Battle Lines Drawn Over CON Status

June 21, 2002
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LANSING — Hospitals and other health care providers would no longer face a rigorous review process when they want to launch major capital improvements or add new medical services, if legislation proposed in Lansing becomes law.

A six-bill package introduced Oct. 24 by a group of Republican state senators, including Sen. Glenn Steil of Grand Rapids, would repeal the state’s Certificate of Need (CON) program that requires health care providers to prove a need for major facility improvements, additions and acquisitions, as well as the initiation of certain clinical services.

Supporters of the program see it as providing some oversight that helps to contain the ever-increasing costs of health care and guarantees medical services are equally distributed and accessible across the state, particularly in rural areas and for the indigent.

Opponents to CON, including the Michigan State Medical Society, see it as a cumbersome and costly process that stifles competition.

“It stinks. It’s an affront to free enterprise,” Steil said. “It’s creating a bureaucracy when none is needed.”

Established in 1972 and amended twice over the years, the CON program is designed to provide checks and balances over health care cost, quality and access issues, and ensure the development of only those services and facilities where they are needed and supported by market demand.

The goal is to contain escalating health care costs by avoiding an oversupply of services or facilities within a market that can result in care providers charging higher prices in order to cover their investment. The theory is that without such controls, the resulting dilution of market share for a given medical procedure forces providers to raise fees to cover the capital and operating costs of providing the service.

Dr. Kenneth Musson, a Traverse City ophthalmologist and president of the State Medical Society, argues that the economics of health care are vastly different today than when CON was created. He calls CON “anti-competitive” because it allows the franchising of medical services within a health care market by essentially limiting the number of providers who can provide a particular service.

“They would kind of corner the market and the guy across the street is blocked out of the market. It’s exclusivity,” Musson said. “If someone wants a similar facility and wants to compete in the market, they can’t.”

Repealing CON would make it much easier for physician groups to establish their own facilities, such as an outpatient surgical center that would compete with hospitals, Musson said.

Lody Zwarensteyn, president of the Alliance for Health, sees CON as “one of the few, if not the only” cost-containment programs the state has for health care.

The CON process prevents the proliferation of health care facilities and services, and promotes cooperation among health care providers that want to initiate the same service, which further helps to contain costs, Zwarensteyn said. He cites the joint venture between Spectrum Health and Saint Mary’s Mercy Medical Center to bring PET (positron-emission tomography) scanners to West Michigan as just one example.

“The CON simply seeks to ask if something is needed before it goes forward, and it gives the community a strong voice in how the health care system that serves them is structured,” Zwarensteyn said.

The Alliance for Health is a Grand Rapids-based health care planning organization that analyzes CON applications in the region and recommends to the state whether to approve or deny a project or service. The organization consists of representatives from the health care industry and business community.

Musson, in countering concerns about rising costs if CON is repealed, contends that the emergence in the past decade of managed care and stringent reimbursement guidelines of HMOs and health insurers make it unlikely that a physician or hospital would develop a facility or initiate a medical service that isn’t supported by market demands and competitive fee structures.

“The whole scene has changed,” Musson said. “If you’re not doing enough cases, you can’t run your business. You’ve got to have a business plan, you’ve got to have investors and you’ve got to have it pay.”

Capital projects covered by CON include increasing or relocating licensed beds, acquiring an existing health facility, building a new health facility, and initiating, replacing or expanding covered clinical services.

A five-member commission appointed by the governor establishes and reviews standards used to judge CON applications. The Michigan Department of Community Health administers the program, reviews projects and makes the final decision on issuing a CON. Under current standards, health care providers must obtain a CON when planning capital expenditures of $2.42 million or more for clinical services, and $3.69 million for non-clinical areas.

The six bills pending in the state Senate would remove all references to CON from Michigan’s public health code.

While the State Medical Society for years has favored the repeal of CON, the general view of hospital executives across the state is to keep it, albeit with reforms that would make the program more flexible and more functional.

“We are certainly interested in streamlining the process. Streamlining the process is something that is very important to us,” said John Mosley, corporate vice president of strategy and business development at Spectrum Health in Grand Rapids.

Despite that desire for changes in the process, Spectrum is solidly behind keeping CON intact, Mosley said.

“We are not in favor of appealing CON at the present time. We believe CON is in place to help provide cost-effective health care and it has benefits to the community,” Mosley said.

Executives at other hospitals in the area offer similar views. The association representing hospitals in Michigan even sees strong support among its members for keeping CON, although reforms are welcomed.

“At this stage in health care, it has more benefits than detractions,” said Patrick Foley, director of communications of the Michigan Health and Hospital Association. “We see the merit in it and there’s benefits to the CON process, but as with all government programs, we think that it moves too slow and is too cumbersome.”

Even the Alliance for Health’s Zwarensteyn, a staunch supporter of CON, sees a need to improve the program. He would have preferred that lawmakers had taken that route, rather than seek to eliminate the program.
“I’ll never fall on my sword for CON. There are always improvements that can be made,” he said. 

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