Certificate of Need: A Tale of Two States


 
— David Hood, senior healthcare policy analyst for the Public Affairs Research Council of Alabama
In Alabama, a former governor has just been convicted of selling a seat on the state Certificate of Need Review Board in exchange for donations. Meanwhile, Louisiana, which dropped its CON program two decades ago after its governor was accused of selling hospital permits, finished up a legislative session that did little to advance healthcare reform in the state, including a failed bill that would have set up a CON review process in the rebuilding of New Orleans' hospitals.

Certificate of need programs date back to 1974, when Congress set up the system in an attempt to contain healthcare costs. It was repealed in 1986. Twenty years later, there's still no clear-cut answer as to the benefits of these programs. CON programs still exist in about two-thirds of the states, including Alabama. Other states, such as Louisiana, have done away with them.

In 2004, The Federal Trade Commission and the Department of Justice issued a report concluding that CON does not control healthcare costs and is used to create barriers to competition. At the same time, there's mixed evidence on whether CON affects quality of care.

Evaluating the benefits of CON are difficult because the healthcare environment varies from state to state, says Noel Falls of Falls Marketing Group in Fairhope. Falls has been a CON specialist for 26 years.

"In states where you don't have a really competitive managed care market, particularly in states where you have a lot of rural providers, certificate of need, if done properly, can constrain the growth of healthcare, ensure access to care by underserved groups, and can provide some assurance that the provider is going to provide quality care."

Alabama's CON program falls about in the middle when looking at the 33 states with some form of CON regulations. However, observers say there are several areas where it could be improved.

For instance, Alabama is one of the few states that still has a politically appointed review committee, with each new governor appointing a new CON review board. That offers potential for corruption. Former Gov. Don Siegelman and HealthSouth founder Richard Scrushy were convicted in late June on charges that Scrushy bought a seat on the board in exchange for $500,000 in contributions.

The chairman of the Alabama CON Review Board, however, bristles when the word "political" is used in conjunction with his board. "I think early on there was a perception that this is a politically appointed board and [a question of] whether political influence is used to accomplish certain things," says Dr. Swaid N. Swaid of Neurological Surgery Associates of Birmingham. "I think my challenge, and the governor has been very supportive, is this board must make decisions regarding healthcare and nothing else."

Corruption aside, there's no continuity between administrations, and that's a problem, Falls says. "Every time you have a new board, it takes some period of time before they have a good understanding of what the issues are that affect the industry."

Swaid dismisses Falls' concerns. "Of course there's going to be a learning curve, no matter who or how the members are appointed to any board," he says.

One issue Falls and Swaid do agree on is that the board could use more funding. Falls says a limited staff and limited budget means staff resources are stretched thin, prolonging the review process.

More funding might also allow the realization of Swaid's desire for follow-up information. "I have wished that when we grant a certificate of need, we could have a mechanism in place that would allow the board to find out just what happened as a result," he says.

More information is also the wish of the Alabama Hospital Association. "The state health plan in Alabama is not based on any scientific data," says Danne Howard, vice president of government relations. "We need to identify what equipment is available in the state, what services are available in the state," she says, giving the CON board members a "snapshot" of current conditions in the state — including facilities not currently covered by CON regulations, such as imaging centers.

Falls notes that there have been several efforts to do away with Alabama's certificate of need program. "I think that would be a real mistake, because we don't have the managed care infrastructure like California or Florida to govern from a market standpoint what goes on," he says. "If we did away with CON entirely, we would see some really good providers that are operating very close to the margin go under. We'd see cutbacks in services; we'd see changes in the way that care for the medically indigent is provided."

Louisiana never did have a full-blown, state-enacted certificate of need program. It performed federally mandated CON reviews under its 11-22 review program, named after a section in the federal statute. That was done away with in the mid-1980s, after the federal government repealed its CON requirements and following a political scandal where then-Gov. Edwin Edwards was accused of selling hospital construction permits. Today, the state has a very limited program that affects only nursing homes that accept Medicare.

Some say this lack of a CON review process has contributed to the state's high number of hospital beds, as well as to a new trend of physician-owned specialty or "boutique" hospitals that has some community hospitals concerned.

"No matter which institutional area you look at, whether it be hospitals, nursing homes, or other types of long-term care, Louisiana's overbedded," says David Hood, senior healthcare policy analyst for the Public Affairs Research Council of Alabama and a former director of the 11-22 review program.

However, he notes, it's hard to pin Louisiana's overbedding problem on the state dropping its review requirements. "In some cases there was overbedding even prior to the section 11-22 program, so it's kind of hard to make a judgment as to which came first, the chicken or the egg."

John Matessino, president of the Louisiana Hospital Association, points out that a change in Medicare that happened around the same time effectively cut the length of stay in hospitals in half. "Hospitals all across the country that had been running very high occupancy rates suddenly had excess capacity."

Nevertheless, Hood says, "having worked in the [11-22] program, I believe it was an effective method of keeping the number of institutional beds under control, and the number of institutions, for that matter."

A more recent phenomenon is that of private, often physician-owned, specialty or "boutique" hospitals and surgery centers, typically specializing in areas such as cardiology or orthopedic surgery.

"In all the states without CON laws, you have these little hospitals popping up all over," Matessino says. "I'm not going to deny the quality of these hospitals, but they do cherry-pick [the more profitable] patients, and it's taking some of the valuable dollars hospitals need to continue to provide the services they don't make money on."

A 2003 bill was introduced into the state legislature that would have required these hospitals to provide emergency room services, but it was unsuccessful.

There is much debate going on in Louisiana over how to reform the state's healthcare system, with the idea that the destruction wrought by last year's hurricanes presents an opportunity to start from scratch. There even was a bill in the recently ended legislative session to require a CON process in the New Orleans area as that city's devastated hospitals are replaced, but it went nowhere.

Certificate of need "is one of those kinds of issues that I could argue either side," says Matessino, who ran the 11-22 program in the late '70s. "I think if you are trying to totally design a system with equal access for everyone, at some point you're going to have to put some limitations on some things. Our legislature has not been eager to jump into that," thanks to the Edwards scandal.

"Reform is such an incredibly vast thing to talk about," Hood says. "Certificate of need is just a minor player on the reform horizon."


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