Policy Update
Certificate of Need Study Commission Update
8/08/2005
Source: Gold Dome Report
The Certificate of Need Study Commission, created by HB 390, met on August 8, 2005, for its second meeting. In attendance at this meeting, in addition to staff from the Department of Community Health and Commission Members, was Rep. Sharon Cooper.
Dr. Rahn, Chair of the Commission, went through the Commission’s purpose noting its objectives. Minutes of the initial meeting were approved without discussion.
Stakeholder presentations were made:
Georgia Alliance of Community Hospitals (“Alliance”)
Kurt Stuenkel, CEO of Floyd County Medical Center, presented on behalf of the Alliance. Stuenkel described Floyd Medical Center as a hospital which provides 60,000 persons emergency room care annually and is the only neonatal intensive care provider in the area. It is a not-for-profit hospital. He noted that the Alliance, along with other hospitals, had produced a notebook of information with various articles on healthcare costs, utilization, etc.
The hospitals strongly support CON. He pointed to various studies including the Cleverly Study (on pricing differentials in CON versus non-CON states such as Texas and Arizona noting Georgia has lower costs); the Daimler-Chrysler Study; Dartmouth Atlas Study (on increased capacity which will drive up costs with over utilization); Blue Cross Study; etc.
Stuenkel noted he disagreed with Dr. Deese on the FTC and DOJ Reports (especially as it relates to indigent care and medical education).
Ambulatory surgery centers (“ASCs”) and surgical specialty hospitals have proliferated in non-CON states. Also, once the 1991 amendments to the Georgia CON law were made, a number of ASCs have proliferated in Georgia. The issue is self-referral or physician practice patterns.
Med Pac shows that higher rates are paid to free-standing ASCs rather than outpatient ASCs operated by hospitals. He noted that this was problematic relating to specialty coverage; he cited the issue with orthopaedics’ practice in Columbus.
Stuenkel also mentioned the Florida investigation on imaging scans and overcharges found because freestanding facilities were overly used. A report on this issue appeared in the Wall Street Journal.
Mr. Stuenkel mentioned that for hospitals providing services, “practice makes perfect” citing quality of care concerns when ASCs take away certain procedures from hospitals. When this occurs, the medical staff teams do not perform as frequently the same types of procedures and proficiency may decline.
There is also a huge problem with physicians’ imaging companies. Approximately one-third of the imaging companies are operated by non-radiologists. These facilities have huge problems meeting licensure requirements.
The proliferation of ASCs also adds problems to the workforce shortages. There are more entities competing for the same healthcare workers. Duplication of services will drive up costs.
Stuenkel mentioned that the physician community is divided on CON; he also stated that many physicians are not members of the Medical Association of Georgia (“MAG”).
He agreed that the CON program was a program with a process and noted that the process was at times cumbersome. However, there is not adequate staff at the Division of Health Planning making these application reviews. Thus, the process takes time. He agreed that the CON Commission should look at strengthening, streamlining, and making the process more efficient.
There are non-service issues which could be addressed as well as the lengthy appeals process. As for changes, the Alliance is in favor of lowering thresholds to $500,000; tightening the regulations of physician-owned ASCs; and requiring each to have an indigent care commitment.
Mr. Stuenkel stated there are 230 licensed ASCs in Georgia which are completely exempt from CON as single-specialty centers which is bad for costs, safety, emergency room coverage, financial viability of hospitals, and medical education.
Georgia Hospital Association (“GHA”)
Dick Dwozen, CEO of Habersham Medical Center and Chairman of GHA, spoke on behalf of this organization. Dwozen stated that there are lots of rural hospitals which provide access points to healthcare for Georgians. He noted the appreciation of the two years to study the CON matter. It is of importance to study CON’s impact on the poor and indigent as well as the rural and urban populations. GHA’s Members are united in their belief for the need of a strong CON program.
He asked the relevant question, “Why do hospitals need protection?” Because of the mix of patients as well as services as well as for financial stability and because of the growing threat of the uninsured and underinsured. Hospitals are paid 85.6% of their costs by Medicaid. Cross subsidies are needed in order to fund care which hospitals provide to the poor and indigent.
Physician-owned ASCs compete with hospitals for business in areas where there are low margins; these ASCs do not compete to provide emergency room services.
Physician-owned facilities only offer the more profitable services. Thus, hospitals are left with the lower profit services and the sicker patients. This type of activity is unfair. Referrals are made by physicians; physicians make such referrals to their own facilities.
