Certificate of Need: Protecting Public Interests

1. Certificate of Need:Protecting Public Interests

2. on behalf of the Missouri Health Facilities Review Committee Thomas R. Piper Director, Missouri Certificate of Need Program a presentation to the Missouri State Senate Interim Committee on Certificate of Need Senate Hearing Room #2, State Capitol Building, Jefferson City, Missouri 1:00 pm, Tuesday, August 1, 2006

3. Certificate of Need:Protecting Public Interests Topics CON Background Significant State ChangesFederal Trade Commission Study Free Market and Competition Business Health Studies Rationale Benefits

4. Milestones in Health Planning Early 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

5. Milestones in Certificate of Need The Concept • 1964: Rochester, New York (model for the nation) Marion Folsom (prev. of DHEW), works with Kodak (and other businesses) and Blue Cross to establish community health planning council (“grass roots” movement of payers, consumers and 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 the establishment of CON programs in 58% of the states before the federal mandate. Mandatory Regulation • 1976-1983: the remaining 21 states (except Louisiana) complied with PL 93-641 Health Planning law

7. broadly diverse regulation

8. capacity boom Ohio 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.

9. restoration? IndianaPennsylvania Reinstate CON: • Indiana repeated efforts • Pennsylvania strong efforts (experiment in quality control through licensure not effective)

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

11. 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. “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

12. 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.htm AHPA 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.

13. Marketplace Issues Revealed • 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.

14. CON: Unique Regulatory Concept and Tool • 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

15. CON: Unique Regulatory Concept and Tool What the record shows (part I) • 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

16. CON: Unique Regulatory Concept and Tool What the record shows (part II) • 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 . . .

17. Big-Three Automakers Health Care Costs non-CON vs. CON states up to 164% lower CON states have lower health care costs than non-CON states!

18. Big-Three Automakers Health Care Costs non-CON vs. CON states nearly a third less I CON states have lower health care costs than non-CON states!

19. Big-Three Automakers Health Care Costs non-CON vs. CON states about 20% less CON states have lower health care costs than non-CON states!

20. Big-Three Automakers Health Care Costs non-CON vs. CON states 11-39% lower CON states have lower health care costs than non-CON states!

21. Freestanding Ambulatory Surgery Center Chargesnon-CON vs. CON states over 25% lower CON states have lower freestanding ASC charges than non-CON states!

22. CABG Mortality non-CON vs. CON states >20%diff. CON states have lower mortality for CABG surgery than non-CON states!

23. Missouri CON has been effective: • • 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.

24. CON applications intended . . . but not submitted MHFRC actions Missouri CON 1991-2005 application fee net revenue in excess of expenses

25. Consequences of Eliminating Public Oversight • Splinters the provider delivery networkwhich 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 marketssuch 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.

26. Health Care Public Oversight is Needed • 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.

27. Balance Regulation and Competition: Protect Public Interests 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.

28. Certificate of Need:Protecting Public Interests Thank you, any questions?