Certificate of Need:Protecting Public Interests

Certificate of Need:Protecting Public Interests

on behalf of the Missouri Health Facilities Review Committee

Thomas R. PiperThomas R. PiperDirector, Missouri Certificate of Need Program

a presentation to the Missouri State Senate

Interim Committee on Certificate of NeedSenate Hearing Room #2, State Capitol Building,

Jefferson City, Missouri1:00 pm, Tuesday, August 1, 2006

Certificate of Need:Protecting Public Interests

Certificate of Need:Protecting Public Interests

Free Market and CompetitionBusiness Health Studies

Rationale

CON BackgroundSignificant State Changes

Federal Trade Commission Study

Topics

Benefits

Milestones in Health PlanningEarly History

• pre-WWI: Flexner report (revolutionized medical education)• pre-WWII: Social Security Act (universal health ins.)• post-WWII: Hill-Burton (develop modern hospital infrastructure)

Middle History • mid-60s: PL 89-97 Soc. Sec. Act : Medicare & Medicaid (Titles 18 & 19) PL 89-749 Comp. Health Planning Act (quality, cost, access)• mid-70s: SSA-1122 Capital expenditure controls PL 93-641 Nat’l. Health Planning & Res. Dvlpmt. Act:

new authority for health planning & regulation

Recent History• mid-80s: DRGs control through purchasing, not supply Federal support for planning & CON regulation terminated Managed care emerges (popularizes competition)• Today : Striving for BALANCE . . . regulation & competition

Milestones in Certificate of NeedThe Concept

• 1964: Rochester, New York (model for the nation)Marion Folsom (prev. of DHEW), works withKodak (and other businesses) and Blue Crossto establish community health planning council(“grass roots” movement of payers, consumersand providers who initially evaluated hospital need)

Voluntary Regulation • 1966-1975: New York State, followed closely by Maryland,

Rhode Island and the District of Columbia, lead theestablishment of CON programs in 58% of the statesbefore the federal mandate.

Mandatory Regulation• 1976-1983: the remaining 21 states (except Louisiana)

complied with PL 93-641 Health Planning law

a Map of the2006 Relative Scope and Review Thresholds: CON Regulation by State

(a geographic illustration of the CON matrix)

revised July 21, 2006no CONWeighted Range of Services Reviewed (see left sife of matrix)0-9.9 10.0-19.920.0-44.0

broadly diverse regulatio

n

broadly diverse regulatio

n

OhioOhio

Impact of Deregulation (first 4 years):

• 19 new hospitals (15 were LTCHs)• 137% surge in outpat. dialysis stations• 280% increase in radiation therapy • 548% jump in freestanding MRIs• 600% explosion in ambulatory surg. ctrs.

capacity boom

IndianaPennsylvaniaIndianaPennsylvania

Reinstate CON:• Indiana repeated efforts• Pennsylvania strong efforts (experiment in quality control through licensure not effective)

restoration?

July 2004 FTC/DOJ Report & AHPA CritiqueImproving Health Care: A Dose of Competition

July 2004 FTC/DOJ Report & AHPA CritiqueImproving Health Care: A Dose of Competition

July 2004 FTC/DOJ Report Specific Certificate of Need Message

July 2004 FTC/DOJ Report Specific Certificate of Need Message

Report encourages movement to a “consumer driven” health care system that relies on market forces to determine costs (prices), access, and quality; it clearly cautions against:

• CON regulation and health planning;• Over-reliance on health insurance; • The system-distorting effects of Medicare and other “administered pricing” schemes;• Economic cross-subsidies within the system; • Government-imposed service mandates; • Attempting to control prescription drug prices;• Permitting collective bargains by physicians; and • Any other action or process that might limit competition or the full application of market forces.

