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Certificate of need laws

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Certificate of need laws are state-level regulations that require healthcare institutions to obtain approval from state officials before moving forward on large capital expenditure projects, such as the construction of a new facility or the purchase of expensive new equipment. When a new project is proposed, state officials evaluate whether there is a public need for the project before either approving or rejecting the proposal. An approval document is typically called a certificate of need.

At one time, the federal government required states to enact certificate of need laws. That regulation has since been repealed, but as of April 2016, 36 states still maintained certificate of need programs.

HIGHLIGHTS
  • The first certificate of need law was enacted in New York in 1964.
  • Supporters say the laws help contain rising healthcare costs and financially protect hospitals that provide charity care.
  • Critics say the laws create a barrier of entry that limits competition and contributes to rising healthcare costs.

    • Overview

    Certificate of need (CON) laws are state-level regulations that require healthcare institutions, such as hospitals and nursing homes, to obtain approval from state officials before moving forward on a large capital expenditure project, such as a new facility or new equipment. The state agency evaluates the healthcare needs of a community and must give its permission for the institution to move forward with the project. The approval document is called a certificate of need. The laws are designed to prevent healthcare institutions from building too many facilities and buying unnecessary expensive devices.[1][2]

    MRI machines are subject to certificate of need laws in 18 states.

    While CON laws themselves are state-level, the federal government also has its own regulations for capital expenditure review. These regulations pertain to the Medicare and Medicaid public healthcare programs and allow the U.S. Department of Health and Human Services to deny reimbursement under the programs for large capital expenditures that are not approved by a state health planning agency.[3]

    State laws

    As of April 2016, 36 states had certificate of need (CON) laws fully in effect. Three states maintained partial CON programs, meaning that their capital expenditure review programs applied only to one or two specific types of facilities.[1]

    While the specifics of these laws (such as the monetary threshold a proposed project must pass to be subject to review) vary somewhat across states, the basic structure is the same. The National Conference of State Legislatures outlines the general structure of CON programs as follows:[1]

    “ [H]ealth planning agencies determined the most urgent health care needs. ... [N]ew or improved facilities or equipment would be approved based only on a genuine need in a community. Statutory criteria often were created to help planning agencies decide what was necessary for a given location. By reviewing the activities and resources of hospitals, the agencies made judgments about what needed to be improved. Once need was established, the applicant organization ... was granted permission to begin a project. These approvals generally are known as "Certificates of Need."[4] ”
    —National Conference of State Legislatures[1]

    In addition to their CON review programs, states also from time to time place moratoria on the issuance of any new certificates of need for specific services. For instance, in 2015, Florida lifted a 14-year moratorium on CON approvals for new nursing homes.[1][5]

    The table below displays the various facilities and services subject to capital expenditure review under CON laws, as well as the states that review proposals for each service. The information is from 2010, the most recent year for which such information was available. State regulations may have changed since that time, and the list may not be exhaustive. Click [show] on the red bar below to view the table.[1]

    Federal law

    Under Section 1122 of the Social Security Act, states are encouraged to maintain some sort of regulatory review process for large capital expenditures. The statute, enacted in 1972, allows the federal government to enter into a contractual agreement with states in which the U.S. Department of Health and Human Services (HHS) withholds Medicare and Medicaid reimbursement for such expenditures that are not approved by a state planning agency.[3]

    “ The purpose of this section is to assure that Federal funds appropriated under titles XVIII [Medicare] and XIX [Medicaid] are not used to support unnecessary capital expenditures made by or on behalf of health care facilities which are reimbursed under any of such titles and that, to the extent possible, reimbursement under such titles shall support planning activities with respect to health services and facilities in the various States.[4] ”
    —Section 1122, Title XI, Social Security Act[6]

    Under the law, proposed projects above $600,000 are subject to review. The statute applies to hospitals, "skilled nursing facilities, kidney disease treatment centers, intermediate care facilities, and ambulatory surgery centers." By 1975, 39 states had Section 1122 agreements with HHS. This number had fallen to 15 by 1986. Although the statute is still in effect today, it is unclear how many states still maintain Section 1122 review programs.[3][7][8]

    Support

    The primary argument given in favor of certificate of need (CON) laws is that they help limit healthcare spending and lower costs. Supporters argue that the healthcare sector does not operate under a free market and that the sector does not respond to market forces. Because doctors order services for patients, rather than patients shopping for services, competition based on price is ineffective, advocates say. Thus, CON laws are needed to "promote appropriate competition."[1]

    Blood pressure instrument hc slideshow.jpg

    Supporters of CON laws assert that building expensive facilities or buying expensive equipment in an area that does not need them will cause the facilities and equipment to go unused, leading the provider to charge higher prices to cover the cost of the purchase. This in turn contributes to rising healthcare costs and spending. Supporters say CON laws eliminate these unnecessary expenditures and thus keep healthcare costs down.[9]

    Advocates also ague that CON laws enable state health planning agencies to identify the geographic areas of greatest need for new facilities and services and "where funds will be used most effectively." This ensures that services are distributed equitably and that low-income and uninsured individuals will still have access to care. By identifying the areas of greatest need, "the programs distribute care to areas that could be ignored by new medical centers." Supporters also say the laws "financially protect hospitals that provide charity care."[1][10]

