Feds pressure states to kill certificate of need programs

September 24, 2008

The U.S. Department of Justice and Federal Trade Commission are pressuring state governments to repeal Certificate of Need laws that have lingered as a way to control healthcare costs by regulating health facility establishment, expansion, and purchase of capital equipment, such as MRI technology and CT scanners.

The U.S. Department of Justice and Federal Trade Commission are pressuring state governments to repeal Certificate of Need laws that have lingered as a way to control healthcare costs by regulating health facility establishment, expansion, and purchase of capital equipment, such as MRI technology and CT scanners.

In a joint statement to the Illinois Task Force on Health Planning released Sept. 12, the two agencies argue that CON laws are anticompetitive, favor incumbents, and undercut consumer choice. Earlier this year, the DOJ and FTC underscored their position in statements to Alaska and Florida and in discussions with Georgia.

At the invitation of Republican Gov. Sarah Palin of Alaska, FTC officials testified in February at a state legislative committee in favor of HB 337, a bill that would have eliminated CON jurisdiction in Anchorage, Fairbanks, and Mat-su, a bedroom community northeast of Anchorage. Opponents of the bill believe deregulation will open the way for physician-owned specialty hospitals, causing potential financial problems for the state's acute care hospitals.

A written statement from the FTC called CONs laws anticompetitive and ineffective as a cost-containment tool. Palin pressed to kill Alaska's CON law in her State of the State address in January.

In April, the FTC used the same rationale in Florida to support SB 2326, a proposal that streamlined CON reviews and excluded acute care hospitals in "low growth" counties and osteopathic hospitals from the program. That bill passed and was signed into law by Republican Gov. Charlie Crist in May. Christ proposed eliminating Florida's CON law, but it survived in a legislative compromise that led to the bill's approval.

Like many other state CON programs, Illinois' program takes aim at acquisition of major medical equipment, requiring documentation of public health need and economic and financial feasibility. For example, Illinois subjects acquisitions of major medical equipment valued at more than $6,573,026 to the CON process.

If CON laws were to disappear, it could potentially open the market to many specialties, but radiologists in general might be less likely to benefit, according to Thomas W. Greeson, a partner with Reed Smith LLP in Falls Church, VA.

"Radiology is one of the most constrained medical specialties," he said in a written comment about the Illinois developments. "Most hospital-affiliated radiologists must sign non-compete contracts that they won't provide imaging services within a certain perimeter of the hospital. Ironically, repeal could favor self-referring physicians who could readily acquire advanced imaging technology since they have no such contractual constraints."

CON laws were developed in the 1970s by health planners as a mechanism for evaluating unmet health need for medical services and capital equipment. Other goals of the CON approval process are to facilitate community access to needed services and to contain medical costs by not approving unnecessary services or equipment. President Reagan eliminated federal funding for the program in the 1980s, arguing that it discouraged competition and protected high-cost suppliers of goods and services, while many states held onto the programs.

Fourteen states have dropped their CON programs, but Illinois is resisting federal pressure. Melaney Arnold, spokesperson for the Illinois Health Facilities Planning Board, challenged the Feds' narrow focus on competition.

"The CON process is designed to protect access to underinsured, low-income patients," she said in an interview with Diagnostic Imaging. "Right now, there is no other process to protect safety-net hospitals that treat all comers. If forced to compete, they could not, and care for lower-income patients would be threatened."

FTC attorney advisor Daniel Gilman disagrees.

"The initial justification for CON programs - to promote cost containment - has not borne out," he said."We have good evidence that they are not doing what they are supposed to do.

The Joint Statement refers extensive hearings held in 2003 and research culminating in a 2004 report, Improving Healthcare: A Dose of Competition.

For more information from the Diagnostic Imaging archives:

New CMS anti-referral rules tighten know on leasing arrangements

Medicare fee schedule proposal could force nonrads to close office-based imaging services

CMS backtracks on enforcement of tough anti-markup rules