After decades of research showing at best mixed benefits, certificate of need programs are starting to look antiquated and deleterious in the age of consumer-driven healthcare.
Thirty-five states and Washington D.C. currently have some kind of "certificate of need" laws on the books, requiring providers of various sorts to justify the need for new imaging, facilities or hospital beds in an attempt to control healthcare costs.
Originally developed in New York for hospital and nursing home construction in 1964, certificate of need or CON laws were adopted by states nationwide because in 1974, with the support of the American Hospital Association, they were required as part of Medicaid funding. Then in 1987, Congress repealed the mandate after research showed the laws were counterproductive.
Between the late 1980s and the 2000s, 16 states got rid of their CON laws. But they persist in many parts of the country, including large states like Florida and Illinois, and they may be subtly impacting the availability and prices health insurers and their members pay for everything from MRIs to knee replacement.
"Forty years of evidence demonstrate that these programs do not achieve their intended outcomes, but rather decrease the supply and availability of healthcare services by limiting entry and competition," write George Mason University economists Christopher Koopman and Thomas Stratmann in a recent analysis.
The goal of CON programs have been to let providers -- namely hospitals -- effectively cross-subsidize healthcare services for the uninsured and limit the incentives for overuse. Neither of those goals seem have to come to fruition, according to Koopman and Stratmann. Some research has linked CON regulations to modest control of healthcare cost growth, but others have linked CON programs to healthcare costs that are around five percent higher than elsewhere.
And there is not really much correlation between CON laws and health insurance market competitiveness. Of the 10 states with the most competitive markets, six have CON programs, including Florida, New York, Oregon and Washington. Of the 10 states with market dominance by one or two insurer, seven have CON laws, including Alabama, Arkansas and Illinois.
In one state, though, there is both an extensive CON program and a dominant insurer with 70 percent market share -- and a new level of pricing transparency that could create a rationale for getting rid of the certification program altogether.
Since North Carolina adopted it first CON law in 1978, the program has evolved to the point today where 25 devices and services are subject to a need determination process, including acute hospital beds, MRIs and psychiatric services. The average CON program regulates 14 services, according to the study by Koopman and Stratmann.
In North Carolina, according to Koopman and Stratmann, the CON regulations have largely resulted in decreased availability of services and lower hospital capacity, rather than better access for rural and uninsured population. According to their research, North Carolina has 12,900 fewer hospital beds, 49 fewer facilities with MRI services and 67 fewer facilities with CT scans than might otherwise exist if there wasn't a CON program.
"For those seeking quality health care throughout North Carolina, this means less competition and fewer choices, without increased access to care for the poor," they write.
Despite or maybe in part because of the CON program, Blue Cross and Blue Shield of North Carolina reigns as the state's largest insurer, with a roughly 70 percent market share. The insurer has not taken a position on the state's CON program, but its members' network choices and reimbursement are certainly in part by shaped by it.
North Carolina has about half as many ambulatory surgical centers as the national average, in large part because of the difficulty and costs associated with getting a certificate of need from the state Department of Health and Human Services.
Last year, the North Carolina legislature was considering reforms to the state's CON program and other regulations. Lawmakers formed a Committee on Market Based Solutions and Elimination of Anti-Competitive Practices in Health Care, and was considering removing ambulatory surgery centers from the CON program as well as certain diagnostic services.
The North Carolina Orthopedic Association estimated that removing ambulatory surgical centers from the CON purview would save Medicaid and the public employees health plan between $70 million and $147 million between 2015 and 2014. Ambulatory surgical centers typically perform surgeries like orthopedic replacements at prices around 20 percent less than hospitals.
The legislature ended up making no changes to the CON law, although new transparency mandates and an initiative by BCBSNC could bring a pro-market dose of information.
Blue Cross and Blue Shield of North Carolina recently unveiled a new public website showing the costs of about 1,200 procedures across its provider networks. The tool shows what BCBSNC pays hospitals and clinics in its broad-network Blue Advantage plans and its narrow-network Blue Value plans. Members can use another tool to see approximately what they'd pay out-of-pocket.
Meanwhile, hospitals are required under a 2013 law to disclose their charges to the five largest insurers for the 100 most common admission cases and the 20 most common outpatient imaging services and surgeries.
BCBSNC is disclosing what it pays providers, while hospitals are disclosing, in effect, what they're getting paid by BCBSNC. (Although the charge data is anonymized, BCBSNC believes it will be identified because it is likely to be the only insurer with charges in every category, thanks to its huge membership.)
"Many consumers believe that the highest cost facility is the highest quality facility, but that's often not the case," said BCBSNC chief medical officer Susan Weaver, MD. "We know that our customers want the highest quality healthcare, but like any purchase they make, they don't want to pay more than they have to."