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“Healthy competition equals healthy consumers. Consumers want high-quality, affordable, accessible health care, and the challenge of providing it requires new strategies,” said FTC Chairman Timothy J. Muris

July 2004 FTC/DOJ ReportIntent of the Message

July 2004 FTC/DOJ ReportIntent of the Message

Recommendation 2. States should decrease barriers to entry into provider markets.

a) States with Certificate of Need programs should reconsider whether these programs best serve their citizens’ health care needs.

b) States should consider adopting the recommendation of the Institute of Medicine to broaden the membership of state licensure boards.

c) States should consider implementing uniform licensing standards or reciprocity compacts to reduce barriers to telemedicine and competition from out-of-state providers who wish to move in-state.

www.ftc.gov/opa/2004/07/healthcarerpt.htmAHPA rebuttal: www.ahpanet.org/articlescopn.html

The Agencies (FTC and DOJ) believe that, on balance, CON programs are not successful in containing health care costs, and that they pose serious anticompetitive risks that usually outweigh their purported economic benefits. Market incumbents can too easily use CON procedures to forestall competitors from entering an incumbent’s market. As noted earlier, the vast majority of single-specialty hospitals – a new form of competition that may benefit consumers – have opened in states that do not have CON programs. Indeed, there is considerable evidence that CON programs can actually increase prices by fostering anticompetitive barriers to entry. Other means of cost control appear to be more effective and pose less significant competitive concerns.

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•Capital costs in health care are passed on to the consumers.

•Competition in health care usually does not lead to lower charges:… providers control supply… demand is determined by providers… consumers lack adequate information.

•Consumers do not (and usually can not) “shop” for health care, at least, not based on price or quality (usually unavailable).

• Increased capacity costs lead to higher delivery charges.

•Consumers do not pay most of the cost, and do not really know the true cost of, or charges for, most care (third-party payers do).

•Providers have no direct incentives to lower charges or utilization.

Marketplace Issues RevealedMarketplace Issues Revealed

•Planning-based, analytically-oriented, fact-driven

•Open process, with provision for direct public involvement

•Structured to compensate for market deficiencies and limitations and foster market efficiency

•Unlike licensure and certification with their leveling effects, designed to highlight and accentuate quality

•Promotes economic and quality competition within the context of health care market realities

•Doorway to excellence rather than barrier to market entry

CON: Unique Regulatory Concept and Tool

• CON focuses on access and quality

• CON seeks to improve economic and social access:

…promotes equal access to health care

…advocates community, patient and provider equity

• CON elevates quality: best practices, high standards

• CON promotes fiscal responsibility by requiring the use of sound economic and planning principles

CON: Unique Regulatory Concept and ToolWhat the record shows (part I)

•CON responds to the realities of market forces and related circumstances

•CON discourages market segmentation, “cherry picking” and monopolistic practices

•CON opposes anti-competitive forces and actions, such as community abandonment

•CON realities: actual experience of business . . .

CON: Unique Regulatory Concept and ToolWhat the record shows (part II)

CON states have lower health care costs than non-CON states!

4000

3000

2000

1000

0 WisconsinIndiana DelawareMichiganNew York

$3,519

$2,741

$2,100$1,839

$1,331

Adjusted Health Care Cost Per PersonBy Location and State CON StatusDaimlerChrysler Corporation, 2000

states with CONstates without CON

Big-Three Automakers Health Care Costs non-CON vs. CON states

Big-Three Automakers Health Care Costs non-CON vs. CON states

up to 164% lower

Ohio

Adjusted Health Care Expenditures Per EmployeeBy State and CON Regulation Status

General Motors Corporation, 1996-20012100

2000

1900

1800

1700

1600

1500

1400

1300

1200 1996 1997 1998 1999 2000 2001

CON states

non-CON states

Michigan

Indiana

New York

CON states have lower health care costs than non-CON states!

Big-Three Automakers Health Care Costs non-CON vs. CON states

Big-Three Automakers Health Care Costs non-CON vs. CON states

I

nearly a third less

CONstates have lower health care costs than non-CONstates!

Big-Three Automakers Health Care Costs non-CON vs. CON states

Big-Three Automakers Health Care Costs non-CON vs. CON states

120

110

90 OhioIndiana Michigan

Hospital Inpatient Relative Cost(per 1000 members normalized to Michigan Year 2000 = 100)Ford Motor Company

115

105

95

100

KentuckyMissouri

18% above Michigan12% above Michigan

set at 100

5% above Michigan2% above Michigan

about 20% less

120

110

100

90 Ohio Indiana Michigan

Magnetic Resonance Imaging (MRI) Relative Cost Per Service(per 1000 members normalized to Michigan Year 2000 = 100)Ford Motor Company

20% above Michigan

11% above Michigan

set at 100

140

120

100

90 OhioIndiana Michigan

Coronary Artery Bypass Graft (CABG) SurgeryRelative Cost Per Service(per 1000 members normalized to Michigan Year 2000 = 100)Ford Motor Company

130

110

39% above Michigan

20% above Michigan

set at 100

CONstates

have lower health

care costs than

non-CONstates!

