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Protectionist CON laws and you, the unprotected by Dr. Jay Singleton

Protectionist CON laws and you, the unprotected

by Dr. Jay Singleton


Dr. Singleton is Board Certified in Ophthalmology (scoring in the 95th percentile), and he specializes in cataract surgery, laser cataract surgery, Lasik surgery, glaucoma surgery, blepharoplasty, and treatment of diseases of the eye.  He has performed over 20,000 cataract surgeries. His medical practice is located on Trent Road in New Bern, North Carolina.
 

Dr. Singleton has worked for some time to try to convince the NC General Assembly to eliminate Certificate of Need (CON) laws, and the Coastal Carolina Taxpayers Association’s State Legislative Action Committee is also working toward that end.

 

I see patients from all over Eastern NC.  Many of these patients have just moved here from northern states.  When it comes time for surgery, they almost invariably say, “Why can’t you just do my cataract surgery here in your office?  Where I’m from, there are outpatient surgery centers everywhere.”

My answer is always the same, “In NC, a mutually beneficial deal has been struck between the large hospitals’ systems and many of our lawmakers to push patients toward higher priced, hospital owned surgery centers.”

The instrument they use to do this is a group of laws called the Certificate of Need laws (CON laws).  These laws were enacted by the federal government in the early 1970s to control costs in healthcare by preventing duplication of services.  By 1987, CON laws were abandoned because they did not achieve their intended purposes.  Unfortunately, North Carolina kept their very strict form of CON laws that even today rank as the third most restrictive in the continental US.  This means that nearly all healthcare services are regulated by the DHHS, and a healthcare entity must prove a need exists in their county or region.

This is where it gets interesting.  For surgery centers to survive, they must collect a separate fee from insurance companies called a facility fee.  This fee is paid in addition to surgical fees to offset the overhead costs of a particular surgery.  You must have a CON in NC to collect this fee, and you must prove need, and be unopposed by the hospital system in your region to acquire a CON.

 

For example, without a facility fee in cataract surgery, a surgeon would make $580 and incur $800 in overhead.  In addition, facility fees are variable.  Hospitals are given two to three times more fees for the same surgery as a hidden subsidy for loses incurred from the care of uninsured patients (as if being completely tax exempt isn’t enough to off-set that).

 

In assessing need, the cards are intentionally stacked in favor of hospitals.  If one looks at the CONs awarded over the last decade, almost all were awarded to hospitals except those granted to dialysis centers.  Each year, the NC State Health Coordinating Council (SHCC) provides a list of “need per region,” and despite our state recently growing to over 9 million residents, the list still showed no increase in need.

If a physician is somehow able to prove need in his or her area in spite of that situation, the friendly local hospital can oppose the project and that runs legal fees up to, on average, something in excess of $400,000.

CON laws are protectionist (of hospitals at the expense of physicians and their patients who could be served more conveniently and at less expense).  CON laws are also unconstitutional at their core.  Yet the laws’ unfairness and unconstitutionality are flaunted in plain sight.  Our state will continue to cling to its special brand of CON laws as long as we keep looking the other way.  Keeping silent on the subject will not make them go away; only citizens actively expressing their displeasure to their representatives in the General Assembly can make a difference.

CON Laws & Hospitals: their dirty little secret

By Jay Singleton, M.D.

Restoring the free market to our healthcare system in North Carolina is essential. This is currently being attempted in our General Assembly by repealing our outdated CON laws. Recently, opponents of repeal (hospitals) have suggested that this is not a free market as long as they still have to run emergency departments and see indigent patients. I agree with them on one point. Even without the CON, the market is not free. It will still favor the hospitals.

Our hospital systems were built to see patients. Not just the wealthy and insured, but anyone who walked into their doors. This function keeps our society safe and healthy.   In the 1940’s the Hill Burton Act spurred the building of small community hospitals all over our country to serve our growing post-war population. Knowing that these hospitals could not keep their doors open without help, they were granted a sizable and rare gift. They were exempt from paying any taxes. That means all taxes; no property taxes, no income taxes, and no sales taxes on any purchases.

Since then, hospitals have been amassing massive capital from this free pass. In the early seventies, the federal government offered them even more subsidies if they would adopt the fledgling “certificate of need” (CON) program. This law protected hospitals from any and all competition like an iron curtain, but it did not contain costs, and for that reason the federal government abandoned it in 1987. Many states followed suit, but North Carolina kept their CON laws, and our hospitals have added to their considerable wealth which has allowed them to carve out fiercely guarded turfs across our state.

Hospitals then complained to Medicare (in a now familiar way) that they were losing money on indigent patients, and it worked. Over the past decade, the federal government has steadily decreased the reimbursement of physician owned [ambulatory surgery centers] ASCs while keeping hospital owned ASCs the same, and physician owned ASCs are currently paid only 55% of hospital fees.

All of this history brings me back to my initial point. Even without the CON law, the market still favors hospitals. Physicians who open ASCs still have to contend with property taxes, income taxes, and sales taxes while being paid just over half what the hospitals get paid. All of this while still seeing indigent patients as evidenced by similar indigent care numbers when comparing existing hospital and physician owned ASCs.

Physicians who open ASCs have considerable personal financial risk (including the risk of financial ruin) if they choose to enter into this unfair arms race. Hospitals will still have massive advantages even after NC abandons its archaic CON laws; the market will not be truly free, but it’ll be closer.

The Federal Trade Commission has recently weighed in on North Carolina’s CON laws. Officials there commented, “CON laws raise considerable competitive concerns, and generally do not appear to achieve their alleged benefits for health care consumers.” They further explain that CON laws can restrict entry and expansion into health care markets, limit consumer choice, and stifle innovation. So, I ask you, why do these laws still exist in our state?

The CON law does not make hospitals solvent; it makes them rich. This means that they can expand into other areas and smaller communities absorbing local hospitals or even closing them down if they do not fit their needs. This is already happening at an alarming rate across the U.S.

So the next time you hear our large hospitals complaining about the post-apocalyptic world after CON, remember all the advantages they still have built into our system. Hospitals are flourishing in states without CON laws, and our state will not be an exception. The sky is not falling.

Editor’s Note:

Jay Singleton is an ophthalmologist who lives and practices medicine in New Bern, North Carolina. He has made an extensive study of what is true, and not true, about CON laws.

 

NC Certificate of Need

Is it time for North Carolina to get rid of the Certificate of Need (C.O.N.)?

Tune in to Wakeup Call tomorrow morning at 6:30 am to listen to what we have uncovered about this law that drives medical cost sky high.
Or click on Wakeup Call to listen online.

Many “CON” laws initially were put into effect across the nation as part of the federal “Health Planning Resources Development Act” of 1974.  Despite numerous changes in the past 30 years, about 36 states retain some type of CON program, law or agency as of 2014. North Carolina is one of them and we think it’s time for it to go.

It is pretty clear that North Carolina hospitals are adamant about using the state’s Certificate of Need (CON) regulations to shield themselves from the free market. After all, what law better protects their fortresses from potential competitors who could possibly provide more innovative services in less expensive settings?

Forbes (read more)

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