A Chapel Hill health care research and consulting group has come to the defense of North Carolina’s limits on expanding health care services as the policy comes under attack from free-market advocates in the state legislature and in Washington, DC.
Ascendient Healthcare Advisors denounces what it deems a “one-dimensional ideological view” that urges replacing government regulation with a free market philosophy.
In a report issued Thursday, the organization said that loosening North Carolina’s regulations would undermine the financial stability of hospitals at the expense of public health.
“Vulnerable hospitals will be put at much greater risk as new entrants pick off their best patients without taking up the burden of indigent care,” Ascendient wrote. “When these hospitals fail – and some of them will certainly do so – the costs will ripple throughout the state’s healthcare system.”
Currently North Carolina requires state approval to build or expand about two dozen types of health care facilities and services, one of the most restrictive regulatory systems in the country for health care services. A proposal in the state House of Representatives, House Bill 200, would repeal regulatory approvals for ambulatory surgery centers, gastrointenstinal endoscopy rooms, diagnostic centers and psychiatric hospitals.
The regulatory approval process, called certificate of need, or CON, is designed to keep down health care costs by preventing the overbuilding of unneeded health care facilities. But critics say the certificate of need has the opposite effect by protecting hospitals from cheaper competitors.
North Carolina’s bill was introduced in March and hasn’t had a committee vote. It’s at least the second time Republican lawmakers here have tried to take on the powerful N.C. Hospital Association and relax the state’s health care policy. A similar bill was introduced two years ago.
This month the legislation was endorsed by the Federal Trade Commission, which submitted comments blasting state policies that restrict expansion of health care services. The FTC, a consumer-protection agency that monitors unfair and deceptive trade practices, said certificate-of-need laws often “limit consumer choice and stifle innovation.”
“CON laws can prevent the efficient functioning of health care markets in several ways,” the FTC wrote. “CON laws appear to have generally failed to control health care costs.”
Despite the timing, Ascendient’s report was not written to counter the FTC’s comments, said Ascendient president Dawn Carter, who noted that her group conducted three months of research for its report. Carter said the Ascendient study was written in response to a study issued in February by free-market advocates at George Mason University’s Mercatus Center.
The Mercatus report said that North Carolina’s CON laws have inflated health care costs by as much as 5 percent. Mercatus concluded that North Carolina’s CON laws have suppressed competition resulting in as many as 12,900 fewer hospital beds, as many as 49 fewer hospitals offering MRIs, and as many as 67 fewer hospitals offering CAT scans.
Ascendient, whose client base largely comprises hospitals and large health care systems, contends that eliminating the certificate-of-need process without other changes in the health care system would be counterproductive and even destructive because “healthcare remains remarkably different from most markets.”
The group’s analysis concludes there is no significant price difference in states with CON requirements, like North Carolina, and states that don’t require the certificates. Ascendient attributes the cost disparities on higher health care spending per patient in CON states, whose residents are in poorer health.
“Most, though not all, of the states with the highest obesity rates are CON regulated states,” the group says. “Heavily regulated CON states have a statistically significant higher rate of disease than non-CON states, including incidence of cancer, chronic obstructive pulmonary disease, and cardiovascular disease.”
As for unbuilt hospital beds, Ascendient says that it would cost $12.9 billion to add the 12,900 hospital beds that Mercatus said North Carolina is not allowing throgh oppressive regulations. Ascendient says state hospital beds are “already unused nearly half the time” and hospital bed capacity would drop to 35 percent if the Mercatus beds were added.
“The Mercatus report’s conclusions suggest that nearly $13 billion – or more than two-thirds of total annual hospital costs statewide – should be spent on unneeded capacity,” Ascendient says. “The proponents of anti-CON legislation argue that increased competition will reduce costs, but provide no indisputable evidence of this relationship.”
Mercatus research fellow Christopher Koopman, who co-authored the North Carolina report, said North Carolina has the fourth most restrictive CON laws in the country out of the 36 states that require certificates of need. He said it’s wrongheaded to conclude that all 12,900 hospital beds would materialize in the state if regulatory approvals were abolished.
“We’re not saying North Carolina needs all this stuff,” Koopman said. “These are examples of the way CON laws stifle supply.”