Weighing CON laws against push for greater price transparency

“Our concern when CON was removed was to maintain safety and quality protections.” Steve Ahnen President of the New Hampshire Hospital Association

When New Hampshire last year became the first state in more than 15 years to eliminate its certificate-of-need laws, hospitals worried it would spur other legislatures to do the same, ultimately affecting competition and revenue.

State CON laws regulate new healthcare facilities and services and require new providers to make a case for their entry into the market. Many, including the U.S. Justice Department and the Federal Trade Commission, which last week urged Alaska to drop CON, believe the laws limit consumer choice and give incumbent hospitals a leg up on the competition.

“Our concern when CON was removed was to maintain safety and quality protections,” said Steve Ahnen, president of the New Hampshire Hospital Association. The other concern was that new providers could more easily siphon away privately insured patients, leaving hospitals with a higher ratio of uninsured, Medicare and Medicaid patients.

This year, Florida and West Virginia have introduced bills that would roll back CON laws, potentially joining 15 others that have dumped the laws. But hospitals have lobbied hard for new regulations through price transparency—which some economists say works better than CON laws.

The New Hampshire General Assembly now requires new specialty practices to submit an array of performance, operations and volume data, as well as obtain licenses for certain procedures. The law also requires newly constructed inpa- tient facilities to maintain ERs to give the uninsured access to care.

The new provisions should result in higher quality of care, while also leveling the playing field for the incumbent hospitals, Ahnen said. The New Hampshire Hospital Association worked closely with lawmakers on the new law.

Pennsylvania created a similar regulatory scheme for its provider community, forcing light on a sector that often tries to keep prices in the dark.

When Pennsylvania did away with its CON laws in 1996, they made sure transparency remained intact, said Paula Bussard, chief strategy officer of the Hospital and Healthsystem Association of Pennsylvania.

The state’s independent Health Care Cost Containment Council collects, analyzes and releases data on spending and quality outcomes at healthcare organizations. The hospital association last year also launched Care PA, an online database where Pennsylvania patients can look up information on cost and quality of healthcare services as well as performance data on providers and nursing homes.

Still, the push to restore CON laws in the state isn’t dead. Three bills proposing a return of CON laws have been floated—the most recent effort in 2015. The laws never made it out of committee.

In an attempt to defend current regulations, the state hospital association touted the benefits of removing CON laws. Overall, readmissions to Pennsylvania hospitals have declined by 26% since the legislation sunsetted in 1996. The number of licensed acutecare hospitals has also declined from 182 in 2000 to 156 this year. Most states aren’t looking to replace CON laws even though policy experts say transparency promotes competition more than other regulation. They do caution that special, sometimes costly, licenses for certain service lines such as open-heart surgery and organ transplant, can stifle market forces.

Matt Mitchell, a senior research fellow at the libertarian Mercatus Center at George Mason University, said these licenses “are just CON in all but name.” The group last year put out a study that found CON laws lead to more readmissions. He argues that licenses regulating equipment, employees and training slow growth of new services.

“I don’t think there is much of an economic or public interest case for (special licenses). The best that can be said is that they might be less-restrictive than CON and so they might therefore be a step in the right direction,” Mitchell added.

On the other hand, Michael Rosko, a professor at Widener University who has studied CON laws, said that when information on prices and quality is readily available to consumers, healthcare organizations are motivated to compete. Patients with high-deductible health plans, which have become increasingly common, may use cost data to decide where they want to receive care, he said. This could motivate providers to keep costs down.

Such transparency efforts by the states “diminish the need for CON,” Rosko said.