September 18, 2006
A necessary process? | The Certificate of Need process is a key part of the state's efforts to encourage collaboration and reduce health care costs, but no one in the industry is entirely happy with the system
By Chris Churchill
MaineGeneral Health has big plans in Waterville. The health care corporation has proposed closing one of its two facilities in the city and renovating and expanding the other into a $107 million, 268,000-square-foot, full-service hospital. But after a state panel in August recommended rejecting that project, MaineGeneral suspended its expansion plans ˆ making it the latest institution to clash with the state's Certificate of Need process.
The CON process is a state Department of Health and Human Services review of all major health care projects in the state, the primary aim being to ensure that all proposed plans are necessary and financially viable. A second aim, which is part of the Dirigo Health program, is to drive down the cost of health care by restricting the number of available health care outlets. "The goal," says Trish Riley, director of the Governor's Office of Health Policy and Finance, "is that we have all the health care we need, but not more."
The CON process, therefore, limits competition in an effort to limit costs. While that aim seems to contradict one of the fundamentals of capitalism ˆ that competition reduces cost ˆ Riley says the axiom is not applicable in this case. "Everything you learned in economics goes out the window when it comes to health care," Riley says. "In health care, supply drives demand."
Not everybody agrees with that assessment, which is why the CON process continually faces state legislative threats. Sen. Karl Turner (R-Cumberland) has previously led the charge against CON and sponsored legislation for its elimination ˆ unsuccessfully, of course. "A financial decision that a hospital or group of physicians decides to make is one that they consider carefully," Turner says. "I don't know that three bureaucrats in Augusta are in a better position to decide how they spend their money."
Yet even if no one in the health care industry is entirely happy with it, the CON process is a fact of life that's shaping business decisions for hospitals and other health care providers. For MaineGeneral's Waterville project, the Certificate of Need Unit has issued only a preliminary report on the plan, but called the project uneconomical and said it did little to improve health care for patients. That 28-page report was enough to convince MaineGeneral that its proposal, as is, was doomed, leading hospital executives to temporarily suspend the CON process and ask the state what could be done to reverse the opinion. "We've had an initial meeting with state officials," says Scott Bullock, the chief executive officer for MaineGeneral, "and they've given us feedback on their major concerns. I think it was helpful."
Maine: a CON holdout
The federal government, concerned about rapidly rising health care costs, all but mandated that states adopt Certificate of Need processes during the 1970s, tying federal money to the existence of such reviews. By 1980, every state had a CON process.
But federal policy changed during a period of deregulation in the 1980s, and the CON mandate was undone. In the time since, many states loosened CON regulations, and some did away with them entirely. In 2004, the Federal Trade Commission, bringing federal policy full circle, issued a report calling CON rules anti-competitive and urged all states to do away with the regulations.
CON critics in Maine cheered the ruling, though now they rue that the federal advice has had little effect on state policy. "Maine was unique in that not only did it keep its legislation, but sought to strengthen it," Turner says. "We have a more strict Certificate of Need process than in practically every state in the country. And we have the highest health care costs in the country ˆ so go figure."
The Manchester-based Maine Medical Association strongly wants the CON process eliminated, largely because doctor's offices face long odds in efforts to open small outpatient surgery centers that would compete with hospitals. Gordon Smith, executive vice president of the MMA, says such centers can offer significantly lower prices on minor surgeries, but doctors desiring to open such centers find it difficult to convince the state of the need. "It's not a level playing field," Smith says. "What is it about the current regulatory structure that people think is working? How much higher can we go [with health care cost]? Let's give the opposite a try. Let's try competition."
CON proponents, however, argue that competition does little to drive down health care costs, because the average health care consumer does not weigh prices before getting a procedure ˆ primarily because somebody else, whether it's an insurance company or the government, usually is paying for it. "You don't shop for health care the way you shop for shoes," Riley says. "A doctor orders a procedure and you go and get it."
If hospitals were allowed to expand and grow without regulation, Riley and others argue, costs would skyrocket, because hospitals tend to encourage patients to use equipment in which the hospitals have invested. And if doctor's offices were allowed to open surgery units, argues Scott Michaud of the Augusta-based Maine Hospital Association ˆ which supports keeping the CON process ˆ then such offices would steal profit-generating business from the state's hospitals, while leaving them responsible for money-draining procedures. The doctor's offices, for example, could open boutique-type centers that appeal to the wealthy, while leaving hospitals to serve Medicare and Medicaid patients and others they are obligated to help. The result, Michaud says, would be hospitals charging more for all procedures, ending in escalating overall health care costs.
A contentious process
Which isn't to say Michaud and the hospital association love the CON process. "We always struggle with the way it's implemented," Michaud says. "Almost always, there's frustration with the time that it takes. And probably the biggest flaw with CON and state health policy is making sure decisions are made using data and analysis. That's most often where CON falls short."
