Certificate of Need CON

1
Certificate of Need (CON)

• HCAI 5313 Economic Aspects of Health Care
  Administration
• John D. Johnston
• April 30, 2005

2
What is Certificate Of Need?

• State CON laws generally prevent firms from
  entering certain areas of the health care market
  unless they can demonstrate to state authorities
  that there is an unmet need for their services.

Burden of justification falls on the supplier,
not the consumer
3
Historical Overview

• National Health Planning and Resources
  Development Act of 1974
• Powerful incentives for states to enact CON laws
• HCFA reimbursement linked to CON approval
• By 1980, every state except Louisiana had enacted
  CON programs
• In 1986 Congress repealed the 1974 Act, but many
  states continue to maintain CON programs

Existence today is based on a repealed initiative
4
National Health Planning and Resources
Development Act

• Created 200 geographic Health Service Areas
  (HSA)
• Health Systems Agency (HSA) established for
  oversight - consisted of representatives from
  local providers, purchasers, and businesses
• HSA establishes targets for efficient utilization
  in their Health Services Area
• HSA approves or denies all CON applications

The first serious possibility fornational
healthcare system. (Somers)
5
Rationale of Certificate Of Need

• Control costs by restricting provider investment
• Assumption of Health Planning Act market
  failure
• Competition does not limit excess supply
• The result is excess supply and needless
  duplication of services
• Excess supply creates unnecessary demand
• CON was created in the era of cost-based
  reimbursement
• Patients not price sensitive (insurance effect)

Did PPS solve the problem that CON was created to
address?
6
Roemers Law

• A built bed is a filled bed is a billed bed

7
Arguments for and against CON

• AGAINST
• Defining right
• Increase the cost of health care by reducing or
  eliminating competition
• Limit access to new technology in favor of old
  technology
• Administrative burden
• Politics (quid pro quo)

• FOR
• Establish the right number of facilities
  offering the right mix of services
• Maintain the cost of health care at an acceptable
  level (arms race)
• Eliminate unnecessary care caused by excess supply

8
What about today?

• 37 states have some level of CON requirement
  (hospital, long-term care, service expansion,
  etc.)
• 51 of the U.S. population live in CON states
• 45 of U.S. hospitals are located in CON states
• 83 of specialty hospitals built or in
  development are in non-CON states

9
Do CON laws control health care costs?

• 1988 FTC Study The Effect of State CON Laws on
  Hospital Costs
• Strong CON laws do not lead to lower costs, but
  may actually increase costs
• Hennessy study
• Premiums in Kansas and Missouri are generally
  the sameone state has CON and the other does
  not
• FTC/DOJ Report
• A CON rule that restricts capital investment in
  new beds does nothing to prevent hospitals from
  adding (other costly services)

10
FTC/DOJ Conclusion on CON Laws

• Generally not successful in controlling health
  care costs
• Can pose anticompetitive risks
• CON Laws risk entrenching oligopolies and eroding
  consumer welfare
• There are other, more effective means of
  controlling costs that do not pose
  anticompetitive risks

11
My concluding thoughts

• No empirical data to confirm or deny CON value
• Difficult to perform cost comparisons while
  controlling only for CON status
• Assumption that political abuses abound
• Limits ability to fully assess value when the
  process can be over-ridden due to political
  influence
• No quality comparisons
• Any attempt at analysis tends to focus on costs
• Number of beds is not directly related to
  intensity of services