Certificate of Need law: Reforms would lower health costs through competition

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One important element of the budget recently passed by the N.C. Senate would lower health care costs by reforming North Carolina’s Certificate of Need law and increasing the number of same-day surgery centers across the state.

Currently, North Carolina has one of the most restrictive CON laws in the nation. The Senate proposal would save patients about 40 percent in costs when centers are allowed to be built.

Certificate of Need laws started in the 1970s with the goal of keeping hospitals from overbuilding facilities and acquiring unnecessary hospital equipment – both actions thought to increase costs for consumers. Unfortunately, these CON laws ended up essentially increasing costs because competition was eliminated. In 1987, the Reagan administration recognized that CON laws were a bad idea and spoke out against the federal mandate for CON. States began to repeal CON restrictions.

Today, 71 percent of all surgeries are outpatient or same-day surgery. Of those surgeries, too many – 72 percent – are performed at the highest-cost hospital system facilities.

The Federal Trade Commission staff supports CON reform in North Carolina that allows the freedom to build independent, nonhospital surgery centers that lower costs. The FTC states that “CON laws raise considerable competitive concerns and generally do not appear to achieve their alleged benefits for health care consumers” and that “CON laws can restrict entry and expansion, limit consumer choice, and stifle innovation.”

Cost analysis by Blue Cross Blue Shield NC shows patients across the state are paying way too much – sometimes more than double what others are paying – for many surgical procedures:

▪ An ACL repair by arthroscopic surgery in the Charlotte area cost $9,710 at a nonhospital ambulatory surgery center in Concord while the same procedure cost $29,565 at a hospital-run outpatient facility in Charlotte.

▪ A rotator cuff repair in the Raleigh area cost $9,164 at a nonhospital ambulatory surgery center while it cost $19,577 at Duke University Hospital.

▪ A cataract removal procedure in the Wilmington area cost $2,393 at a nonhospital ambulatory surgery center while it cost $6,999 at the hospital-run New Hanover Regional Medical Center.

The difference in cost for the same procedure is often shocking. As a result, many people want to be able to shop around to save money, but CON laws keep that from happening.

There’s a good example of what happens when CON laws are relaxed. Most people are familiar with someone who has had a colonoscopy. That procedure received a special exemption from CON laws in 2005 when the legislature allowed gastrointestinal doctors to open endoscopy outpatient surgery centers. Results were spectacular. Usage went up as people were screened for cancer. The death rate from colorectal cancer was cut by 53 percent for those who had colonoscopies and whose doctors removed precancerous polyps. Cost savings for patients were estimated at $224 million over six years.

Why are hospital systems fighting for dear life to continue CON restrictions? They want to hang on to a health care model that allows them not to compete – which monopolies always like. With CON rules in place, hospitals can charge anything they want because they know people have no choice but to pay it. More often than not these days, local doctors are employed by hospitals, and those doctors refer their patients to the hospital that employs them.

North Carolina has held on to one of the nation’s most restrictive CON programs because of the political might of hospitals. Until reforms like those in the Senate budget are successful, nothing will change.

Richard Bruch, M.D., is a consultant to Triangle Orthopaedic Associates and chairman of the board for North Carolina Specialty Hospital in Durham.