MaineGeneral's Bullock agrees, saying, "It's important that the program be properly administeredˆ If we're going to have a Certificate of Need process, we want to make sure the people who make the decisions have the resources to do the job."
Under the process, hospitals typically must file an application with the CON panel, which mostly is made up of governor's appointees. The panel then holds public hearings and ultimately advises the commissioner of the Department of Health and Human Services, who gives final approval.
Believing that the CON process is too expensive and decisions are made without strong statistical reasoning, Michaud would like to see the process streamlined and improved. The complaints, however, strike Smith as ironic. "I think the hospitals have a love-hate relationship with the Certificate of Need process," he says. "They love it when it keeps away competition. But they hate it when they go in and get slapped down."
The process also can generate animosity between hospitals. There was, for example, friction between Central Maine Medical Center in Lewiston and Maine Medical Center in Portland over the Lewiston hospital's plan for a heart surgery program, with Maine Med apparently fearing a new facility would draw patients away from its program. The Lewiston heart center nevertheless received CON approval in 2000.
Likewise, there was bitterness between two groups of hospitals over plans to construct a cancer center in York County, with York Hospital, which wanted to build the center in conjunction with Goodall Hospital in Sanford and Wentworth-Douglass Hospital of Dover, N.H., even going to court in 2003 to overturn a ruling in favor of awarding the center to Maine Med and Southern Maine Medical Center in Biddeford.
Michaud concedes that the process can engender bitterness, calling it the "downside of CON." But he says elimination of the process is hardly the answer. "It might relieve the acrimony, but it would significantly increase costs," he says. "I've yet to see a shred of data that the medical arms race that happens after deregulation doesn't raise costs."
Michaud says Maine hospitals deal with two competing and frustrating criticisms. "We're constantly hearing from the state and the business community that there are too many hospitals" in competition with one another, he says. Yet the hospitals, Michaud adds, are also told by critics that they are monopolies using the CON process and their influence in Augusta to squash competition. It sometimes seems, Michaud says, that the hospitals can't win.
Pushing competitors toward collaboration
Before MaineGeneral executives launched the currently suspended plan to build a new hospital campus in Waterville, they weighed a collaboration with Inland Hospital, also in Waterville and part of the Brewer-based Eastern Maine Healthcare Systems. The discussions focused on the organizations building a new facility together, but ultimately, MaineGeneral decided to go it alone.
The state, however, seems to want hospitals to collaborate ˆ and even merge. And Riley suggests the state would like to see the Waterville hospitals again consider working together. "We're hoping that there's still some sort of activity underway," she says. "It would be hard to justify that kind of expenditure without some kind of collaboration."
For his part, Bullock says MaineGeneral will likely look again at collaboration with Inland, despite the failure of past efforts. "I think we made every effort to work with Eastern Maine and Inland," Bullock says. "I don't have any regrets."
The state also cheered when two Lincoln County hospitals, St. Andrews Hospital and Healthcare Center in Boothbay Harbor and Miles Heath Care in Damariscotta, announced in August that they are considering a collaboration to build a new hospital along Route One. Representatives from both hospitals, however, say nothing about the CON process encouraged them to consider a merger. "There's been no pressure to collaborate," says Scott Shott, a spokesman for Miles.
"Our decision on whether this was feasible comes from the health care issues out there," agrees Peggy Pinkham, president and chief executive officer of St. Andrews, "not because of the governor or the CON process."
Pinkham also raises doubts over whether fewer hospitals is the way to go. "The perception is that if you reduce hospitals you're going to reduce costs, that fewer hospitals leads to efficiencies," she says. "But that isn't always true if you look at the literature. There are a lot of different theories out there. You have to be careful not to lump everything together."
Ironically, another criticism leveled at the CON process accuses it of approving every hospital project that comes its way. The approvals, critics say, mean that hospitals must pay and prepare for a long process that is all but perfunctory. As Turner says, "It adds a series of regulatory hoops that administrators must jump through."
But Michaud says while it's true that the CON rarely rejects hospital projects, the charge is misleading and reflects a poor understanding of the process. That's because hospitals rarely go forward with projects that seem doomed to fail, he says, especially with a CON rejection meaning a hospital must wait three years before re-submitting its plans. The MaineGeneral plans for Waterville, Michaud says, are an example of how administrators will pull back when they receive indications that their project might not receive approval.
It's not yet clear whether MaineGeneral's move will succeed, but it is clear that the CON process has hardly curtailed hospital and medical center construction in Maine. There are, for example, a number of emergency room expansions underway. (See "State of emergency," page 41.) And there are larger projects too: MaineGeneral is building a $36 million cancer center in Augusta; Maine Medical Center in Portland is in the midst of a massive upgrade to campuses in both Scarborough and Portland; and Mercy Hospital plans a new $162 million campus along the Fore River in Portland.
