State cer­tifi­cate-of-need laws weather per­sis­tent at­tacks

Modern Healthcare - - LEGAL - By Lisa Schencker

Dr. Mark Mon­te­fer­rante didn’t think it would be so hard to help his ra­di­ol­ogy group’s of­fice in North­ern Virginia buy a sec­ond MRI ma­chine in 2003.

But it took five years and more than $175,000 in lawyers’ and other fees to get that sec­ond ma­chine. The rea­son? Virginia’s cer­tifi­cate-of -need law, which re­quires own­ers of med­i­cal fa­cil­ity-care projects to prove pub­lic need and get ap­proval for their projects be­fore em­bark­ing upon them.

The pro­gram is meant to con­tain health­care costs, but Mon­te­fer­rante ar­gues it hurts pa­tients by sti­fling com­pe­ti­tion. He now wants to start a new ra­di­ol­ogy prac­tice in Virginia, but he isn’t will­ing to risk another ar­du­ous CON process.

“Com­pe­ti­tion is a good thing, and the fact that we’ve got a sys­tem that in­hibits that, it’s un-Amer­i­can,” he said. “It’s ridicu­lous.”

Mon­te­fer­rante and another doc­tor, backed by the In­sti­tute for Jus­tice, a pub­lic in­ter­est law firm that fo­cuses on in­di­vid­ual lib­erty and lim­ited govern­ment, sued state of­fi­cials over the state’s CON law in 2012. Last week, the 4th U.S. Cir­cuit Court of Ap­peals ruled against the doc­tors. They’re not yet sure whether they’ll ap­peal their case to the U.S. Supreme Court.

Clashes over CON laws, how­ever, aren’t just play­ing out in courts.

For years, the Fed­eral Trade Com­mis­sion and the U.S. Jus­tice De­part­ment have pressed states to aban­don the laws, de­cry­ing them as bad for com­pe­ti­tion. Many states have also en­gaged in seem­ingly end­less de­bates over the mat­ter. But none of these ef­forts—whether through courts, pol­i­tics or fed­eral agen­cies—have led to much change. Thir­ty­five states and the District of Columbia still have CON pro­grams.

The laws’ crit­ics say state hos­pi­tal as­so­ci­a­tions have wielded their po­lit­i­cal power to keep cer­tifi­cate-of-need pro­grams in place, shield­ing in­cum­bent hos­pi­tals from costly com­pe­ti­tion.

“They can keep com­peti­tors out,” said Frank Sloan, a pro­fes­sor of health pol­icy and man­age­ment and economics at Duke Univer­sity. “The pub­lic doesn’t care much about it.”

James Blum­stein, a pro­fes­sor of health law and pol­icy at Van­der­bilt Law School, said CON pro­grams are of lit­tle value in the cur­rent health­care sys­tem, which no longer re­lies on cost-based re­im­burse­ment.

But hos­pi­tal as­so­ci­a­tions say the laws are still rel­e­vant be­cause they en­sure qual­ity health­care ser­vices and pro- tect safety net hos­pi­tals.

“There is not a free mar­ket in health­care be­cause so much of the health­care mar­ket is gov­erned by re­im­burse­ment rates set by the fed­eral and state govern­ment,” said Al­lan Stalvey, an ex­ec­u­tive vice pres­i­dent at the South Carolina Hos­pi­tal As­so­ci­a­tion. “It pro­tects hos­pi­tals that pro­vide ser­vices that other peo­ple don’t want to pro­vide.”

Decades ago, CON laws were even more pop­u­lar. Many states en­acted them in re­sponse to the fed­eral Health Plan­ning Re­sources Act of 1974, which tied fed­eral fund­ing to the laws. That act, how­ever, was re­pealed in 1987, lead­ing 14 states to elim­i­nate their CON pro­grams, ac­cord­ing to the Na­tional Con­fer­ence of State Leg­is­la­tures. CON crit­ics in many states have con­tin­ued to fight to erase the pro­grams, but with­out much suc­cess.

“Ev­ery year there are nu­mer­ous bills filed that would ad­dress pieces of, or all of, cer­tifi­cates of need,” said Richard Cauchi, a pro­gram di­rec­tor in health at the Na­tional Con­fer­ence of State Leg­is­la­tures. “The out­comes are of­ten no­tice­ably smaller or more mod­est.” Last year, law­mak­ers in­tro­duced at least 14 such bills in six states. No state has re­pealed its CON law since In­di­ana elim­i­nated its pro­gram in 1999.

The FTC and Jus­tice De­part­ment have also jumped into state bat­tles over the laws at the re­quest of politi­cians in those states.