GHA supports a full look at the CON program.
Georgia Society of Ambulatory Surgery Centers (“Society”)
Houston Payne, MD spoke on behalf of the Society. He gave an overview of the origins of CON theory mentioning that Medicaid and Medicare reimbursement previously was based on cost reports with hospital payments linked to hospital volume. In 1983, there was a switch to the prospective payment methodology and thus changes ensued. The financial risk shift was made to providers. In 1983, an attempt was made to control the supply. In the late 1980s, the FTC conducted a study and found that market competition was better than having State planners decide the types and numbers of services available. Georgia’s General Assembly was also told it would be better for diversity and quality. In November 2002, there were joint hearings initiated with the FTC and DOJ on the issue; this study found that it would be better to decrease barriers.
He argued CON programs drive up costs and depress the supply. The programs protect providers from competition and delay the introduction of new technology.
ASCs are good for consumers. CON, however, prevents ASCs from coming into the market. He cited that it was incorrect that the proliferation of ASCs caused issues with a hospital’s financial status and perhaps caused closure. He noted that between 1987 and 1994, there were declining hospital closures yet there were more ASCs created. He also mentioned the impact of managed care, lengths of stay, vertical integration, etc. The Government has encouraged development of ASCs. He cited the 2003 HHS Report on ASCs.
In Georgia’s CON law, there are regulations for eleven types of facilities (the national average is 7.9); 19 regulations govern procedures (the national average is 15); and eight regulations govern equipment (the national average is 6.5).
He discussed CON deregulation as correlated with healthcare spending. He stated that there was no surge in spending once CON was removed.
Dr. Payne noted that with CON there is a barrier to new entrants into the market which prevents an infusion of new technology and limits innovation.
ASCs provide consumer choice.
Medical Association of Georgia
Deborah Winegard, Counsel for MAG, provided testimony. She stated that MAG is the largest physician advocacy group in Georgia and represents the voice of Georgia physicians (she took to task Mr. Stuenkel’s remarks concerning some physicians were not opposing CON).
She recited that sixteen states have abolished CON laws. She also took on the FTC-DOJ report. CON is anti-competitive; increases price; increases barriers to entry; ineffective at controlling cost; and inhibits innovation.
Physician-owned facilities are considered new institutional health services but may apply for a letter of non-reviewability (or LNR exemption from CON) if these are single-specialty, physician-owned facilities. LNR, however, is not mentioned in the CON statutes but only in regulations. CON is a requirement for a multi-specialty ASC or for those facilities over the cost threshold of $1.5 million. Additionally, a CON is required for any purchase of equipment over $775,000.
Winegard mentioned the reference to “general surgeon” which is not a surgical specialty recognized by the Department of Community Health.
ASCs are a tool to recruit physicians to rural areas. Quality and the public’s interest are not the same. The statement that ASCs are not regulated is not true; ASCs must be licensed through the Office of Regulatory Services, through health plans where contracts are made (such as JCAHO or other accreditation); and Medicare.
Winegard also discussed the safety studies of ASCs. She stated there was confusion between office-based surgery and ambulatory surgery centers. She asked this Commission to remember this in their deliberations.
Lower costs are found in ASCs rather than in hospitals, which benefit the patients. Georgia’s Medicaid program pays two times the amount for services to hospitals which it pays to ASCs.
Ms. Winegard mentioned a study conducted by Georgia State University on CON’s costs.
The argument that ASCs “cherry-pick” services is not accurate. She argued that physicians treat indigent as well as Medicaid patients. Doctors also provide emergency room care without payment whereas hospitals get money from the Indigent Care Trust Fund. She stated that the Commission should work towards getting physicians paid for taking emergency room call.
CON does not mention the LNR process. Potential competitors should not be permitted to participate in the LNR process; hospitals routinely file opposition in an LNR process. Hospitals also file mandamus actions to attempt to rescind LNRs (the Alliance routinely files mandamus actions where an ASC competes with one of its member facilities). She noted that the legal standard was gross abuse of discretion.
Ms. Winegard also pointed out the prior testimony of an interventional radiologist who attempted to get a CON because of a lack of equipment at a local hospital. This specialty was denied.
The argument that general surgery is a multi-specialty was taken to task. She stated that organized medicine sees this as a specialty and physicians are board certified in this specialty. Moreover, the Department of Community Health also surveys these physicians separately.