Michaud says that much of the construction, especially the emergency room expansions, is "resulting from surges in volume" of patients. "There's definitely a response to a very high increase in demand in the state," he says.
The CON process is a state Department of Health and Human Services review of all major health care projects in the state, the primary aim being to ensure that all proposed plans are necessary and financially viable. A second aim, which is part of the Dirigo Health program, is to drive down the cost of health care by restricting the number of available health care outlets. "The goal," says Trish Riley, director of the Governor's Office of Health Policy and Finance, "is that we have all the health care we need, but not more."
The CON process, therefore, limits competition in an effort to limit costs. While that aim seems to contradict one of the fundamentals of capitalism ˆ that competition reduces cost ˆ Riley says the axiom is not applicable in this case. "Everything you learned in economics goes out the window when it comes to health care," Riley says. "In health care, supply drives demand."
Not everybody agrees with that assessment, which is why the CON process continually faces state legislative threats. Sen. Karl Turner (R-Cumberland) has previously led the charge against CON and sponsored legislation for its elimination ˆ unsuccessfully, of course. "A financial decision that a hospital or group of physicians decides to make is one that they consider carefully," Turner says. "I don't know that three bureaucrats in Augusta are in a better position to decide how they spend their money."
Yet even if no one in the health care industry is entirely happy with it, the CON process is a fact of life that's shaping business decisions for hospitals and other health care providers. For MaineGeneral's Waterville project, the Certificate of Need Unit has issued only a preliminary report on the plan, but called the project uneconomical and said it did little to improve health care for patients. That 28-page report was enough to convince MaineGeneral that its proposal, as is, was doomed, leading hospital executives to temporarily suspend the CON process and ask the state what could be done to reverse the opinion. "We've had an initial meeting with state officials," says Scott Bullock, the chief executive officer for MaineGeneral, "and they've given us feedback on their major concerns. I think it was helpful."
Maine: a CON holdout
The federal government, concerned about rapidly rising health care costs, all but mandated that states adopt Certificate of Need processes during the 1970s, tying federal money to the existence of such reviews. By 1980, every state had a CON process.
But federal policy changed during a period of deregulation in the 1980s, and the CON mandate was undone. In the time since, many states loosened CON regulations, and some did away with them entirely. In 2004, the Federal Trade Commission, bringing federal policy full circle, issued a report calling CON rules anti-competitive and urged all states to do away with the regulations.
CON critics in Maine cheered the ruling, though now they rue that the federal advice has had little effect on state policy. "Maine was unique in that not only did it keep its legislation, but sought to strengthen it," Turner says. "We have a more strict Certificate of Need process than in practically every state in the country. And we have the highest health care costs in the country ˆ so go figure."
The Manchester-based Maine Medical Association strongly wants the CON process eliminated, largely because doctor's offices face long odds in efforts to open small outpatient surgery centers that would compete with hospitals. Gordon Smith, executive vice president of the MMA, says such centers can offer significantly lower prices on minor surgeries, but doctors desiring to open such centers find it difficult to convince the state of the need. "It's not a level playing field," Smith says. "What is it about the current regulatory structure that people think is working? How much higher can we go [with health care cost]? Let's give the opposite a try. Let's try competition."
CON proponents, however, argue that competition does little to drive down health care costs, because the average health care consumer does not weigh prices before getting a procedure ˆ primarily because somebody else, whether it's an insurance company or the government, usually is paying for it. "You don't shop for health care the way you shop for shoes," Riley says. "A doctor orders a procedure and you go and get it."
If hospitals were allowed to expand and grow without regulation, Riley and others argue, costs would skyrocket, because hospitals tend to encourage patients to use equipment in which the hospitals have invested. And if doctor's offices were allowed to open surgery units, argues Scott Michaud of the Augusta-based Maine Hospital Association ˆ which supports keeping the CON process ˆ then such offices would steal profit-generating business from the state's hospitals, while leaving them responsible for money-draining procedures. The doctor's offices, for example, could open boutique-type centers that appeal to the wealthy, while leaving hospitals to serve Medicare and Medicaid patients and others they are obligated to help. The result, Michaud says, would be hospitals charging more for all procedures, ending in escalating overall health care costs.
A contentious process
Which isn't to say Michaud and the hospital association love the CON process. "We always struggle with the way it's implemented," Michaud says. "Almost always, there's frustration with the time that it takes. And probably the biggest flaw with CON and state health policy is making sure decisions are made using data and analysis. That's most often where CON falls short."
MaineGeneral's Bullock agrees, saying, "It's important that the program be properly administeredˆ If we're going to have a Certificate of Need process, we want to make sure the people who make the decisions have the resources to do the job."