This month, the agen­cies rec­om­mended that South Carolina pass a bill that would ul­ti­mately re­peal the state’s CON laws. They made the rec­om­men­da­tion in re­sponse to a re­quest for com­ment from South Carolina Gov. Nikki Ha­ley.

The FTC and Jus­tice De­part­ment also sub­mit­ted a state­ment in Oc­to­ber to a Virginia work group study­ing pos­si­ble re­forms to the state’s CON laws. FTC Chair­woman Edith Ramirez said in a state­ment at the time that the FTC was con­cerned that CON laws may

“Com­pe­ti­tion is a good thing and the fact that we’ve got a sys­tem that in­hibits that, it’s un-Amer­i­can. It’s ridicu­lous.” —Dr. Mark Mon­te­fer­rante Ra­di­ol­o­gist sued state of Virginia over its cer­tifi­cate-of-need law

“fa­cil­i­tate anti-com­pet­i­tive merg­ers and con­duct that raises prices for con­sumers and re­duces their ac­cess to new sources of care.”

The work­group ul­ti­mately rec­om­mended re­form­ing the law but not scrap­ping it.

In July, the FTC sub­mit­ted com­ments to a North Carolina law­maker in sup­port of a leg­isla­tive pro­posal to nar­row the state’s CON law. The bill hasn’t gone any­where.

Matthew Mitchell, a se­nior re­search fel­low at the Mer­ca­tus Cen­ter at Ge­orge Ma­son Univer­sity, said law­mak­ers likely take the fed­eral agen­cies’ com­ments se­ri­ously. But those com­ments don’t re­quire states to take any ac­tion. Pol­i­tics are also work­ing against change, he said.

“Those that ben­e­fit from CON pro­grams are ex­ist­ing fa­cil­i­ties that are usu­ally pretty big and pretty so­phis­ti­cated and know a lot about the pro­gram and how to ob­tain cer­tifi­cates of need,” Mitchell said. “Those who lose are con­sumers and pa­tients who typ­i­cally don’t even know they ex­ist.”

Darpana Sheth, an at­tor­ney for the In­sti­tute for Jus­tice, the group back­ing the Virginia law­suit, at­trib­uted the law’s sur­vival in Virginia to the “enor­mous sway” of the hos­pi­tal lobby.

But Ju­lian Walker, Virginia Hos­pi­tal & Health­care As­so­ci­a­tion vice pres­i­dent of com­mu­ni­ca­tions, said in a state­ment that the state’s law pro­tects the pub­lic from un­sus­tain­able over­ex­pan­sion and pro­tects hos­pi­tals from los­ing rev­enue needed to offset un­re­im­bursed costs.

“Within an in­dus­try laden with mar­ket in­tru­sions, con­sumers stand to ben­e­fit from ob­jec­tive re­view of new fa­cil­ity ap­pli­ca­tions,” Walker said. He also said that Virginia has lower health­care costs than a ma­jor­ity of states with­out CON laws.

Still, ef­forts to undo the pro­gram in Virginia are on­go­ing. Sev­eral Re­pub­li­can law­mak­ers are back­ing leg­is­la­tion this ses­sion aimed at re­form­ing and re­peal­ing the state’s CON laws.

One of those law­mak­ers, Del. Chris Peace, said one of his bills is a re­sponse to a bat­tle hos­pi­tal gi­ant HCA fought in Virginia last year over its plans to build a free-stand­ing emer­gency de­part­ment in ru­ral New Kent County. The area is a 30- to 40-minute drive from the next near­est ED, but HCA strug­gled to get ap­proval for imag­ing de­vices for the fa­cil­ity. HCA ul­ti­mately got those ap­provals af­ter a grass-roots cam­paign urged the state’s health de­part­ment com­mis­sioner to re­verse her staff’s de­ci­sion on the mat­ter, Peace said.

“It’s another ex­am­ple, in my mind, of the govern­ment say­ing, ‘We know bet­ter than you,’ ” Peace said. “That was just re­ally con­found­ing.”

Re­search is mixed on the ef­fects of cer­tifi­cate-of-need laws on over­all costs. Some stud­ies sug­gest the laws do in fact yield lower costs, while oth­ers find the op­po­site. Many CON de­fend­ers also say the laws lead to higher pa­tient vol­umes in hos­pi­tals, which con­trib­ute to bet­ter qual­ity as doc­tors gain more prac­tice and ex­per­tise.

But Mon­te­fer­rante, the ra­di­ol­o­gist in­volved in the Virginia case, doesn’t buy it.

“The rea­son to have a free mar­ket and com­pe­ti­tion is it drives cost down and qual­ity up,” he said. “I’m happy to com­pete with any­body and ev­ery­body be­cause I know I’ll do it bet­ter and faster and cheaper than any­one.”

IN­STI­TUTE FOR JUS­TICE

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