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Health care’s need-to-know basis

Capital Goods: May

Health care’s need-to-know basis

""For four years, critics have attacked national health-care reform as socialism. If they mean government control of medical care’s means of production, I’ve got news for them: We’ve had socialism for quite some time. First, there is the inconvenient fact that Medicare and Medicaid dominate the market, the government programs accounting for 55% of U.S. hospital revenue. In North Carolina, there is also something known as a certificate of need.

Certificate-of-need laws require hospitals and other medical-care providers to get state approval to operate or expand. The notion behind that is, in the absence of market pressures restraining spending, government review is needed lest consumers get stuck with costs associated with overbuilt or underutilized assets. In the early 1970s, Congress made states adopt a certificate-of-need process to continue receiving federal health-care funds. The mandate eventually fell out of favor and was dropped in 1986.

That has not stopped three-dozen states, including this one, from continuing to require a certificate of need. That is about to change in North Carolina. For more than a year, legislators have been taking a hard look at the law. At the very least, they are likely to make fewer medical facilities and additions subject to the requirement. The House already has approved doubling the cost of a project that triggers a review from $2 million to $4 million and, for adding major equipment, from $750,000 to $1.5 million. The bill also sets up more hurdles for heath-care providers who want to appeal the approval of a competitor’s certificate. That would quiet critics who contend filing such action is often just a stalling tactic.

Another piece of legislation would exempt diagnostic and many nonemergency-surgery centers. It’s modeled after 2005 legislation that made it easier for gastroenterologists to perform colonoscopies and endoscopies at their offices, which is credited with saving more than $200 million since. Medicare reimbursements to hospitals are 43% higher than to ambulatory surgery centers. Curtailing or eliminating certificates of need would seem to be a no-brainer. But is it? Hospitals, with more overhead expenses, say the changes will allow specialty surgery centers to cherry-pick some of the most profitable services. Smaller, rural hospitals that already operate on a thin margin could be especially vulnerable. And as the changes begin to take hold, they will have the effect of doing exactly what certificate-of-need laws were designed to prevent — allow some very expensive medical equipment, largely paid for by tax money, to sit idle. Savings in some sections of the health-care economy may just cause inflation in others. Even if that doesn’t happen, are patients better served if rural hospitals go out of business, further limiting access to health care in those places?

These are not easy questions because the system is so complex, with its strange blend of public and private players, be they payers, recipients or providers of medical services. As Hugh Tilson, senior vice president of the North Carolina Hospitals Association, likes to point out, “There is no free market for health care in the country.” But Republicans who control the legislature are trying to create something resembling one. A group of state senators has proposed legislation that would require hospitals and outpatient centers to report what they charge for 50 common procedures. The prices would be listed on a website maintained by the nonprofit North Carolina Health Information Exchange.

But if you aren’t paying out of your own pocket, will you bother comparison shopping? What if you have little or no choice which hospital you’re rushed to by an ambulance or referred to by a doctor? And this push for competition comes amid a trend in the other direction: The state’s big, metropolitan hospitals are gobbling up medical practices and smaller competitors to expand their footprints. Poking and prodding a system intended to prevent them from wasting money might be a good idea if it results in savings and competition. If it produces more waste, passed along to consumers in higher costs and taxes, then maybe not.

Scott Mooneyham is editor of The Insider, Email him at

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