Under the process, hospitals typically must file an application with the CON panel, which mostly is made up of governor's appointees. The panel then holds public hearings and ultimately advises the commissioner of the Department of Health and Human Services, who gives final approval.
Believing that the CON process is too expensive and decisions are made without strong statistical reasoning, Michaud would like to see the process streamlined and improved. The complaints, however, strike Smith as ironic. "I think the hospitals have a love-hate relationship with the Certificate of Need process," he says. "They love it when it keeps away competition. But they hate it when they go in and get slapped down."
The process also can generate animosity between hospitals. There was, for example, friction between Central Maine Medical Center in Lewiston and Maine Medical Center in Portland over the Lewiston hospital's plan for a heart surgery program, with Maine Med apparently fearing a new facility would draw patients away from its program. The Lewiston heart center nevertheless received CON approval in 2000.
Likewise, there was bitterness between two groups of hospitals over plans to construct a cancer center in York County, with York Hospital, which wanted to build the center in conjunction with Goodall Hospital in Sanford and Wentworth-Douglass Hospital of Dover, N.H., even going to court in 2003 to overturn a ruling in favor of awarding the center to Maine Med and Southern Maine Medical Center in Biddeford.
Michaud concedes that the process can engender bitterness, calling it the "downside of CON." But he says elimination of the process is hardly the answer. "It might relieve the acrimony, but it would significantly increase costs," he says. "I've yet to see a shred of data that the medical arms race that happens after deregulation doesn't raise costs."
Michaud says Maine hospitals deal with two competing and frustrating criticisms. "We're constantly hearing from the state and the business community that there are too many hospitals" in competition with one another, he says. Yet the hospitals, Michaud adds, are also told by critics that they are monopolies using the CON process and their influence in Augusta to squash competition. It sometimes seems, Michaud says, that the hospitals can't win.
Pushing competitors toward collaboration
Before MaineGeneral executives launched the currently suspended plan to build a new hospital campus in Waterville, they weighed a collaboration with Inland Hospital, also in Waterville and part of the Brewer-based Eastern Maine Healthcare Systems. The discussions focused on the organizations building a new facility together, but ultimately, MaineGeneral decided to go it alone.
The state, however, seems to want hospitals to collaborate ˆ and even merge. And Riley suggests the state would like to see the Waterville hospitals again consider working together. "We're hoping that there's still some sort of activity underway," she says. "It would be hard to justify that kind of expenditure without some kind of collaboration."
For his part, Bullock says MaineGeneral will likely look again at collaboration with Inland, despite the failure of past efforts. "I think we made every effort to work with Eastern Maine and Inland," Bullock says. "I don't have any regrets."
The state also cheered when two Lincoln County hospitals, St. Andrews Hospital and Healthcare Center in Boothbay Harbor and Miles Heath Care in Damariscotta, announced in August that they are considering a collaboration to build a new hospital along Route One. Representatives from both hospitals, however, say nothing about the CON process encouraged them to consider a merger. "There's been no pressure to collaborate," says Scott Shott, a spokesman for Miles.
"Our decision on whether this was feasible comes from the health care issues out there," agrees Peggy Pinkham, president and chief executive officer of St. Andrews, "not because of the governor or the CON process."
Pinkham also raises doubts over whether fewer hospitals is the way to go. "The perception is that if you reduce hospitals you're going to reduce costs, that fewer hospitals leads to efficiencies," she says. "But that isn't always true if you look at the literature. There are a lot of different theories out there. You have to be careful not to lump everything together."
Ironically, another criticism leveled at the CON process accuses it of approving every hospital project that comes its way. The approvals, critics say, mean that hospitals must pay and prepare for a long process that is all but perfunctory. As Turner says, "It adds a series of regulatory hoops that administrators must jump through."
But Michaud says while it's true that the CON rarely rejects hospital projects, the charge is misleading and reflects a poor understanding of the process. That's because hospitals rarely go forward with projects that seem doomed to fail, he says, especially with a CON rejection meaning a hospital must wait three years before re-submitting its plans. The MaineGeneral plans for Waterville, Michaud says, are an example of how administrators will pull back when they receive indications that their project might not receive approval.
It's not yet clear whether MaineGeneral's move will succeed, but it is clear that the CON process has hardly curtailed hospital and medical center construction in Maine. There are, for example, a number of emergency room expansions underway. (See "State of emergency," page 41.) And there are larger projects too: MaineGeneral is building a $36 million cancer center in Augusta; Maine Medical Center in Portland is in the midst of a massive upgrade to campuses in both Scarborough and Portland; and Mercy Hospital plans a new $162 million campus along the Fore River in Portland.
Michaud says that much of the construction, especially the emergency room expansions, is "resulting from surges in volume" of patients. "There's definitely a response to a very high increase in demand in the state," he says.
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