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Bill to Revise Hospital Rules Dies in Subcommittee

A legislative subcommittee formed to insert free-market changes into the delivery of health care fails to get the needed votes to proceed to the full House.

By Rose Hoban

After months of meetings, lawmakers on a legislative subcommittee tasked with finding ways to make North Carolina’s health care system more responsive to market forces failed to agree on a path forward.

Members of the Committee on Market Based Solutions and Elimination of Anti-Competitive Practices in Health Care adjourned last week without moving any bill to be considered by the full General Assembly.

A proposed bill put forth by committee co-chair Rep. Marilyn Avila (R-Raleigh) would have eliminated limits on the creation of ambulatory surgical centers, free-standing facilities where patients can go to have outpatient procedures such as knee surgery or rotator cuff repair. The bill would have removed the ambulatory surgical centers from under the state’s certificate of need law, a sprawling and complicated regulatory regimen that limits the amount of health services available in the state as a way of controlling costs and reducing overuse in health care.

map of small and rural NC hospitals

Map courtesy of N.C. Hospital Association

But as the committee moved toward a vote and each member took a turn at giving their thoughts on the bill, it became evident that Avila and co-chair Sen. Tom Apodaca (R-Hendersonville) did not have the votes to pass.

“I’m a big proponent of [certificate of need] reform. I think we do need to do some things to clarify some of the issues,” said Rep. Donny Lambeth (R-Winston-Salem), a former hospital administrator who told fellow committee members he had prepared certificate of need proposals during his career. “I do think there has to be some changes and reform of the certificate of need process.

“I’m also on the board with a hospice locally, and I think the hospice would be devastated if we took away the certificate of need and opened up that into a free-market competition.”

After a brief recess for private deliberations, Apodaca reconvened the meeting, only to adjourn less than 30 seconds later, in effect killing any proposal until next year.

Avila, who had proposed the bill and shepherded it through the committee process, said she was disappointed.

“I think we’ve lost a good opportunity to make a significant step forward in fulfilling what the original intent of certificate of need was, and that was to control costs,” she said. “We’ve lost [that opportunity] temporarily. But as with everything in the General Assembly, nothing ever truly dies, it just goes comatose.”

Free market?

Over the course of the four meetings held since January, lawmakers heard multiple presentations in support of expanding the role of ambulatory surgery centers in North Carolina. A number of those were presenters representing orthopedists.

Orthopedic surgeons have wanted changes to the certificate of need laws for years. One practice, Triangle Orthopaedic Associates, owns the state’s sole orthopedic specialty hospital. But many orthopedic procedures can now be done in outpatient settings, said Peter Mangone of Blue Ridge Bone and Joint, in Asheville.

“Ambulatory surgical centers by reimbursement receive 30 percent less per procedure than an inpatient shared room gets,” Mangone told the committee in February. “But the patient experience subjectively is better in freestanding facilities.”

What is CON?

North Carolina’s Certificate of Need law dictates the regulatory process hospitals go through in order to expand, offer new services or open more beds. Decisions to allow hospitals to expand are made by a state board, which reviews applications prepared by hospitals in order to offer the most costly services.

Originally, many CON laws were enacted in states with large, dispersed populations in an attempt to compel hospitals to organize in rural areas where they otherwise might not be formed. More than half the states in the U.S. have some type of a CON process, with varying degrees of enforcement.

The complicated application process can take years to complete.

In recent years, some states have repealed their CON laws, looking for more competition and better pricing in health care.

But health policy experts differ on the efficacy of CON laws. Some, such as former Duke University law professor Clark Havighurst, say they limit competition and allow for hospital-based monopolies in care. Others argue having a CON process protects smaller community-based hospitals, reduces duplication of expensive technology, such as CT scanners, and reduces incentives to overtreatment. They also argue that a high level of regulation in the health care market impedes true competition.

The process can, at times, pit competing hospitals against one another in the race for resources. A competing hospital can challenge another hospital’s certificate of need application, as happened recently in Johnston County and several years ago in Franklin County.

Lawmakers also heard from representatives of gastrointestinal physicians. In 2005, the state loosened CON rules governing colonoscopy procedure rooms after receiving complaints from rural areas about the limited availability of colonoscopies.

