Image courtesy Ohio Health Insurance, flickr creative commons

A bill to change how the state regulates hospitals and other health care facilities gets an airing at the legislature.

By Rose Hoban

In a debate that has become an annual ritual at the General Assembly, Senate lawmakers have proposed repealing North Carolina’s certificate of need laws, the suite of statutes that dictates the size and resources of hospital markets in the state.

In a mid-June committee hearing on the bill, a handful of physicians came to support dismantling the process for examining health facilities and hospitals around the state to determine whether there’s too much capacity in one area and not enough in others.

Some doctors find CON to be an impediment to their practicing medicine the way they want.

But some don’t. When it comes to physicians, it depends on the specialty whether or not they support CON.

Differing perspectives

For surgeons, getting rid of CON has become almost an article of faith. The two physicians who came to speak at the legislature were both surgeons — one an ear, nose and throat surgeon and the other an orthopedist.

Certificate of need laws dictate the supply and location of hospital facilities, imaging machines such as MRIs (pictured above) and CAT scanners, nursing home beds and other health care resources.
Certificate of need laws dictate the supply and location of hospital facilities, imaging machines such as MRIs (pictured above) and CAT scanners, nursing home beds and other health care resources. Research has shown that physicians who have a financial interest in imaging centers refer to themselves for testing more often. Photo credit: Leon Brocard, flickr creative commons

Boone-based physician Charles Ford said he has trouble finding operating room space in his county, because there’s only one “high-cost location where surgery can be performed.”

“This penalizes me when my practice is graded by insurers regarding quality and cost,” he told the committee. “Now, quality I can control; surgical costs, I cannot.”

Ford noted that patients, increasingly pressured by insurance policies with high deductibles and copays, are getting on the internet to find cheaper places to have same-day surgery, the kind that Ford usually performs.

“Consider a young couple with a 4-year-old child who has a need for tubes for ear infections. In Boone, they pay $5,200; in Hickory they pay $1,700,” he said.

Surgeon Richard Bruch, from Triangle Orthopedics in Durham, told the committee that 70 percent of the same-day surgeries in the state are done in hospital settings, “So our patients have to pay more.”

“What’s going on in the marketplaces, is the insurance companies are starting to say certain procedures need to be done in ambulatory surgery centers,” he said. “We don’t have enough of them.”

Duke University legal scholar Barak Richman said the real battle lines are between the specialty hospitals — such as orthopedic and eye centers — and traditional multi-service hospitals.

“There are certain kinds of physicians — and the orthopedists are among the top among them, who do volume business in specialized facilities. Those are the ones really eager to break out away from the multi-service hospitals.”

The reasons why, according to Richman, are “obvious:” Money and control.

“They can do more of what they like doing, they can have more control over it, they don’t have to share revenues with other practices or with hospital administrators,” Richman said. “So both for professional control and for revenue as well, it’s really attractive.”

Many types of surgeries, in particular eye and orthopedic procedures, are very well reimbursed, by both governmental payers such as Medicare and by private insurers.

But Richman, who believes in doing away with CON laws, conceded there’s no strong evidence from other states to show that having specialty hospitals ended up driving down costs. That’s in part that’s because health care is a heavily regulated market.

“And it’s because we do a bad job of directing consumer preferences and exerting any kind of economic pressures,” he said. Richman also noted that surgeons in specialty hospitals do engage in “cream-skimming.”

“They’re doing the same thing as the general purpose hospitals, but on healthier patients,” he said. “And that is not a good thing from a social perspective.”

Specialty make makes a difference

Other providers in the health care system are less well-paid than the surgeons who really want an end to CON. A survey conducted in late 2015 found orthopedic and heart surgeons made, on average, $420,000, per year, more than twice the salaries of family doctors and pediatricians. Other surgical specialists, such as ear, nose and throat surgeons made upwards of $370,000.

The legislature’s only physician, Gregory Murphy (R-Greenville) said he wants to see CON reform. “But I don’t think it does the issue justice to push it through on a short-term budget bill,” he said.
The legislature’s only physician, Gregory Murphy (R-Greenville) said he wants to see CON reform.
“But I don’t think it does the issue justice to push it through on a short-term budget bill,” he said. Official NCGA photo.

Perhaps that’s why generalists such as family docs, pediatricians and gynecologists don’t feel as strongly about certificate of need.

“We have members who are on both sides of the issue depending on where they live and how it would impact their community,” said Greg Griggs, head of the North Carolina Academy of Family Physicians.

That’s part of the reason that Griggs’ organization has not taken an official position on the CON bills that make their way through the legislature.

“For the most part, it doesn’t directly affect our members,” he said.

The same thing goes for pediatricians. The head of the North Carolina Pediatric Society said her organization did not have a position. The North Carolina Medical Society, which has all types of doctors among its 12,000 members, tries to claim the middle ground, supporting, “measures that ensure physician interests are appropriately represented,” according to an email from their spokeswoman.

General hospitals rely on more expensive procedures to make up other costs

Hospitals form a group that definitely does not want changes to the certificate of need. In particular, that’s true for those multi-service hospitals Richman talked about.

Services such as emergency medicine, labor and delivery and neonatal intensive care are big money losers for hospitals. Hospital leaders argue that they make up the costs of those essential services by performing high-paying procedures, like knee and hip surgery and cardiac catheterizations.

“If you look at CON applications, most major facilities, they use money from their reserves and they use that capital to expand, build new facilities,” explained lobbyist Jim Harrell, who represents anesthesiologists, a physician specialty that performs a lot of hospital-based work. “A lot of the drive for CON repeal is for competition.”

Harrell said the evidence he’s seen is that if orthopedists and eye doctors set up their own ambulatory surgery centers, they would cherry-pick the better reimbursed patients, leaving general hospitals to treat folks with low-paying government insurance or no insurance altogether.

“As long as EMTALA requires that we fully assess every person who walks in the door, but doesn’t require the same of other providers, the state has a duty to level the playing field,” said North Carolina Hospital Association lobbyist Cody Hand, referring to the 1986 federal mandate requiring hospitals to treat all comers. He said the state currently provides that leveling through the CON process.

Bob Berenson, an economist from the national think-tank the Urban Institute, noted more than 30 states have certificate of need regimens of varying degrees of strength and that having CON laws hasn’t helped hold down spending growth.

The evidence also shows, Berenson said, that getting rid of CON doesn’t bring down costs either.

“There’s lots of variation,” he said. At the same time, Berenson said that health care markets in states are unique, so that it’s hard to compare one state to another and there haven’t been unbiased studies that do a good job of parsing out the numbers.

There will be more facilities, but Berenson said most of them would be in well-heeled suburbs where profitable markets are found.

“Will there be some happy surgeons who have equity in a facility?” he asked. “I guess they’ll be happy.”

He floated the idea that if North Carolina got rid of the CON, hospitals would become even more aggressive about protecting their markets, ambulatory surgery centers would have only a temporary effect in pushing down prices, and insurance premiums would be relatively unchanged.

“I’m not sure that legislators understand any of this,” he said, “So, who knows what they’ll do?”

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Rose Hoban is the founder and editor of NC Health News, as well as being the state government reporter. Hoban has been a registered nurse since 1992, but transitioned to journalism after earning degrees...