Winegard stated that the Department of Community health has the authority to regulate general surgery as a single specialty and can amend the rules.
MAG recommends that: CON be eliminated for all physician-owned facilities; that CON cost thresholds be eliminated for diagnostic as well as treatment facilities; if cost thresholds cannot be eliminated then move to $5 million for ASCs and $2 million for therapeutic equipment.
Questions/Answers
A number of questions were raised by Commission Members. At times, this became very pointed with Members driving their own personal agendas.
Rep. Scott took on the Alliance with questions relating to adoption of the Michigan model relating to CON. Mr. Stuenkel attempted to explain to Rep. Scott that the Commission should look at all models, not just one. Rep. Scott asked if the Report objected to the building of additional hospitals and if that was the suggestion of Mr. Stuenkel. Rep. Scott also inquired about the percentage of Alliance’s budget was expended on legal fees (Mr. Stuenkel did not know). Rep. Scott also asked the number of lawsuits which the Alliance had filed against the Department (Mr. Stuenkel did not know). Rep. Scott also inquired how the mandamus actions filed by the Alliance were funded (Mr. Stuenkel said it was through a broad-based assessment but, he would get the detailed information).
Dr. Deese noted that this was a lengthy procedure, with diverse opinions. He asked his initial questions to Mr. Dwozen about the ownership of the hospital in Habersham County. Mr. Dwozen stated it was owned by a hospital authority but managed by Quorum and was affiliated with Emory (because of strategic planning to get in with 1st MN and deal with managed care contracting). He noted that Georgia 1st was the precursor to 1st MN which had 5,000 physicians and hospitals as members that formed a PPO for negotiation of managed care contracts. Mr. Dwozen was asked if this contracting was done in an effort to address competition with other hospitals. No, it was an attempt to deal with United, Blue Cross, and others who would be competitors; however, 1st MN does not have an insurance license. Dr. Deese did state he appreciated the small-town hospital concerns.
For Mr. Stuenkel, Dr. Deese asked if competition was good for other businesses, then why was it not good for healthcare and how does eliminating competition better healthcare costs? Mr. Stuenkel stated that he was in favor of competition but healthcare is complex and has no simple solution. Competition in healthcare is for paying patients. There is no competition for those patients who cannot pay. He cited the studies for Dr. Deese to consider.
Dr. Rahn inquired about the competition issue as well. He noted the FTC-DOJ report and inquired about the need for cross-subsidies and how those related to competition. The FTC bias is to be pro-competition; competition stimulates performance. How do the cross-subsidies impact such? Ms. Winegard began the discussion noting the historical importance. She stated that cross-subsidies were going away across the country.
Private insurers now pay less than they used to pay; these insurers typically pay 100% of Medicare rate and do not include an additional subsidy. The cross-subsidies are not a reason to continue CON. Dr. Payne noted that cross-subsidies do not adversely affect the playing field and will not affect care.
Mr. Dwozen noted that his facility collects $.25 on every emergency room dollar of care. His facility got a CON for MRI because of the volume it had; however, an MRI company came into Habersham’s service area with older technology and has now siphoned off patients from the hospital. This caused a dilution of volume for these MRI services at the hospital.
Sen. Balfour inquired about the “automotive” study on health costs in CON states and non-CON states. Mr. Stuenkel stated that states with CON have lower healthcare costs; states without CON may otherwise regulate specific services such as open heart services.
Sen. Balfour asked Ms. Winegard why quality and need cannot be the same. She stated these are licensure questions.
Mr. Maddock asked whether there were concerns that ASCs may have personnel with limited training and whether they could provide the same level of care a hospital could perform. LNRs have to show that they are a single specialty and must be reviewed by ORS according to Ms. Winegard. In addition, these ASCs are required to have a referral arrangement with a hospital in the event something goes wrong with a patient. He noted that in rural health, no one competes for indigent care.
Sen. Balfour stated he saw three positions for the Commission: 1) keep CON; 2) repeal CON; or 3) adjust CON. If the Commission is to adjust CON, he asked for specific recommendations on how that might be accomplished. Parties should submit recommendations on what should be added to CON as well as what could be subtracted from CON.
The General Assembly will take a middle ground approach in two years. Dr. Rahn stated that perhaps inpatient hospitals might not need numerical criteria in making a determination on beds.
Rep. Scott inquired about “cherry picking” services. He took offense that physicians were not taking all types of patients. He asked Mr. Dwozen about how Habersham built its volume in order to determine it needed to purchase MRI equipment. Dwozen stated that he listened to patient care and satisfaction as well as the community.