    Criticism

    Critics of certificate of need (CON) laws say that studies are inconclusive on whether the laws constrain healthcare costs. Furthermore, opponents of the laws say they may actually inflate healthcare prices by limiting competition between facilities. They say the laws create barriers to entry for new providers and bolster the market power of large hospitals, creating oligopolies that face little competition. Additionally, by limiting supply, the laws place greater demand on existing services, which could also increase costs, critics argue.[1][11]

    Opponents of CON laws also assert that the increased demand placed on existing services reduces people's access to healthcare services. This may be especially true for low-income individuals, who are less able to afford high healthcare costs. They say that states with CON laws have fewer hospital beds available and fewer hospitals that offer certain services, such as CT scans, possibly causing individuals to travel further for care.[12][13]

    CON laws can also limit the expansion of services, such as open heart surgery.

    Other critics of CON programs argue that the certificates are awarded based on political influence rather than the actual needs of a community. They say that this has led to conditions where providers vie for market dominance and greater influence. Furthermore, opponents argue that this state of competition has contributed to increasing numbers of mergers and acquisitions, which further inflate prices.[1][11]

    History

    See Ballotpedia's page on the history of healthcare policy in the United States to learn more abut historical healthcare legislation.

    The debate surrounding certificate of need (CON) laws is over 50 years old. The first certificate of need law was enacted in New York in 1964. The American Hospital Association promoted the idea and "started a national campaign for states to generate their own CON laws." Between 1964 and 1972, 18 other states passed similar legislation.[1][2][3][7]

    In 1972, Congress amended the Social Security Act with the primary purpose of expanding Medicare, but the amendments also encouraged states to adopt measures for reviewing hospitals' capital expenditures. The amendments allow the federal government to enter into a contractual agreement with states in which the U.S. Department of Health and Human Services (HHS) withholds Medicare and Medicaid reimbursement for such expenditures that are not approved by a state planning agency.[1][2][3][7]

    After the 1972 amendments to the Social Security Act, 11 other states enacted CON legislation for a total of 29 states—and 39 states, some with CON laws, made capital expenditure review agreements with HHS. In 1974, Congress passed the National Health Planning and Resources Development Act, which required states to enact CON laws "as a condition of receipt of federal health planning dollars." Between the mid-1970s and the mid-1980s, all remaining states except Louisiana enacted CON laws (Louisiana did not enact its CON law until 1991).[1][7][9]

    Congress repealed the law and its funding in 1986, and 14 states subsequently ended their CON programs. State actions regarding CON programs have fluctuated since that time. As of April 2016, 36 states maintain a full CON program. Three states maintain a partial CON program. Arizona reviews requests for capital expenditures for ambulatory services only. Minnesota maintains a CON program for hospitals and long-term facilities for individuals with developmental disabilities. Wisconsin's CON program applies only to nursing homes. The 14 states that repealed their full CON programs still maintain health planning agencies "intended to regulate costs and duplication of services." Below is a map displaying the status of CON laws across the country.[1]

    Recent news

    The link below is to the most recent stories in a Google news search for the terms certificate of need. These results are automatically generated from Google. Ballotpedia does not curate or endorse these articles.

    Certificate of need laws - Google News

    See also

    External links

    Footnotes

    1. ↑ 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 National Conference of State Legislatures, "Certificate of Need: State Health Laws and Programs," accessed April 11, 2016
    2. ↑ 2.0 2.1 2.2 Health Capital Consultants, "Certificate of Need (CON) Law Series: Part I - A Controversial History," accessed April 11, 2016
    3. ↑ 3.0 3.1 3.2 3.3 3.4 U.S. Congress, Office of Technology Assessment. (1984). Federal Policies and the Medical Devices Industry. Washington, D.C.: U.S. Government Printing Office. (pages 142-151)
    4. ↑ 4.0 4.1 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
    5. ↑ Orlando Sentinel, "After 14 years, state approves new nursing homes," March 8, 2015
    6. ↑ Social Security Administration, "Compilation of the Social Security Laws," accessed April 13, 2016
    7. ↑ 7.0 7.1 7.2 7.3 Hyman, H. (1982). Health Planning: A Systematic Approach. Rockville, Maryland: Aspen Publishers, Inc. (pages 253-260)
    8. ↑ U.S. Government Accountability Office, "Health Care Facilities: Capital Construction Expenditures by State," August 11, 1986
    9. ↑ 9.0 9.1 Health Foundation of South Florida, "Florida's Health Care Certificate of Need," accessed April 12, 2016
    10. ↑ Modern Healthcare, "Federal appeals court upholds Virginia's certificate-of-need law," January 22, 2016
    11. ↑ 11.0 11.1 National Institute for Healthcare Reform, "Health Care Certificate-of-Need (CON) Laws: Policy or Politics?" accessed April 13, 2016
    12. ↑ Mercatus Center, "How State CON Laws Restrict Access to Health Care," May 13, 2015
    13. ↑ Mercatus Center, "How State Certificate-of-Need (CON) Laws Affect Access to Health Care," May 12, 2015
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