The healthcare industry continues to evolve at a rapid pace. Just as the retail and banking industries continue to scale back brick and mortar operations as consumers embrace e-commerce, healthcare is increasingly being provided outside traditional hospital settings as well. Hospital inpatient volumes have been declining as more and more procedures are performed on an outpatient basis. With the advent of telehealth, we are beginning to see a return to the time when physicians made home visits (albeit virtually). CON programs were well-intended when first established two generations ago, when delivery of care shifted from home-based settings into traditional brick and mortar inpatient facilities. Today’s delivery of care is moving towards outpatient settings and back into the home.
Six Things to Know about Certificate of Need Program Changes
1. What is a Certificate of Need program?
Certificate of Need (CON) programs are intended to moderate healthcare costs and curtail the duplication of healthcare services absent a demonstrated community need. These programs allow state agencies oversight of healthcare services and facility construction. Not only are CON programs state specific, but they are usually accompanied by a plethora of other state regulatory requirements including licensing. Differences that can vary state to state include facilities/services covered, geographies covered by the CON, expiration dates and the ability to transfer an existing CON. CON programs typically represent the most challenging regulatory hurdle that must be overcome before services can be provided.
2. Which US States have implemented Certificate of Need programs?
State governments generally began implementing Certificate of Need programs in the mid 1970’s in response to requirements related to Federal funding mechanisms. Today, there are 35 states with CON programs in place, three with CON program variations, and 12 without CON programs. Most states will refer to their programs as “Certificate of Need” while some states have alternative names such as “Facility Need Review” in Louisiana and “Determination of Need” in Massachusetts.
3. Support and Criticism of CON Programs
Supporters of CON laws say that CON programs limit healthcare spending and price inflation, help provide services in areas that might otherwise be ignored and allow public input on the need for new healthcare facilities/services. Critics state that CON laws hinder market competition, and a lack of competition can lead to monopolies and oligarchies that can inflate prices to the end user (patients). In addition, the opposition will argue that these programs lead to reduced access to care and lack of patient choice.
4. What is the future of CON programs?
Half a century after the Federal government’s push for State regulations in the 1970’s, Washington has now changed its position. In an open letter accompanying the comprehensive report on Reforming America’s Healthcare System Through Choice and Competition dated December 2018, several Federal agencies recommended “state action to repeal or scale back Certificate of Need laws” in order to “to promote choice and competition in provider markets..” https://www.hhs.gov/about/news/2018/12/03/reforming-americas-healthcare-system-through-choice-and-competition.html
It remains to be seen what the future is for the CON programs, but continue pressure and reform seems imminent.
5. What are some current states that are seeing large reform?
In Florida, CON requirements for general hospitals, complex medical rehabilitation beds, and tertiary hospital services were eliminated effective July 1, 2019, with specialty hospital CONs following two years later. Tennessee’s major CON reform legislation took effect in October 2016 and in October 2021.
In 2022 alone, Georgia, North Carolina, South Carolina, and West Virginia proposed legislation to repeal or overhaul their CON statutes. The bill that was recently proposed in North Carolina, if passed, would eliminate the CON process for ASCs, drug treatment centers, MRI equipment and converting hospital beds to psych beds.
6. What are the opportunities and threats of deregulation of CON programs?
- Healthcare investment decisions will be driven by demand and supply of healthcare services as operators can enter new markets, expand operations, and offer new service lines without legacy regulatory restrictions.
- Health systems will be able to customize their service offerings to meet the needs of the communities they serve, rather than facing regulatory hurdles.
- Access to healthcare and patient choice is likely to improve.
- Existing providers are likely to face increased competition where demand exceeds supply.
- Healthcare systems looking to sell a service line previously subject to CON regulations will likely see a moderation in purchase prices.
- Provider organizations that have grown operations in Florida by purchasing healthcare entities previously subject to CON regulations face potential impairment of any CON assets and goodwill on their books. Elimination of CON requirements like in Florida is considered a triggering event for many entities and will require testing of goodwill impairment, even if the private company alternative was elected.
- Industry trends that threaten traditional providers market share include surgical volumes shifting to outpatient settings, private equity investments in outpatient programs and emerging micro hospitals in urban and rural area.
- Non-traditional new players entering the market also pose a threat to the traditional providers of service which include virtual health providers, payors transforming to providers, at home provider services, etc.
With the technological advances that are coming to market daily, it is important that the healthcare industry remain nimble. Critics of the CON program would argue that these regulations are outdated and unnecessary. While that may be too extreme, it seems likely the push will continue for the stripping down of these regulations or the expansion of cost thresholds within the regulations. With the delivery of care models changing right before our eyes and the entrants of new non-traditional providers, traditional healthcare providers are going to have to rethink their growth strategies if they want to maintain the market share that used to be protected somewhat by strict CON regulation.