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My Turn
Let's Rethink CONs
Robert Hackey
Publish Date: October 10, 2007

Three decades after Congress endorsed certificate of need (CON) programs, it's time to rethink them because they haven't lived up to their promise of controlling healthcare costs. Policymakers reasoned that supply was creating demand, and they believed CON programs (which require developers of healthcare facilities to publicly air their plans and expose them to expert review) would prevent duplication of services while ensuring equal access to reasonably priced care.

CON problems
Established facilities often use CON programs as competitive shelters to maintain market share and leverage with patients and payers. Some also prolong the public review process and seek to quash competitive proposals altogether by mounting legal challenges or submitting similar bids of their own.

CON programs also cost facilities in more direct ways. Administrative costs of CON laws for Missouri-based private health facilities averaged $7,000 per application in 2002.

Ironically, CON programs can also foster duplication of services by creating incentives for facilities to compete where they otherwise wouldn't. A 1999 case study showed that two large hospitals in the same Tennessee county submitted CON applications for advanced radiological facilities to pre-empt each other from capturing the market. Only after the state's CON board approved both applications did the hospitals agree to open one new facility as a joint venture.

Positive roles?
Some argue that CON programs play two positive roles. For one, they say, public review protects hospitals from bearing the economic brunt of treating the sickest and poorest patients by preventing the unchecked segregation of care into specialty hospitals, ASCs and community hospitals. I'm not persuaded by this argument, as established facilities can and do hijack the public-review process and use it to serve their own, rather than the public's, interest. CON board members might also have inherent conflicts of interest, which can further corrupt the process.

The second, more probable benefit of CON programs is that of quality assurance. Because they require new facilities to ensure minimum case volumes, CON programs may promote quality. As we know, there is a clear relationship between surgical volume, proficiency and outcomes. But there are better ways to ensure quality, such as licensure and accreditation. State health department-mandated community report cards that detail the number of uninsured persons served can also promote accountability and maintain services for underserved populations. Plus, strong purchasing by business coalitions and payers reward proficient and cost-effective providers.

Given the problems with CON programs, we should limit their scope to those capital-intensive services with strong volume/outcome relationships that clearly need to be regionalized (such as organ transplantation and open heart surgery). This will restore managerial autonomy to providers and give them the flexibility they need to respond to changing market conditions. This will, in turn, let providers meet the needs of their communities more effectively and efficiently.