State lawmakers chipped away at certificate-of-need laws last year, diluting the impact of the controversial guidelines in eight states and repealing any oversight at all on hospital expansion projects in Missouri, with Illinois likely to follow its neighbor's lead.
At the same time, more and more CON boards are approving almost any project that comes their way. Nearly one-third of the 27 states that regulate acute-care hospitals gave the green light to every application they received, raising the question of whether the laws have any effect on managing and monitoring the nation's healthcare landscape.
The information is included in the annual national CON directory compiled by the American Health Planning Association, a not-for-profit group that represents a wide range of interests, including consumers, insurers, policymakers and providers nationwide. An advance copy of the AHPA's 14th annual directory, released exclusively to Modern Healthcare, shows that the vast majority of CON projects across the nation win board approval.
"Most people find that these laws don't do anything but make it more expensive to build these facilities," said Kathy Bryant, executive director of the Alexandria, Va.-based Federated Ambulatory Surgery Association, which represents about 1,200 facility-members across the nation. "They don't, in the end, really promote the efficient allocation of resources-what they really promote is a whole little cottage industry for very expensive consultants who know how to get these projects approved."
Nearly three decades after the federal government mandated certificate-of-need regulations, the laws remain in place in 36 states. A 1974 federal law created the federal health planning program with its CON laws. Thirteen years later, President Reagan repealed that law, stripping federal funding and giving states the option to continue the programs.
Three presidents and two Gulf Wars later, CON laws remain a hot topic in healthcare. Last year, lawmakers in 20 states considered about three dozen separate pieces of legislation dealing with everything from the repeal of CON laws to their reinstatement, according to the National Conference of State Legislatures. In all states but one-Tennessee, where lawmakers strengthened CON rules by creating a new Health Services & Development Agency-legislatures whittled away at regulations designed to ensure that any new healthcare facility addresses the needs of the community it is supposed to serve.
"We're basically seeing a deregulation trend, a loosening of regulations," said Thomas Piper, spokesman for the AHPA and director of the Missouri Department of Public Health's CON program.
In the most dramatic change last year, Missouri repealed its oversight of expansion and renovation projects for acute-care hospitals while retaining its regulatory review of new construction. West Virginia dropped medical office buildings from review, Georgia stripped a handful of medical services from the law, and Arkansas removed subacute care and swing beds from supervision. Maryland and Washington state, meanwhile, increased their thresholds on capital construction slightly, while Oklahoma dropped swing beds from the mix.
In many cases, it appears CON boards are approving almost every project they review, a trend that critics like Bryant say further erodes the oversight and regulation that these laws were meant to reinforce. This holds true even for states considered to be among the most stringent, such as Connecticut. While the AHPA's directory lists it as the second-toughest in the nation in the scope of CON review (See chart), Connecticut's Office of Health Care Access endorsed almost all of the 40 projects it reviewed in fiscal 2002, approving fully 99% of the total dollar amount of requested construction and new services, or $291 million in all, according to the AHPA study.
"It's pretty dangerous to make generalizations, but if every application is being approved, it does question why there's a process in the first place," said Craig Jeffries, executive director of the 1,000-facility American Association of Ambulatory Surgery Centers in Johnson City, Tenn., which views the laws as a barrier to the growth of niche hospitals.
Once limited to competing hospitals-often investor-owned vs. not-for-profit-contemporary CON battles often involve an entirely new player: the ambulatory surgery center.
"It used to be the HCAs and Tenets of the world against small not-for-profits," said Monty Veazy, president of the Georgia Alliance of Community Hospitals, which represents about 80 not-for-profits in the state. "I have to say the bulk of the competition today is less and less among hospitals and more and more focused on physician groups that want to build ambulatory surgery centers."
Despite that evolving environment, statistics in the report clearly show that most projects continue to win approval. In Washington and eight states with CON laws that regulate acute-care hospitals, health planning boards approved every request last year for new construction, renovation, expansion or services. Six others endorsed 90% or more of the total dollar amount on CON applications, fueling the arguments of detractors who say the laws are a bureaucratic anachronism.
"It's an excellent criticism when you take a first glance at the numbers," Piper said. "But that's only if you don't recognize the amount of negotiation done prior to the review of an application. States are taking an active role, actually sitting down with applicants until they can bring (projects) into line."
In New York, which created the first CON law in 1964, nearly a decade before the federal government mandated similar regulations, the state Department of Health and Human Service's Division of Health Facilities Planning approved all of the 170 projects it reviewed last year. Total hospital construction amounted to more than $862 million, the highest figure of any state with CON laws, the AHPA report said.
Christopher Delker, a research specialist with New York's CON board, said that number doesn't include the applications that never passed muster in the initial staff-review process. He also noted that many projects are modified to meet state guidelines after negotiations with planning officials.
"It's only after they become suitable according to our regulations that they go forward," he said. "I would suspect that's true in other states."
Delker and other proponents said the arduous process discourages frivolous applications, which keeps approval rates at a high level. They also suggest that the absence of regulations would lead to the unfettered growth of dominant healthcare providers, reducing competition and increasing costs. Last year, for instance, Blue Cross and Blue Shield of Minnesota, a state that does not have a CON law, warned that an unprecedented hike in hospital construction projects-$1.45 billion in new or remodeled facilities over the next several years-could lead to a medical arms race and higher healthcare costs (Sept. 23, 2002, p. 6).
Even hospital administrators who support CON laws, such as Eugene Pritchard, president and CEO of 168-bed Condell Medical Center in Libertyville, Ill., question why hospitals must endure a cumbersome, costly process that almost always results in approval.
He said Condell spent $99,300 about three years ago to win approval from the state's Health Facilities Planning Board for a $90 million expansion project that added about 190,000 square feet of space and 40 beds. The approval didn't come as a surprise: Last year, the Illinois CON board OK'd about 92% of the 53 applications it reviewed for a total of about $507 million in hospital construction and expansion.
"For about 8% of hospitals that get rejected, they're putting 100% through a lot of agony," said Pritchard, who supports CON regulations for new hospital construction.
In Wisconsin, where the CON laws for acute-care hospitals were repealed about a decade ago, state health planning officials approved every project but two over a span of about 30 years, said C. David Lund, chief of the nursing-home section of the state's Division of Healthcare Financing. An effort last year to resurrect those laws failed without much serious consideration, he said.
Lund's argument seems to be underscored in other states, according to Piper's report. In Maryland, for example, regulators approved all of the 27 requests they received, approving a total of $229 million in hospital construction last year. State officials in South Carolina gave the green light to every project they reviewed, approving $251 million in new construction or renovation. In Washington, all eight projects worth $252 million won approval. The most discriminating state was Vermont, which approved only 24% of the total dollar amount of projects it reviewed.
The number of states with certificate-of-need laws has remained fairly steady since more than a dozen of them, mostly in the western U.S., abandoned the practice in the mid-1980s.
"In those states that gave up their CON laws, there's a little wave of nostalgia," said Richard Wade, spokesman for the Chicago-based American Hospital Association. "A lot of our members are saying, `Yes, that (law) wasn't so bad after all.' "
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