Results Mixed In States That Stopped Requiring Approval For New Hospitals

Mar 1, 2017

When officials at Nemours Children’ Hospital in Orlando tried to establish a pediatric heart transplant center, they learned how restricting a state law regulating the opening of new health facilities can be.

The so-called certificate of need regulations have come under fire from legislators who want to improve competition in the health care industry.

The rules forced the hospital to prove that the state needed a fifth heart transplant center. The hospital also had to show that it performed enough heart surgeries on children to be eligible to open a transplant center.

Before the decision Ed Jimenez, CEO of University of Florida Health Shands spoke out against the center. He was worried that the new center would pull patients from existing centers, meaning all the centers would perform fewer procedures.

"For those that subscribe and believe in the science that says the more you do the better you are, then absolutely you’re going to feel as if there is going to be a tremendous impact," Jimenez said.

In the end, the state determined another pediatric heart transplant center was not needed.

State regulators made similar decisions when considering 47 applications for health care facilities in 2016. Twenty-two were approved, 20 were denied and five applicants withdrew.

This year, Florida lawmakers will consider whether to repeal the certificate of need laws that regulate the opening of new hospitals, nursing homes, hospices and some other health care facilities.

Supporters say a repeal would drive down health care prices and improve quality.

Opponents say it will have the opposite effect.

So who’s right?

States that have done away with similar laws may offer some insight.

Florida established certificate of need regulations in the 1970s after the federal government threatened to pull funding for states without them. At the time, hospitals were in a battle to outspend each other on technology and Medicare payments were structured in a way that allowed hospitals to recoup the costs. 

But after the government reformed Medicare payments and researchers suggested the regulations weren't working, the federal mandate was dropped in the 1980s.

Since then, more than a dozen states have repealed certificate of need regulations and others have cut them back. The split has given researchers a lot to study. But the results are still mixed.

"You can't really give certificate of need a simple thumbs up or thumbs down," said Mary Vaughan-Sarrazin, a professor in the department of internal medicine at the University of Iowa.

Sarrazin has published multiple studies examining certificate of need regulations.

In 2002, she found that mortality rates for heart bypass surgery were higher in states without certificate of need regulations.

Her research supported a theory that consolidating specialized procedures at a few facilities ensures those health care teams do more procedures, gaining experience and expertise.

"You can imagine if you're a patient and you're faced with undergoing cardiac bypass, would you rather have it done at a hospital that performs one bypass a week or one that performs 20 a week?" Sarrazin said.

A second study by Sarrazin in 2009, however, found that certain procedures increased in states that repealed certificate of need regulations and the risks associated with those procedures decreased.

Advocates say repealing the regulations would increase competition and drive down prices.

Economists say it's a case of supply and demand. When the supply of health care is restricted, it leads to higher prices and fewer people using the services.

Matthew Mitchell, a senior research fellow at George Mason University, says his review of research shows that certificate of need laws do not improve quality or access and ultimately lead to higher prices for consumers. 

“When firms are not facing competition they can afford to ignore patient or consumer desires and costs,” Mitchell said.

But others argue that health care is not like buying another commodity like a car or a cheeseburger.

Michael Rosko, a business professor at Widener University in Pennsylvania, says hospitals don't typically advertise their prices so their customers aren't able to seek out the cheapest facilities.

"If you look at how hospitals compete, how many times do you see a billboard saying 'Special this week on appendectomies?'" Rosko said.

Instead, hospitals compete on reputation. They boast about having the best treatments and doctors on staff. 

Rosko's research found that health care facilities in states with certificate of need regulations were more cost efficient.

The regulations, he found, helped hospitals avoid the unnecessary duplication of health care facilities. They also help hospitals maintain higher occupancy rates.

"We don't want a health care facility that's only operating at 20 percent because you've got some really expensive fixed costs and what you want to do is spread that output over as many patients as possible."

Several states have peeled back certificate of need regulations for some types of procedures or facilities while leaving them in place for others.

Jimenez, the CEO of UF Health Shands, says he’d like to see some rules kept in place for highly specialized procedures like pediatric heart transplants.

“I definitely have concerns that in those areas where volume is directly correlated to outcomes that there should be special attention to those impacts,” Jimenez said.