Big-Three Automakers Health Care

Costs non-CON vs.

CON states

Big-Three Automakers Health Care

Costs non-CON vs.

CON states

11-39% lower

Ambulatory Surgery CentersBy State CON Regulation Status

Average Charge, 1999

Source: Freestanding Outpatient Surgery Centers (FOSCs): Report & Directory, SMG Solutions, 2000; Calculations, AHPA 2002.

* Excludes five states (Florida, Nebraska, New Jersey, Ohio, and Pennsylvania where CON programs were in flux and could not be assigned to a category. Inclusion of these states in either category would not materially affect calculated averages.

$1,119$1,005

$1,281

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

All States* States With CONRegulation

States Without CONRegulation

Freestanding Ambulatory Surgery Center Charges non-CON vs. CON states

Freestanding Ambulatory Surgery Center Charges non-CON vs. CON states

CON states have lower freestanding ASC charges than non-CON states!

over 25% lower

0.90

0.80

1.20

1.30

1.10

1.00

0.70non-CON statesCON states

Coronary Artery Bypass Graft (CABG) Surgery Risk-Adjusted Mortality by State CON Regulation StatusMedicare Beneficiaries (65 years of age or older)1994-1999

21% above CON avg.11% above Michiganset at 100

Missouri

1% belowCON avg.

CON states have lower mortality for CABG surgery than non-CON states!

CABG Mortalitynon-CON vs. CON states

CABG Mortalitynon-CON vs. CON states

WAMI

ILIA

NCGA

FLALSC

NJMDVAWV

ME

HIAK

OR

CA

MTID WY

NV

AZNM

NEKSOK

TX

IN

AR

DECO KY

MAMN

MS

MO

NHNYND

OHPA RI

TNUT

WI

LA

SD VTCT

DC>20% diff.

• Saves money by restraining $145 in unneeded expenditures for every $1 invested;

• Ensures accountability through public meetings, notices and other transparency;

• Protects the community by limiting unnecessary health care services; and

• Promotes planning through sound management and community need assessment.

Missouri CON has been effective:Missouri CON has been effective:

Fiscal YearsFifteen-Year Net Gain to Treasury of $660,742$500$400$300$200$100CON Application FeesCON Program Expenses199219931994199519961997199819992000200120022003200419912005

Missouri CON 1991-2005Missouri CON 1991-2005

MH

FR

C a

ctio

ns CON applications intended . . . but not submitted

application fee net revenue in excess of expenses

Consequences of Eliminating Public Oversight Consequences of Eliminating Public Oversight

•Splinters the provider delivery network which causes staffing shortages, which in turn lowers quality and fragments the health care support system.

•Threatens “safety net facilities” like trauma centers, medical education hospitals, low-income neighborhood facilities . . .

over 600,000 uninsured in Missouri.

•Creates high-profit niche markets such as specialty hospitals and outpatient service centers for diagnostic imaging, ambulatory surgery and radiation therapy.

•Supply drives demand! “…supply generates demand, putting traditional economic theory on its head. Areas with more hospitals and doctors spend more on health care services per person.”

- Hospitals & Health Networks review of the Dartmouth Atlas, April 5, 1996.

•Prices for health care services going up almost 8% annually, compared to less than 3% inflation for most other services.

•Health care spending divides out to $6,280 per person, which is 16% of the gross domestic product . . . this spending is projected to reach 20% by 2015 if current levels continue.

•Employer insurance premiums increased by 9.2%, which threatens the ability of business to effectively compete in the domestic and world markets.

•High cost of health care dipping into retirement reserves.

•Average cost of nursing home care is over $60,000 per year.

Health Care Public Oversight is NeededHealth Care Public Oversight is Needed

Promote the development of community-oriented health services, equipment and facility plans,

Achieve cost containment, reasonable access and local accountability through public oversight, and

Provide a public forum to ensure that the community has a voice in health care development.

Balance Regulation and Competition: Protect Public Interests

Balance Regulation and Competition: Protect Public Interests

Certificate of Need:Protecting Public Interests

Certificate of Need:Protecting Public Interests

Thank you, any questions?Thank you, any questions?