NC hospitals fight legislative effort to open up health care market to competitors

MRI technologists move a patient from a MRI scanner at Wake Medical Center. Under a new program introduced by Blue Cross and Blue Shield, patients could receive cash rebates for choosing cheaper MRI facilities.
MRI technologists move a patient from a MRI scanner at Wake Medical Center. Under a new program introduced by Blue Cross and Blue Shield, patients could receive cash rebates for choosing cheaper MRI facilities. N&O File photo

Jay Singleton, an eye surgeon in New Bern, has grown increasingly frustrated that there is just one surgical facility serving patients in his three-county area. So Singleton, who performs 2,000 eye surgeries annually, has hired his own lobbyist to persuade N.C. legislators to loosen state laws dictating how many surgery facilities can be built in a particular market.

As Singleton’s one-man lobbying campaign against state health care regulation enters its third year, the doctor’s voice joins lobbyists on both sides of this long-simmering issue. Five separate bills in the North Carolina legislature propose to undo parts or all of the state’s review process for adding new health care facilities and medical equipment.

Two of the bills – including the Senate budget proposal – would eliminate the state’s power to approve all medical facilities, including hospitals.

The others relate to ophthalmology: one exempts office-based cataract procedures and the others exempt numerous ophthalmology surgeries from certificate-of-need reviews.

The N.C. Society of Eye Physicians and Surgeons has not endorsed any of the bills, because it would not benefit all the society’s members, said executive director W. Alan Skipper. In highly competitive health care markets like the Triangle, state regulatory reviews can involve challenges and court appeals from competitors, delaying a state certificate, and therefore needed medical facilities.

“It takes a tremendous amount of time,” said Sen. Ralph Hise, a Republican from Spruce Pine who sponsored one of the bills. “It’s an incredibly technical and expensive process.”

His bill would entirely repeal North Carolina’s certificate-of-need laws, which require state approval for 25 types of medical facilities and medical equipment.

Hise and other critics of such laws say they artificially limit the supply of hospital beds, dialysis stations, nursing homes, radiology labs and the like, thus restricting access and driving up the costs of such services.

Hospital industry opposes change

Legislators have attempted to dismantle state approvals for medical facilities in previous years with little success. The primary opponent is the powerful N.C. Hospital Association, which contends that the state process is vital to preventing overbuilding of medical facilities on speculation that may end up half-used, inflating health care costs for patients and insurers.

The association acknowledges that increasing the supply of medical facilities would initially cut costs for medical services. However, the association contends that for hospitals to remain financially viable, they must be allowed to recoup the cost of providing millions of dollars of indigent care and charity care every year for patients who can’t or won’t pay.

“If they set up across the street, they will take business away. ... Initially there’s going to be a cost war for services. But they don’t provide emergency services and treat people who can’t afford to pay,” said association spokeswoman Julie Henry.

North Carolina’s certificates-of-need are awarded based on an assessment of health care demand in the State Medical Facilities Plan, an annual analysis of the state’s health care industry spanning nearly 500 pages. The 2017 plan, for example, specifies that North Carolina is in need of 197 additional acute hospital beds, 96 of which are needed in Durham County.

Permission to add those beds will be awarded based on applications, hearings, evidence and expert testimony presented by hospitals and their competitors.

A state determination of a need does not guarantee an applicant will be granted approval to meet that need. This year so far, the N.C. Division of Health Service Regulation has awarded 52 certificates-of-need for kidney dialysis stations, MRI scanners, adult care home beds, a dental surgery center and a mobile mammography van. It also issued seven denials. In 2016, the state issued 132 certificates and 15 denials.

North Carolina ranks fourth in the nation for the number of medical services it regulates through the certificate-of-need process, according to the Mercatus Center at George Mason University in Virginia. The Mercatus Center has issued numerous studies criticizing the programs as a government practice that favors large hospital systems and interferes with free markets. The organization wrote in 2015 that North Carolina’s health care costs are inflated by as much as 5 percent because the state restricts competition through certificate-of-need reviews.

That same year, Chapel Hill consultancy Ascendient Healthcare Advisors challenged those findings, concluding that any price differences are due to patient health and other factors. Ascendient vice-president Daniel Carter said the consulting firm was so frustrated with the one-sidedness of the Mercatus study that the firm issued the rebuttal paper on its own.

Carter said the critics of certificates-of-need talk as if eliminating the state approvals could magically transform the health care industry into a capitalist free market. He noted that health care choices are limited by the number of insurers available and by the coverage they offer.

Comparing prices is not straightforward because medical fees are not easily available. However, Blue Cross and Blue Shield has created an online cost-comparison calculator showing the amounts it pays to providers for dozens of services. For example, a tonsillectomy can cost twice as much at a hospital than at an ambulatory surgery center in the Triangle, but prices vary widely and some surgery centers collect a higher fee than some hospitals.

North Carolina adopted its certificate-of-need program in 1978 in response to federal policy. After Congress ended a requirement in 1987 that states have certificate-of-need reviews to qualify for federal funding, a dozen states quickly dropped their programs, with other states ending theirs in subsequent years. An attempt in Florida to eliminate the requirement for all facilities but nursing homes failed in that state’s legislature this year.

That puts North Carolina in a 35-state majority where state governments decide which health care facilities get built. North Carolina scaled back its program in 2005, when endoscopy procedures were exempted from requiring a certificate-of-need.

“Most repeal efforts are an uphill battle,” said Matthew Mitchell, an economist and senior research fellow at the Mercatus Center. “Whenever I testify, the room is full of hospital executives.”

Issue won’t go away

Hise said he can’t predict if this will be the year that North Carolina eliminates its certificate-of-need system. But he said the issue will not go away until the system is reformed or eliminated.

“Really at the core, it’s whether a business and a community can decide to have a facility, or is it better to have a government protective watchdog make that decision?” Hise said.

One of Hise’s frustrations with the system is that an organization that wins a certificate-of-need from the state can hold on to the permit without building the approved facility, preventing competitors from entering a market in which state regulators have determined there’s a need. Hise said the process of determining need and issuing a state certificate is a holdover from a bygone era and out of sync with contemporary society.

Several of the North Carolina bills cite a need for reform based on scientific and technological advances.

Singleton, the New Bern ophthalmologist, said that several decades ago cataract surgery used to take one hour and required a several-day hospital stay, with the patient’s head stabilized by sandbags to prevent an injury. Today, the procedure takes five minutes with topical anesthesia, and a 15-minute recovery before the patient is free to go home.

Singleton also said that if he could be reimbursed by Medicare for performing eye surgeries at his office, rather than using the CarolinaEast Medical Center’s outpatient surgery facility, the procedure would cost hundreds of dollars less to the patient and to Medicare, at the expense of the hospital.

“They (the hospital) would lose between $2 million and $3 million a year on me.”

John Murawski: 919-829-8932, @johnmurawski