Cutting through the CONfusion: Movement to relax the limits

Certificate-of-need laws still apply in the majority of states, and some have extended their reach beyond typical hospital services. With the AMA and the FTC questioning the effectiveness of CON laws, some states are taking another look at their programs.

By Mike Norbut — Posted Feb. 7, 2005

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In Alabama, you have to prove that a need exists before you can purchase an ultrasound machine for your office.

In 13 states, including Maine, if you want to offer renal dialysis services, you must get state approval. Connecticut regulates some business computer purchases, and Washington, D.C., needs to approve the construction of your medical office building.

These requirements all come courtesy of certificate-of-need laws, commonly called CON laws. They were created to regulate health care spending, particularly for hospitals.

But in some states, the net has been cast more widely. Thirty-six states plus Washington, D.C., have CON laws, and each state varies according to what's regulated and the economic thresholds that, if surpassed, would require state review of projects.

The AMA long has opposed CON laws on grounds that there is little evidence to suggest that regulations effectively rein in health care costs. But at the Interim Meeting in December 2004, AMA delegates took a more aggressive stance. They voted to oppose federal CON legislation, oppose the expansion of CON laws in some states and support state medical groups that are working to get some laws repealed.

Critics of CON laws have noted that hospitals are among those who have lobbied in some states to extend laws to physician-owned facilities, such as specialty hospitals, ambulatory care centers and diagnostic imaging facilities.

"Hospitals are crying foul that physicians own these facilities, but the concern we have is what's best for our patients," said AMA President John C. Nelson, MD, MPH. "Competition is the way to go."

The AMA is not the only dissenting voice. A report last year by the U.S. Federal Trade Commission concluded that CON programs on the whole "are not successful in containing health care costs," and "they pose serious anticompetitive risks that usually outweigh their purported economic benefits."

The FTC report has stirred debate and created tension among state regulators, but the resulting actions have been mixed, said Tom Piper, director of the Missouri Certificate of Need program and president-elect of the American Health Planning Assn., which is supportive of CON laws.

For example, while Florida is looking at ways to loosen its rules, states such as Alaska and Maine recently have strengthened theirs, Piper said.

"Across the country, we are seeing a rising debate between physician groups and hospital groups, not the least of which is about specialty hospitals," Piper said.

The AHPA criticized the FTC's conclusions about CON laws in its own report released in December 2004. The report said the agency "repackages and restates decades-old arguments against regulation" without offering any new evidence to support its claims. The AHPA report also maintains that certificate-of-need laws are effective balancing tools -- they can promote competition, and their use can result in economic and quality benefits.

"CON regulation is the most reliable and practicable tool for implementing service, institutional and regional planning policies and practices that facilitate and ensure appropriately high program volumes," the report states.

CON laws, however, cover more than 30 different categories of health services. Alaska regulates the greatest number of services at 26, while Ohio regulates only one service, and Oregon, Nebraska and Louisiana track only two categories, according to statistics compiled by Piper.

Long-term care is regulated by every state, mainly because it's easiest to illustrate financial impact by analyzing government subsidy programs, Piper said. The lack of a consistent reporting method for all services, however, explains why 20 states regulate MRI scanners while only five regulate ultrasound machines.

"It's easier to measure what happens in hospitals because of the traditional reporting that's in place," Piper said. "But there's very little reporting from freestanding settings."

The idea of data reporting, of course, opens up its own trunk full of questions, but Piper said good reporting systems would help physicians and others down the line. With occupancy and utilization data, he said, physicians could streamline their own business plans or decide if an investment is even worth pursuing.

"Better certificate-of-need laws can be defined as more efficient," said Piper, who added that in his home state of Missouri, officials reviewed CON laws about five years ago in the interest of making the laws work better. They ended up loosening some laws and creating an expedited review process, he said.

From the AMA's perspective, though, even revamped CON laws are hardly models of efficiency.

"If you look at the evidence, they don't seem to do anything but get in the way politically," Dr. Nelson said. "It's one more regulatory hassle."

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The AMA's position on certificate-of-need laws

Position before December 2004 Interim Meeting

H-205.999 -- Cost Effectiveness of State Certificate-of-Need Programs

Our AMA believes that there is little evidence to suggest that certificate-of-need programs are effective in restraining health care costs or in limiting capital investment. In the absence of such evidence, the AMA reaffirms current policy opposing the extension of certificate of need to private physicians' offices. (CMS Rep. D, A-80; Reaffirmed: CLRPD Rep. B, I-90; Reaffirmed: Sunset Report, I-00)

The current position

The following excerpt from BOT Report 15, "Specialty Hospitals and Impact on Health Care," summarizes the AMA's current position, adopted at the 2004 House of Delegates Interim Meeting:

Consistent with Council on Ethical and Judicial Affairs Opinion E-8.032, the board continues to support health facility ownership by physicians if they directly provide care or services at the facility. The board also supports competition between and among health care facilities because it promotes the delivery of high-quality, cost-effective health care. On the other hand, many hospitals are aggressively attempting to thwart physician competition, not only through self-referral prohibitions, but also through states' CON programs. Although CON laws have failed to achieve their intended purpose, i.e., the reduction of health care costs, only 14 states have repealed their programs. Hospitals are increasingly attempting, and have achieved some recent successes, in extending CON requirements to physician ventures such as ambulatory surgery centers and diagnostic imaging facilities. Based on current AMA policy and the recent FTC/DOJ recommendation for states to reconsider their CON programs, the board opposes enactment of a federal certificate-of-need program, supports efforts to rescind state CON legislation, and opposes efforts to reinstate it or expand it to include physician-owned ambulatory care facilities."

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The weight of CON

States vary widely in how much they use certificate-of-need laws to regulate construction of health services. A total of 36 states and Washington, D.C. have CON laws, and each state has different economic thresholds that determine whether a health care project needs state approval. Alaska reviews 26 different services, Vermont reviews 25 services, and Connecticut and Maine each monitor 24. On the other hand, Ohio only reviews one type of service, while Oregon, Nebraska and Louisiana review two.

Source: Information from the American Health Planning Assn. compiled by Thomas R. Piper, Missouri CON program. Updated Oct. 31, 2004

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Duration of CON regulation by state

States vary widely in how long they have been using certificate-of-need laws to regulate health facilities construction. New York was the first state to enact CON laws, in 1966, and states have gradually enacted and repealed their laws over nearly the past 40 years. Indiana, which enacted CON laws in 1980 and terminated them in 1996, reenacted them in 1997 before terminating them again in 1999.

Source: American Health Planning Assn., current as of Oct. 31, 2004

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