Certificate of need: going, going, but not gone.
The alternating bane and best friend of hospital strategic planners has been gradually fading away for years but refuses to die.
The state regulatory tool, invented in the 1970s to try to rein in galloping healthcare expenditures, has fallen largely out of favor in this market-driven age. In many states it has withered on the vine; in 13 it's been abolished outright. In other places it has been added to and subtracted from, shaved, manicured and recoiffed, according to the fashion of the moment.
The past 12 months have been a banner year under statehouse domes for CON tinkering. According to a survey by the American Hospital Association, a record 28 states made minor changes to their CON laws. Four states made major changes, such as reinstating CON, changing more than five services covered by a CON law or lifting the threshold for CON coverage by $500,000 or more.
Two states repealed CON, albeit by quite different means. Pennsylvania did it more by accident than design. At the close of the legislative session in November 1996, the Senate was still tinkering with the reauthorization bill when the House adjourned. Absent reauthorization, the program was automatically sunsetted.
Nebraska, too, rescinded CON for all but long-term care, just a year after strengthening its program. Indiana, bucking the trend, reinstated two review measures.
Prior to the past year, North Dakota also repealed CON completely. Ohio has phased out CON review over several years but installed a system of quality review to take its place.
Last month, the AHA held a symposium in Chicago where CON was discussed among state and metropolitan hospital associations. Thomas R. Piper, executive director of Missouri's CON program, presented an overview of CON developments and an updated matrix showing what states review which services and projects, and at what spending thresholds (See chart, p. 33).
Piper said thinking on CON is moving in several different directions at the same time. One leading argument is that market-driven managed care, with its emphasis on lower utilization, will supplant the regulatory apparatus. The more you have of one, the less you need of the other. The competitive framework will winnow the best candidates for new infrastructure.
Piper's own view is that CON is "one of the last bastions of public accountability," where the public interest, considered more or less impartially, can actually have an effect on healthcare expenditures.
That said, Piper thinks strict controls on bricks and mortar, as CON was designed to achieve in the 1970s, is now obsolete. "The system has changed," he observed. "What is the role of government today in healthcare? I have maintained that our job is to protect and promote the safety and security of our residents. That's what we do with water quality, automobiles and restaurants. Why don't we do that with healthcare? To do that you have to monitor and inspect."
Managed care offers the promise of containing costs, improving quality and maintaining access. But who holds the managed-care industry accountable for those? So far, no one, Piper said.
Some of the tumult surrounding CON has been brought about by Columbia/HCA Healthcare Corp., whose then-chairman and chief executive officer, Richard Scott, told MODERN HEALTHCARE*earlier this year that CON laws should be eliminated (April 14, p. 52). Indeed, for an expansionist enterprise like Columbia, CON can represent the major barrier to market entry.
William Schoen, CEO of Naples, Fla.-based Health Management Associates takes the opposite view. He likes CON laws because they keep competitors out of small communities where HMA often operates the only acute-care facility.
Judith Weaver, a former CON committee member in Missouri, said what states really need is health planning, not market shakeouts. Managed care actually has an adverse effect on hospital costs, she said.
Managed-care companies want to contract with hospitals that offer a full range of capabilities. The old system, where one hospital might offer open-heart surgery while another offers oncology, falls apart under managed care. In Missouri, "we had a lot of gearing up, to be as vertically integrated as they could be," Weaver said.
Actually, Columbia executives agree with this. They say they aren't against CON laws because they want to increase capacity. Rather, they want to add services to offer insurers complete provider networks in markets they serve.
In some states, such as Georgia, Columbia has lobbied heavily to dump CON. So far it hasn't succeeded, partly because of staunch opposition from the Georgia Alliance of Community Hospitals, a not-for-profit group of 80 hospitals.
Monty Veazey, president and CEO of the alliance, said Columbia has tried to exempt obstetrics and heart surgery from CON. "Basically they want to cherry-pick the law to get the services they don't have."
Veazey said Georgia's law requires applicants for new services to commit 3% of the patient load to indigent care. Columbia isn't interested in that, he charged. It would take the high-paying obstetric patients and leave the sick babies to the community hospitals that have invested in neonatal intensive-care units.
