Sweeping Reforms in Hospital Regulations Set Aside For Now | Eastern North Carolina Now

   Publisher's note: The author of this fine report, Dan Way, is an associate editor of the Carolina Journal, John Hood Publisher.

Lawmakers considering marginal changes in certificate of need requirements

    RALEIGH     State Rep. John Torbett, R-Gaston, last week failed to persuade the House Regulatory Reform Committee to loosen up the state's certificate of need law - the statute requiring facilities seeking to provide new hospital services to prove there is a unmet "need" for them in the community.

    Yet minutes after Torbett withdrew House Bill 83 from the committee, Rep. Marilyn Avila, R-Wake, voiced confidence that the law eventually will be abolished.

    "It will probably happen, but it's not going to happen overnight for the same reason we can't do tax reform overnight. There are so many moving pieces," Avila said.

    In the meantime, House Republicans are seeking immediate avenues to reduce regulatory burdens that impede competition.

    "I don't want to do anything that because of some process change or whatever that we are endangering or impacting negatively in any way the patients who are part of this hospital CON process," Avila said. "I will do nothing that puts hospitals in jeopardy."

    Avila is a member of the Regulatory Reform Committee. Some of the bill's provisions came under attack at last week's meeting from a representative of the North Carolina Medical Society. A North Carolina Hospital Association executive said his organization also has issues with the measure. Torbett jokingly referred to the groups as "the Hatfields and McCoys."

    When dealing with a certificate of need process, even the most straightforward reform "can have the most unimaginable ripple effects," Avila said at the meeting.

    She urged Torbett to do more work on his measure to bring opposing factions into agreement.

    "You stand a lot better chance of getting [bill passage] if they're on your side when you go to the floor," Avila said.

    Torbett and Avila have filed separate bills to reform different portions of the certificate of need law. Currently, only hospitals and gastroenterology clinics can operate freestanding ambulatory surgery centers -- outpatient surgery clinics.

    They believe that increasing competition by allowing more procedures to be done at ambulatory surgery centers would lower health care costs to individuals, and save state taxpayers tens of millions of dollars in both the State Health Plan for state employees and Medicaid payments.

    Torbett's bill would eliminate the requirement that hospitals replacing equipment would have to go through the certificate of need review process. In addition, the triggers for a certificate of need review would be increased from $2 million to $4 million for capital expenditures for new institutional health services, and the monetary threshold would be raised from the current $750,000 to $1.5 million for major medical equipment.

    Any request by a hospital to make capital expenditures would receive an expedited review. Currently, those reviews only apply to expenditures that are less than $5 million.

    Avila's proposed legislation, House Bill 177, would exempt diagnostic centers from certificate of need review and expand the types of single-specialty, ambulatory surgery centers allowed to offer same-day surgery.

    It also would prevent hospitals from relocating hospital-based operating room cases into freestanding clinics.

    The rationale is that hospitals collect 40 percent higher reimbursement rates for hospital-based Medicare and Medicaid services than is allotted to physicians. Hospitals also capture those higher rates at off-site facilities, which gives them a market advantage and inflates treatment costs, Avila said.

    "It's irritating a lot of people, but I'm not rushing it," Avila said of her bill, which has been referred to the Health and Human Services Committee, and, if it passes there, to the Appropriations Committee.

    She has asked the chairmen of the Health and Human Services Committee to hold the bill "until I get more data and more information on what we're doing because I've got to be able to stand up there and defend it." She is holding "stakeholders meetings" and hopes to get agreement from hospitals and physicians.

    "I will however go without their support if I find that their doom and gloom and their prognostications of catastrophe don't stand up to fact," she said.

    "It's very easy to check that because close to half of the states in this union do not have a CON, and a goodly number of them can actually deliver medical costs cheaper than we can, so it's obvious that CON is not the silver bullet as far as controlling costs go," Avila said.

    "There's significant opposition from hospitals, and basically what we have to do is disprove their assertions" that loosening certificate of need restrictions will be harmful, Avila said.

    "You've got a 40 percent cost savings (at physician-operated ambulatory surgery centers) and you're telling me we ought not to look at that?" Avila said in response to hospital opposition.

    She also acknowledges that open competition for hospital services would be difficult to unleash, citing the federal Emergency Medical Treatment and Labor Act. That law requires emergency rooms to care for all patients regardless of ability to pay.

    "There's nothing in my bill that would prohibit a hospital from joining in with a physicians practice and opening up an ASC," Avila said. She said Duke University Health Systems has one, and "WakeMed [Health and Hospitals] is in the process of doing one right now."

    Several Regulatory Reform Committee members raised the EMTALA requirement as they debated Torbett's bill. They echoed the hospitals' concerns that competition from ambulatory surgery centers would peel off patients who have private insurance, and hospitals rely on them to make up for losses from uncompensated charity care.

    But hospitals are making big money from investments, and "they're still making profits on their patient side as well," Avila said.

    "I have that from the horse's mouth from Mission Hospital, Dr. [Ronald] Paulus, who's the CEO there," Avila said of the Asheville-based facility. "They have half a billion dollars and want more because they see that as a six-month operating reserve."

    That $500 million figure appears on a list of hospital assets in North Carolina compiled by CON reform advocates. The Electronic Municipal Market Access system, which monitors the municipal securities market, is cited as the data source.

    Among others on the list with large cash and investment assets in 2012 are Carolinas Health Care System, $2.5 billion; Duke University Health, $2.4 billion; Novant, $1.3 billion; Wake Forest Baptist, $1.3 billion; UNC Hospital System, $713 million; and CaroMont Health, $452 million.

    During committee debate on Torbett's bill, Chip Baggett, director of legislative relations for the N.C. Medical Society, said the society supports changing the process by which a certificate of need is granted, but is troubled by raising the financial thresholds at which a certificate is required.

    "It makes worse an unfairness that is already inherent to the certificate of need system. The system ... allows the process to pick winners and losers," Baggett said.

    Under a higher threshold scenario, hospitals could build out to full capacity more easily at their existing off-campus surgery centers. They already have a certificate of need. A physician-operated ambulatory surgery center starting from the ground up would face a higher hurdle to obtain a certificate through the time-consuming, costly review process, Baggett said.

    Drexel Pratt, director of the state Division of Health Service Regulation, said he did not believe raising the threshold would be a significant factor in preventing competition.