In 34 states a Certificate of Need (CON) must be obtained before a new healthcare facility is allowed to open. The CON was first started in the mid-1970s in response to a Federal Government mandate to control hospital costs. At that time, Medicare and Medicaid was a fixed amount above a facility's cost, a cost plus system of payment, and wanted to control costs by preventing duplication of services. The CON was enacted by states not because they all independently came to the conclusion that the CON made good economic sense. It was enacted in part in response to Federal pressure and incentives linking CON laws to Medicare and Medicaid payments. At its peak, all states had enacted CON laws.
Over a decade after the Federal government entered and restricted the free market system in healthcare, it finally recognized that the CON was not holding down costs but instead was creating a whole new set of problems all of its own. In response, the Federal government switched to a DRG or fixed cost per diagnosis system of payment. It abandoned its mandates on states having a CON and stopped incentive payments to states which enacted the law. Although, the Federal Government easily reversed its approach to healthcare, states were left with the CON laws firmly embedded into their healthcare economy. Currently, fifteen states have demonstrated the fortitude to unravel and back out and appeal their certificate of need laws, citing the need to increase healthcare competition. Other states are looking at abolishing the CON.
In Feb. 2007, Mark Botti from the US Dept of Justice, Antitrust Division, testified before the Health and Human Services Committee of the State Senate and the CON Special Committee of the State House of Representatives of the State of Georgia. His major points were as follows -- Read Full Report :
The original cost-control reason for CON laws no longer apply.
Protecting revenues of existing business do not justify CON laws.
CON laws impose other costs and may facilitate anti-competitive behavior.
CON laws lead to less competition and higher prices.
In 2004, the by the Federal Trade Commission and Department of Justice compiled an extensive report after 27 days of testimony from 250 panelists, coupled with independent research, reached the following as one of their conclusions:
"States should decrease barriers to entry into provider markets. States with Certificate of Need programs should reconsider whether these programs best serve their citizens' health care needs. The Agencies 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." View Report - Improving Health Care: A Dose of Competition
216B.010 Legislative findings and purposes (of the Kentucky CON).
"The General Assembly finds that the licensure of health facilities and health services is a means to insure that the citizens of this Commonwealth will have safe, adequate, and efficient medical care; that the proliferation of unnecessary health-care facilities, health services, and major medical equipment results in costly duplication and underuse of such facilities, services, and equipment; and that such proliferation increases the cost of quality health care within the Commonwealth. Therefore, it is the purpose of this chapter to fully authorize and empower the Cabinet for Health and Family Services to perform any certificate-of-need function and other statutory functions necessary to improve the quality and increase access to health-care facilities, services, and providers, and to create a cost efficient health care delivery system for the citizens of the Commonwealth."
On September 16, 2006, Kentucky took a large first step in this process, the Kentucky Medical Association officially adopted the position to abolish Kentucky's CON.
#1. That the CON law in Kentucky is old and outdated. The Certificate of Need Law (CON) was enacted in the late 1960's in Kentucky, at the time when healthcare was ruled by non-profit organizations and physicians usually had a single doctor practice and had little interest in the business of medicine.
#2. That free market principles hold down healthcare costs. More and more evidence is mounting that CON laws assure monopolies and do not hold down healthcare costs. Competition is the basis which has built this nation. No matter how big corporations become, economy of size does not take place when a monopoly exists. Without market pressures, prices increase and quality may even decrease.
For-profit corporations are becoming more and more commonplace in the healthcare market. In states with CONs, they are granted virtual monopolies with no oversight on prices charged to the patient. In fact, data on the insurance contract price for various procedures are often hidden, giving the patient little options for comparison shopping.
According to past SEC filings, some corporations have sought out or "target" non-urban markets because of "their favorable demographic and economic trends and competitive conditions".
"We target hospitals in growing, non-urban and select urban healthcare markets for acquisition because of their favorable demographic and economic trends and competitive conditions. Because these service areas have smaller populations, there are generally fewer hospitals and other healthcare service providers in these communities and generally a lower level of managed care presence in these markets. We believe that smaller populations support less direct competition for hospital-based services.." CYH SEC K-10 report Dec 31 2007
#3. That the CON hinders competition. By requiring only a certain number of facilities to be built in the state and protecting their market share the state has helped assure that facilities will be full no matter what the cost. There is no oversight of facility charges by governmental committees such as exists within the utilities commission. In rural areas, the monopoly is complete and little competition exists. The facilities affected include hospitals, imaging centers, surgery centers, nursing homes, home health programs, hospice programs, transplant programs, cardiac programs, ambulance services, private duty nursing services, drug treatment programs, adult day care programs and major medical equipment purchases. There is now mounting evidence that CON laws drive up healthcare costs by fostering barriers for the entry of competitors into the healthcare system.
Kentucky's CON law regarding acute care hospitals virtually assures no additional facilities will be built in the State of Kentucky. It is so restrictive that one wonders whether its primary purpose is to guard the healthcare of citizens or whether it is mainly used to protect influential political interests, making the need for the appeal of Kentucky CON law even more imperative.
The new Kentucky CON regulations affectively prevent the construction of any additional acute care hospitals in the State. All criterion must also be met by every hospital in all of the surrounding counties before a CON can be granted, a virtual impossibility.
Relocation and expansion is under a
different section of the regulations and has much less stringent
requirements. The 'need' is only judged in the hospital making the
application and a lower functional capacity is required than is needed for an
additional hospital to enter the market.
For Somerset, this eliminates any chance of obtaining a second medical center. For adjacent Laurel County, the new regulations allows them to relocate and expanding their existing hospital into a large competing medical center.
See: Fuzzy Math See: CON Application
"Kentucky's Certificate of Monopoly" by Dr. Kevin T. Kavanagh, The (Louisville) Courier Journal, June 22, 2006.
SEC 10-K Report Community Health Systems
filed For Fiscal Year December 31, 2004.
SEC 10-K Report Community Health Systems Corporation filed For Fiscal Year December 31, 2007.
"Maine Legislator Seeks Repeal of 1978 CON Law" by Sean Parnell, The Heartland Institute, March 1, 2005.
"Improving Health Care: A Dose of Competition" Department of Justice and Federal Trade Commission July 2004. Executive Summary http://www.justice.gov/atr/public/health_care/204694.htm
Certificate of Need, Any Willing Provider and Health Care Markets Michael A. Morrisey, Ph.D.