Time to reform Certificate of Need laws

The debate over Georgia’s “certificate of need” laws has raged since the 1980s. Could this be the year lawmakers finally resolve it?

This past week, a Senate committee heard the year’s first bill to reform CON, a system that empowers bureaucrats and incumbent providers to approve — or block — new healthcare facilities. Proponents again cited the need for more competition to lower costs, increase quality and allow communities to determine their healthcare needs. Opponents, as usual, claimed facilities will close and people will lose access to care if, like every other industry in modern America, hospitals are allowed to face even a little competition.

Count me among the proponents of reform, if that wasn’t clear.

After all these years, some new, pertinent circumstances may change the debate.

The first is Wellstar’s sudden closure of the Atlanta Medical Center last fall, leaving a gaping hole in medical access right in the middle of Georgia’s capital city. The decision caught local and state leaders off-guard and scrambling to fill the void, a position they don’t relish.

It’s difficult to square the explanations for AMC’s closure with the available facts. While Wellstar officials consistently cite large financial losses at the facility, other data tell a different story.

The National Academy of State Health Policy (NASHP), using financial figures Wellstar reported to the federal government, reports AMC had an operational loss totaling $26 million between April 2016, when Wellstar acquired the hospital, and 2021. But including other revenue streams, the hospital actually showed a profit of $13 million.

NASHP also calculates a “breakeven” point for hospitals considering all revenue streams and costs. On average, AMC under Wellstar’s ownership received over 150% of the revenue it needed to remain viable.

Meanwhile, Wellstar as a system — a nonprofit system — grew its overall operational profits by 66% in just three years: from $420 million in fiscal 2018 to $698 in fiscal 2021.

These facts are not lost on those same chagrined local and state leaders. Some of them wonder just whose “need,” exactly, a certificate of need protects. Not the community’s, it appears.

The other circumstance, now established as a clear trend, is consolidation. Hospital systems have been buying up one another’s facilities, and independent physician groups, in a bout of both horizontal and vertical integration.

So far, this trend has not meant a moderation of healthcare prices. If anything — and most of the research literature on CON reflects this — monopolistic hospital operators don’t deliver the lower prices CON was intended to generate.

Along with more pricing power, larger hospital systems are concentrating their financial wherewithal. So, even to the extent CON repeal would force them to face more competition, they ought to have the resources to survive.

The exceptions to this trend are mostly in rural areas. But while they might be more vulnerable to competition, they’re also less likely to face it. An area that can barely sustain its existing hospital probably won’t attract much new competition.

In both cases — filling the void left by AMC and taking on the hospital monopolies — CON stands firmly in the way.

Anyone who wants to open a new facility in downtown Atlanta, even one offering fewer services than AMC, would need to bargain with Wellstar for the existing CON or apply for a new one against the opposition of other metro Atlanta providers. Either way puts the potential new entrant at a stark disadvantage. (While Gov. Brian Kemp has issued an executive order to encourage new CON applicants near AMC, multimillion-dollar plans aren’t hatched overnight — and it’s unclear how long the order will last.)

The problem is similar elsewhere. It may be impractical for a provider to stand up an entire new hospital. But how about a more focused facility? Maybe one to perform imaging, or specialty surgery? Good luck: CON protects today’s elephants from even the tiniest mouse.

What’s indisputable is that Georgia lacks sufficient healthcare providers. Here’s a simple question: Is that more likely to get better if it’s easier to start a new service, or harder?

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