What is CON (Certificate of Need)?

One perennial issue down at the NC General Assembly is CON or Certificate of Need repeal.  CON is an idea that has been around in the U.S. for decades as a way to control skyrocketing health care costs via government regulation. But like so many roads that are paved with good intentions, this one may have taken us to the wrong place – higher costs. 

What’s the big idea?

The theory of CON is pretty simple. Let’s say you have a hospital, and the hospital wants to add beds – increase their inpatient capacity. Doing this incurs costs – building new facilities, medical equipment for each of those rooms, staffing, utilities etc… running a hospital can be expensive, and when they build more rooms, the costs go up. 

But what if they don’t actually have the patients to fill those new beds? What if there is no actual need for all those new costs? All of those new empty beds need to get paid for somehow, and the costs end up being passed on to the patients they do have. This is bad because it raises hospital costs, which raises insurance premiums, which we all agree are high enough already.

So a Certificate of Need is something the government bestows upon a health care provider (in this example, the hospital) to allow them to expand, open a new facility or offer more services.  The provider can only do what they want if there is an actual community need.

Is it even necessary? Would providers really invest in facilities and services no one need?

Good question.  In most cases, no, but there are some unscrupulous providers out there.  The world of addiction recovery is notorious for “patient brokering,” and employing a business model that benefits from relapses:

“Rather than operating on a recovery model, Aronberg says, unscrupulous sober homes and treatment centers operate on a "relapse cycle," which bring clients back time and again for treatment that is covered by health insurance.”

But for the most part, providers building facilities for which there is no demand is a terrible business decision and needless regulation like CON is completely unnecessary. In fact, it can artificially increase prices. 

Increase prices? How is that?

TL;DR – CON artificially limits competition.

Take dialysis, for instance. If a provider builds a dialysis center in a community that already has enough dialysis facilities, they are going to lose money. No amount of advertising is going to increase the demand for dialysis – patients either need it, or they don’t. 

In fact, the only way a new dialysis facility could possibly make money in a saturated market is by drawing patients from existing facilities. And the best way to do that in a competitive environment? Offer lower prices or better services – either of which would be a good thing. 

But CON eliminates the positive consumer impact of competition by preventing competitors from setting up shop. 

Another example is Ambulatory Surgical Centers (ASCs). ASCs provide many of the same services a large, fully equipped hospital can, but at a much lower cost.  As the John Locke Foundation points out:

“the Blue Cross and Blue Shield cost estimator tool tells us that policyholders living in Onslow County can undergo a cataract removal for less than half the cost at the independent surgery center in Carteret County compared to their county’s hospital.

Imagine the government decides that in a small community the nearest hospital has enough beds to serve the community. This means that it will not bestow a CON for any competitor, including a new Ambulatory Surgical Center (ASC), that wants to open up a facility nearby. Without competition, the hospital has more freedom to inflate fees, or at least no incentive to try to reduce them.

What can we do?

Every CON law needs to be looked at carefully but removing CON for dialysis is a clear win for our state to improve quality and reduce costs. Write your representative in the general assembly today and tell them to vote to repeal CON for dialysis!

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