According to Peter Donaldson, representing Digestive Health Specialists, since that time, 56 new facilities for gastrointestinal procedures have been developed in North Carolina. “Mostly in urban counties,” he said.

Donaldson told the committee that colonoscopies done in freestanding facilities cost 58 percent of what it costs for the procedure in a hospital, which can charge a “facility fee” on top of the fee for the procedure.

Another presenter, David French, representing the North Carolina Orthopedic Association, maintained that allowing more ambulatory surgical centers could save Medicaid and the State Health Plan for state employees between $12 million and $24 million per year over the next six years, depending on how many ambulatory surgical centers are built.

But hospitals counter that revenues from well-reimbursed procedures and treatments such as orthopedic surgeries and colonoscopies go to pay for the less well-reimbursed services of hospital care, like pediatrics, labor and delivery and emergency services. Hospitals need to provide all those services, while the ambulatory centers do not.

Only 22 hospitals out of more than 120 in North Carolina remain independent. The rest have affiliated into 19 larger systems.

Only 22 hospitals out of more than 120 in North Carolina remain independent. The rest have affiliated into 19 larger systems. Graphic courtesy of N.C. Hospital Association

A table shown by French to lawmakers showed that ambulatory surgical centers operated by hospitals treat fewer charity and self-pay cases than the few privately owned ambulatory surgical centers in the state. The same chart, however, showed that as many as a third of emergency-room cases in those hospitals are charity and self-pay patients.

Cody Hand of the N.C. Hospital Association said that removing CON regulation of the surgical centers would impede the ability of some hospitals to stay afloat, particularly in rural areas. He noted that about a third of hospitals in the state, mostly in rural areas, operate in the red. He also said that about a dozen hospitals, all rural, are in jeopardy of closing.

If hospitals “were as unregulated as everyone else, it would be a free market,” Hand said. “But in the environment that we’re in, it’s not fair competition.”

He noted that Medicare and Medicaid account for close to two-thirds of payments hospitals in North Carolina receive, and because government is the payer, those rates are non-negotiable.

“If you pull out the most lucrative minor surgeries from small and moderate-sized hospitals, if you pull out their profitable business, those hospitals have to raise other prices,” said Sandra Greene, a health economist from UNC-Chapel Hill who researches certificate of need issues.

Overabundance

Some states have whittled away their certificate of need laws, said Tom Ricketts, a health policy expert who recently retired from the Sheps Center for Health Services Research at UNC-Chapel Hill.

“Ever go to Knoxville?” asked Ricketts. “In the main commercial part of town … you’ll see a brand new hospital, a big, giant hospital that’s empty. It was built in this hyper-enthusiastic era after [Tennessee's] repeal of their certificate of need, and it couldn’t compete. The corporation that owned it just walked away.”

Ricketts said states that weaken their certificate of need laws see an explosion in the number of ambulatory surgical centers, freestanding radiology centers and hospital beds. And the number of patients getting highly reimbursed procedures grow too.

“Ohio is the poster child of what happens” when states weaken their certificate of need laws, Greene said. Ohio phased out most of its CON law in 1998. Within three years, 133 new ambulatory surgical centers had opened, along with dozens of diagnostic radiology centers, added hospital beds and other facilities.

“Most ambulatory surgical centers [in Ohio] have been located in metropolitan, wealthy areas, not distributed among rural areas where the need might be,” Greene said. And just as quickly, centers started shutting down “because there wasn’t enough demand to support all the facilities.”

She said the centers can charge a person less, but the health care system as a whole doesn’t save money, because hospitals end up raising charges for other things to make up for the revenue lost to the surgical centers.

“It might be good for the specialists who’ll make lots of money by opening these privately owned ambulatory surgical centers,” Greene said. “They don’t have to support a suite of complex operating rooms and an emergency department and obstetric and pediatric units.

“They can do lucrative minor surgery and charge less and still make lots of money.”

Several of the lawmakers acknowledged this as they talked about their votes on the bill. In particular, legislators representing rural districts worried how their hospitals could survive, even with an amendment that would restrict ambulatory surgery centers from counties with fewer than 100,000 residents.

“There is no one more for free markets than I am, but we have to recognize that health care is not a free market,” said Rep. John Szoka (R-Fayetteville).

But he said he’d visited both the hospital and an ambulatory surgical center in Cumberland County, and came away unconvinced of the need for changing the law.

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