Rep. Scott inquired about which business model was applied to make that determination; Dwozen stated that Habersham had recruited physicians. Once any recruitment takes place, the hospital funds those until they are no longer under contract.
Dr. Deese had questions regarding a hospital’s financial status. He asked if the Habersham and Floyd facilities were 501(c)(3) entities. Habersham is not a 501(c)(3) but is under the State’s Hospital Authority law. Floyd is a restructured hospital and is a 501(c)(3) entity. They were asked if this financial status was by design. Each owns property without paying tax. Dwozen replied that “no money, no mission.” Stuenkel reminded him that some hospitals do have an educational purpose. They were asked if hospitals would be willing to get rid of their tax-free status?
In response, Messrs. Stuenkel and Dwozen asked about indigent care and who would perform those services. If all things were equal, and all took their fair share of indigent care, then the tax-free status could be eliminated.
There were also questions about the Indigent Care Trust Fund. Mr. Stuenkel attempted an answer to this inquiry. He noted it was a federal-state partnership with a complex formula using aggregate cost reports. A matching formula is used by government to draw down federal dollars. The money does not replace the short-fall of dollars expended on indigent care. Mr. Stuenkel also incorrectly reported that no for-profit hospital participates in the Indigent Care Trust Fund
There was also some discussion of the 3% indigent care commitments on CON projects. If a facility does not reach that level of indigent care, then it pays a fine to the Indigent Care Trust Fund of the portion not achieved.
Dr. Lipson was a voice of reason at this meeting. He noted the diversity of the opposing sides on the issue. With his practice of medicine routinely for 20 years, he understands the concerns of physicians but he also understands the hospitals’ point of view.
CON should not put hospitals and physicians at each other’s throats. He suggested that the Commission look at cross-subsidies; get testimony from experts on various issues and have them go into specifics.
Mr. Ross asked about referrals made by physicians, “If these are unregulated, then will there not be a proliferation of poor quality centers?” He also asked how physician referrals to ASCs helped competition. Aren’t these referrals disruptions in the market? There was some discussion that physicians had difficulty scheduling operating rooms; Ms. Winegard noted specifically ophthalmologists’ scheduling for cateract surgeries. (Lipson agreed with her.)
Dr. Deese inquired whether not-for-profit hospitals operated/owned for-profit entities.
Dr. Deese inquired about Habersham and Floyd’s participation in the 1st MN network and why free-standing ASCs were eliminated from participation in that network for SHBP coverage. It was explained that some facilities and physicians were included; some were not. All of this was done in the light of day per Mr. Stuenkel. When the merger of Georgia 1st and MRN was made to form 1st MN, it was thought that there would be numerous statewide managed care contracts; it ended up that there was only one.
Rep. Scott inquired about abusive practices in the 1st MN network bid and whether “back door” deals were made. He questioned the entity’s fairness. He noted that it would be best if the not-for-profit hospitals had to follow the Sarbanes-Oxley provisions.
Moving Forward
Neal Childers reported the next Commission meeting will be held on September 13, 2005. It will deal with long-term care providers’ services. At the October meeting, it will deal with specialized providers of long-term care due to a specific condition. The November meeting will deal with other specialized providers. At the December meeting, the Commission will hear from advocates for patients as well as the Office of Regulatory Services and perhaps various operations which impact CON such as the Indigent Care Trust Fund.
There was some discussion that perhaps it would be good to hear from experts (from an academic institution) on dissolution of CON in states such as Indiana, Michigan, Texas, and California. Dr. Lipson suggested that there be a creation of a list of issues and to hear from experts on those issues.
Dr. Rahn distributed the Texas Hospital Association report and the Michigan CON Evaluation done by Duke University.
It was mentioned that Dr. Rahn and Richard Greene had met with the DOJ about the Report made by FTC and DOJ and what types of experts should be consulted. The Commission needs to make a determination on what it needs the experts to do.
Dr. Deese took Dr. Rahn to task about the trip to Washington to meet with DOJ; he was upset because no notice went out to the Commission beforehand and he stated that it would be better for everyone to be aware of such meetings so that no one could come back later and question such.
Please contact Stanley S. Jones, Jr., Jeffrey C. Baxter or Helen Sloat at 404-817-6000 for further information on legislative happenings. Gold Dome Reports will be available daily during the Session at www.nelsonmullins.com.