obtained from HCFA (U.S. Healthcare Financing Administration) for 1980-1993. Also Medicare expenditures were analyzed for the same time period. All monetary expressed variables were deflated by the Consumer Price Index. (Conover & Sloan, 1998, p. 459)  Binary variables were also used to represent CON laws. (Conover & Sloan, 1998, p. 460) Many variables and measures of CON were examined during the study to see how CON regulations impacted hospital investment and what would happen if CON laws were dropped. The results from this study was that effects of CON laws had no effect on total personal health expenditures per capita or on spending on physicians services. (Conover & Sloan, 1998, p. 463) To summarize their major findings, after CON laws were lifted there was no surge in expenses, there were no reduction on acute spending or total per capita spending. (Conover & Sloan, 1998, p. 469) It was concluded that empirical analysis of effects on CON on costs revealed that CON has a cost containing influence on hospital and other acute services. There is no evidence that acquisitions of new facilities or in costs rose following the removal of CON. No rise in spending on hospitals or physicians services for those states who kept CON laws.

Suggestions for further inquiry

My intention in this paper was to research the impact of certificate-of-need laws on the elderly. As you can see from my writings that there is not much out there to be found on the subject. I suggest that more studies be conducted on the impact of CON for the elderly, especially nursing home care and home health care,

Conclusion

My conclusion is that CON laws do not benefit the Healthcare Industry. There is no cost savings, no access to quality health care, and all the states that still have CON laws enacted,  should follow the trend of those states who don’t have CON laws, and repeal.

References

• Cauchi, R., & Noble, A. (2012, September). A Controversial History. Health Capital. Retrieved from www.healthcapital.com
• Conover, C. J., & Sloan, F. A. (1998, June). Does removing certificate-of-need regulations lead to a surge in health care spending? Journal of Health Politics, Policy and Law, 23, No. 3, 455-478.
• Ohlhausen, M. K. (2015, fall). Certificate of Need Laws: A Prescription for Higher Costs. Antitrust Magazine, 30, 1-5.
• Ohsfeldt, R. L., & Li, P. (2018, February 8). State entry regulation and home health agency quality ratings. , 2. https://doi.org/10.1007/s11149-018-9351-4
• Rosko, M. D., & Mutter, R. L. (2014). The Association of Hospital Cost-Inefficiency with Certificate-of-Need Regulation [Abstract]. Medical Care Research & Review, (3).
• Salkever, D. S., & Bice, T. W. (1976). The Impact of CON Controls on Hospital Investment. PubMed. Abstract retrieved from https://www.ncbi.nlm.gov (Accession No. 1272545)
• Simpson, J. B. (1985). Public Health and the Law [Peer commentary on the journal article “State Certificate-of-Need Programs: The Current Status” by]. American Journal of Public Health, 75, 1225-1228.