Certificate of Need Law

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1 Certificate of Need Law Lake Norman Chamber of Commerce February 21, 2014 F. Del Murphy, Jr. SVP, Planning & Development

2 Mission Statement The mission of Carolinas HealthCare System is to create and operate a comprehensive system to provide healthcare and related services, including education and research opportunities, for the benefit of the people it serves. 1

3 Certificate of Need (CON) A Brief History CON laws were established voluntarily by over half of the states in the U.S. between 1966 and 1975 to control rising healthcare spending In 1976, CON became a federal mandate, and all states (except Louisiana) complied with the law North Carolina established its CON law in 1978 The federal mandate was abolished in 1983 The majority of states have continued to maintain CON laws, although the strength and breadth of the laws vary from state to state 14 states currently have no CON laws 2

4 CON Laws Across the United States CON 36 No CON 14 Source: American Health Planning Association. 3

5 Primary Objectives of the NC CON Law Manage the cost of care Ensure access to care Enhance the quality of care 4

6 When is a CON required in NC? Regulated service or technology New NICU Beds Open heart surgery Operating rooms Transplants Linear Accelerators MRI Scanners Any project over $2,000,000 in capital expenditures Medical equipment over $750,000 Computerized Tomography Scanners (CT) Projects exempt from review Parking Garages MOBs HVAC 5

7 NC s Annual Planning Process NC State Health Coordinating Council oversees development of the annual SMFP SMFP determines services, beds or equipment needed in a community Providers can file special needs petitions to change the SMFP The governor can add or delete items from the SMFP before giving final approval in December 6

8 Why do we need CON regulation? Three Reasons 1.The U.S. spends more on healthcare than any other country in the world (and by a large margin) 2.Research shows the more medical resources that are available in a community, the more they will be utilized 3.The structure and functioning of the healthcare industry is very different than other industries it competes on quality and service, but it is not a pure free market-based system 7

9 The U.S. spends more on healthcare than any other country in the world due to four factors Four Reasons 1.U.S. citizens want more and can afford more 2.Significantly higher administrative costs 3.Year-to-year inflationary aspects are built into the system 4.The U.S. system of care does not have robust spending controls Source: Organization for Economic Co-Operation and Development (OECD). 8

10 The U.S. spends significantly more as patients age and need healthcare services U.S. is spending much more for older ages Source: Fischbeck, Paul. US-Europe Comparisons of Health Risk for Specific Gender-Age Groups. Carnegie Mellon University; September,

11 The structure and functioning of the healthcare industry is VERY DIFFERENT than other industries it competes on quality and service, but it is not a pure free market-based system 10

12 Can you name another industry where? 1. The government sets the prices typically below the cost of care 2. Price is not a major factor in most buying decisions 3. The overwhelming majority of services are consumed in the last few years of the consumer s life 4. Services must be provided (by hospitals) regardless of the consumer s ability to pay for the service 5. Consumers do not make buying decisions alone insurance plans and physicians are almost always involved in the buying decision 11

13 Can a free-market system in healthcare increase competition, lower costs and improve outcomes? We need to proceed with caution it is not that simple! The free-market system has an impressive track record for spurring economic growth A primary goal of free-market enterprise is to increase consumption in healthcare we are trying to reduce consumption via improved health The industry conundrum: how can we bring down healthcare costs through a totally free-market system where the goal is to sell more services? 12

14 Based on independent research, there are three critical and direct benefits of CON regulation Lower healthcare costs Better clinical outcomes Improved access for the underinsured Supporting independent research examples follow 13

15 Research example: employer healthcare costs are lower in CON states % above Michigan 12% above Michigan 5% above Michigan 2% above Michigan Set at 100 Hospital Outpatient Relative Cost (Per 1,000 Members Normalized to Michigan Year 2000 = 100) Ford Motor Company Indiana Ohio Kentucky Missouri Michigan % above Michigan 21% above Michigan Source: The Wall Street Journal, January 20, Hospital Inpatient Relative Cost (Per 1,000 Members Normalized to Michigan Year 2000 = 100) Ford Motor Company About same as Set Michigan at 100 4% below Michigan Indiana Ohio Kentucky Michigan Missouri 14

16 Research example: higher volume hospitals have better clinical outcomes Estimated Mortality Rates 18% 16% 14% 12% 10% High Risk Surgeries 15.8% 8% 6% 4% 2% 2.8% 1.9% 1.0% 0.6% 6.2% 3.9% 5.9% 0% Coronary Artery Bypass Graff Coronary Angioplasty Elective Abdominal Aortic Aneurysm Repair Esophageal Cancer Surgery Low-Volume U.S. Hospitals High-Volume U.S. Hospitals Source: John D. Birkmeyer, Leapfrog Patient Safety Standards: The Potential Benefits of Universal Adoption, November

17 Research example: CON regulations improve access to care for the medically underserved Access to care. Most respondents agreed that CON regulations protect access to safety net hospitals and access to care in rural communities, either by requiring the provision of charity care or by having applicants address the potential impact on the safety net. Though research on this topic is scant, studies have indicated that CON regulations improve access to care for the underserved. Why are safety-net hospitals critical to this discussion? Approximately 68.0 percent of NC inpatients are government-sponsored or uninsured and the percentage is growing Source: National Institute for Health Care Reform; May 19,

18 North Carolina s CON Program: A Model for Other States A consultant summarizing state CON programs for the Washington State CON Task Force ranked North Carolina and Michigan as having the most effective programs. Key elements highlighted from the North Carolina CON process include: Development of an annual plan by a well-staffed state council with considerable public input, following clear statutory standards of need The result has been broad geographic access to all but the most complex services and reduced healthcare costs due to limited development of specialty hospitals, free standing ambulatory surgical centers and diagnostic centers as well as acute care, psychiatric, nursing and assisted living beds. Source: Washington State CON Task Force, National CON Perspective and Experience, Selected Review of State Public Oversight Efforts; a presentation to the Washington State CON Task Force, March 29,

19 Regions of the U.S. with more facilities and resources have higher costs Medicare Expenditures per Enrollee $11,000 $10,000 $10,852 $10,444 $9,880 $9,773 $9,671 Researchers at the Dartmouth Institute of Health Policy and Clinical Practice have concluded that regions with the greatest number of facilities and resources also have higher costs. Further, the researchers have concluded that more care does not translate into better outcomes. No CON CON $9,000 $8,640 $8,238 $8,000 Dallas (TX) Los Angeles (CA) New Orleans (LA) Gary (IN) Philadelphia (PA) Raleigh (NC) Charlotte (NC) Source: The Dartmouth Institute for Health Policy and Clinical Practice, 2008 data. 18

20 Of the 23 states without CON for acute services, 21 spend more on hospital care than NC Percent of Healthcare Expenditures on Hospital Care Source: Kaiser Family Foundation,

21 Summary CON Law Benefits 1. Operating costs are lower in higher volume facilities 2. Clinical outcomes and quality are better in higher volume facilities 3. Access is maintained for the medically underserved 4. Access to highly specialized services is supported, e.g. emergency departments 5. Controlling aggregate capital expenditures is a recognized strategy for controlling overall healthcare costs, e.g. European countries, Dartmouth research 20

22 While CON regulations and their administration are by all accounts imperfect, most respondents believe that CON programs should remain in place in their state and would benefit from increased funding for evaluation, improved compliance monitoring and movement toward a process driven more by data and planning rather than political influence. 21

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