The governor of Connecticut has ordered the state's health department to hold off on approving any major hospital mergers and acquisitions until next year—a move that could delay at least one big deal.
Gov. Dannel Malloy issued an executive order Thursday creating a task force to review the state's certificate of need programs and process, by which providers must gain state approval before completing certain transactions.
The order directed the Department of Public Health and Department of Social Services to halt any final decisions on outstanding CON applications until Jan. 15, 2017. The order affects applications involving acquisitions of certain not-for-profit hospitals or deals that would result in a hospital system's operating revenue exceeding 20% of the state's total hospital system operating revenue. The order says such deals should be denied if the state must make a decision.
State hospital associations have traditionally supported CON programs and laws, which they say ensure quality healthcare services and financially protect safety net hospitals. CON proponents argue that hospitals need the programs because they're not operating in a true free market.
Malloy said in a statement Thursday that the state has been taking a “piecemeal look” at its CON program for years, and now is the time for comprehensive reform.
"With continuing changes in the healthcare industry, it is critical that our state laws ensure that all hospitals continue to thrive and that the deck is not stacked in favor of fewer than a handful that dominate the marketplace,” Malloy said in the statement. “We need balance. Fewer healthcare systems mean fewer choices for consumers, and that can dramatically affect both the quality of care and costs.”
Malloy's order could potentially affect a proposed affiliation between Lawrence & Memorial Hospital in New London and Yale New Haven (Conn.) Health System.
Michael O'Farrell, a spokesman for Lawrence & Memorial, called the order “ill-advised and unnecessary” in a statement.
“This action is injurious to our organization, the people we serve and the people we employ,” O'Farrell said. “Jobs are at stake. Access to care is at stake. The long-term viability of our organization is at stake.”
He said that federal health reform, Medicaid and Medicare cuts, and Connecticut's “notorious hospital tax” have led to struggles for many of the state's community hospitals, creating a need for consolidation and affiliation.
The hospital and health system had filed paperwork to begin the CON process in the fall, and they had been hoping to get an approval decision by early summer, said Vin Petrini, a Yale New Haven spokesman. Lawrence & Memorial was to become the system's fourth affiliated hospital. Yale New Haven had operating revenue of $3.4 billion in 2014, according to the Modern Healthcare financial database.
When asked whether the system would consider taking legal action, Petrini said it's now reviewing all its options.
The Connecticut Hospital Association also expressed concern over the order.
“We have grave concerns about a blanket moratorium on acquisitions and conversions, including those already in process,” the association said in a statement. “Hospital integration is part of a shift to adjust to healthcare sector changes, including the impact of healthcare reform.”
Moratoriums like the one in Connecticut are not unheard of but not terribly common either, said Christopher Koopman, a research fellow at the Mercatus Center at George Mason University, which has done research finding problems with CON laws in general.
CON laws across the country have long drawn the ire of some providers and federal enforcement agencies.
Efforts to erase the programs have been unsuccessful in recent years. No state has repealed its CON program since Indiana did so in 1999. Thirty-five states and the District of Columbia still have CON programs. They argue that healthcare needs the programs because healthcare is not a free market.
“This is certainly a part of a broader nationwide conversation, but it does seem like a good first step for the state (of Connecticut) to have a serious conversation about the efficacy of its program in light of all the changes that have taken place in the last 15 to 20 years in healthcare,” Koopman said.
Frank Sloan, a professor of health policy and economics at Duke University, said this latest Connecticut moratorium could help consumers, or hurt them, depending on how it's carried out.
“I'm not sure it's totally counter to the public interest if (state leaders) are using the time wisely to get some better criteria,” Sloan said. “Often the hospitals assert that by these kinds of affiliations they will recognize all kinds of economies of scale and all kinds of efficiencies but they don't really demonstrate that.”
On the other hand, sometimes extenuating circumstances might justify an affiliation, and if the state doesn't take those into account, the moratorium could potentially hurt competition, he said.
The 17-member task force is supposed to submit recommendations on how to reform the CON process by year-end. The task force will include the state's commissioner of public health and representatives of acute-care hospitals, physician practice groups, the healthcare insurance industry and healthcare labor interests, among others.