Jimmy Lewis, vice president of government and business relations for Columbia's Georgia division, declined to respond to Veazey's comments. And now that Scott has resigned from Columbia, it's uncertain whether the healthcare giant will pursue its CON agenda.
In any case, the Georgia Legislature will hold joint hearings Sept. 2-3 to discuss the future of CON.
One state in which Columbia has building projects is Kansas, which abolished CON in 1987. Now there are "rumblings" to bring it back, said state Sen. Sandy Praeger, chairman of the health committee. "Curiously enough, the people who are rumbling are hospitals, people who already have what they want, and see this as a way of controlling some of the expansion that's occurring right now," she said.
Praeger, a free-market Republican, is skeptical that market-driven reforms are "occurring for the right reasons." That said, she doubts CON can be made to work. It's just too vulnerable to political manipulation.
The Legislature in Nebraska set out to revise CON earlier this year. By the end of the session it was gone with the wind.
Don Wesley was in the Legislature in 1979 and pushed to enact CON; only three others from that era are still in office. "Nobody can remember the days when we had the hospitals and nursing homes building like crazy," he said.
Now, he predicted, ambulatory surgery centers will spring up across the state in any town of any size. "It's a disaster for a stable community hospital system," Wesley said. "It allows cherry-picking the best cases and profiteering. What's left for the community hospital are the expensive, hard-to-reimburse cases."
West Virginia is about to review its program to decide whether CON should be phased out or continued. Its dollar thresholds are very low, and it regulates 22 services, earning it the No. 3 ranking on Piper's matrix.
"It is an incredibly cumbersome process because the limits are so low in terms of capital expenditure, and the functions for which it claims accountability are so broad," said Phillip Goodwin, CEO of Charleston (W.Va.) Area Medical Center. "You find yourself wanting to replace a major piece of imaging equipment going through a six-, seven- or eight-month review process."
He favors dropping CON review for all but significant expansions and new tertiary programs, such as open heart, neonatal and transplants. "Somebody who's got a heart program and they want to do stents, that shouldn't need a CON," Goodwin said. "Simple replacement of a (computed tomography) scan should be allowed. Information systems upgrades ought to be exempt."
Making matters worse, the state also reviews and sets hospital rates. This "very antiquated" approach, Goodwin said, prevents hospitals from competing freely or drawing up decent managed-care contracts.
What complicates West Virginia's plight is that most of its population and its hospitals are found in towns around the perimeter. Hospitals in Wheeling, for example, have to compete with hospitals in nearby Ohio and Pennsylvania, which have just dropped CON.
"You can stick (a new facility) right next to the West Virginia border," Goodwin said. "You could put it in Bluefield, Va., which is across the street from Bluefield, W.Va."
In Ohio the hospital industry is very worried about what's happening as a consequence of the CON phase-out passed in 1995. "I think now a lot of people wish we had it back," said Gretchen McBeath, a healthcare attorney in Columbus.
CON oversight in different areas falls away in increments, although providers still have to file a pre-construction notice of intent. Using those data, McBeath has concluded that "the medical arms race has resumed and is going full-tilt ahead."
Ambulatory surgery centers were deregulated May 1, 1996, in urban areas, and May 1 of this year in rural areas. Between those two dates, 56 operators announced new ambulatory surgery centers in cities. Before the program's sunset, 10 or 12 already had been approved. "That's a fairly significant and phenomenal growth," McBeath said.
The consequences could be even more dire for rural areas. Once the surgery centers start to suck revenues from rural hospitals, the community hospitals could suffer severe financial weakness, she thinks.
Her second major concern is new hospitals. Boutique cardiac hospitals and orthopedic hospitals are the latest thing; six orthopedic hospitals have been announced, two of them to be built by Columbia.
Three nursing homes have filed to become hospitals, and several nursing homes are adding ambulatory surgery.
"There is no discipline in this scenario," McBeath said, quickly adding that there wasn't much discipline in Ohio's CON process, either.
It's hard to say how the market will sort this out, McBeath said, but the initial results are alarming for anyone who believes that overcapacity leads to higher charges. The Ohio Department of Health said in January 1995 that the state had 1,115 rehabilitation beds, of which it estimated 297 were excess. Rehab was deregulated in May of that year. Since then 365 beds have been added.