CON: A Failed Health Care Diet

Does limiting the supply of health care in NH keep down costs? That's what the Granite State has been trying to do for the last 30 years, without much success. Now the Legislature is considering a bill to abolish the state panel that decides when and if NH hospitals can expand, leaving hospitals to decide for themselves.

The first Certificate of Need Board (CON) was adopted in New York State in 1964 and required government approval for hospital and nursing home construction. The federal government required each state to set up similar panels in 1974 and NH set up its CON Board, officially called the Health Services Planning Review Board, in 1979 to approve new construction and additions.

The argument for CONs is that having too many hospitals and nursing homes drives up overall health care costs, so government should first determine whether a new facility is needed. But that's not what has happened.

The CON requirement and the supporting federal funds were repealed in 1987. Since then, 14 states have repealed their CON laws, and health care costs in those states haven't risen any faster than in the rest of the country. In fact, a 1991 study of nearly 2,000 acute care hospitals found that costs were higher in states with CON boards. That's because limiting supply doesn't save money; it reduces competition and drives up prices.

The CONs

The cost of the CON process can easily run into the hundreds of thousands of dollars for major projects. And there are also administrative headaches. In Connecticut, one hospital had to submit more than 3,100 pages to justify buying an MRI machine. It took another hospital more than a year to get a new phone system approved.

And then there's the politics. Former Illinois Governor Rod Blagojevich (now in federal prison on corruption charges) turned his state's CON panel into an ATM, promising approval in exchange for payments to himself, his co-conspirators and his campaign.

Despite those headaches, NH hospitals support the board. They have 30 years' experience navigating the regulatory obstacle course, while potential competitors must start from scratch. The legal hurdles, including the time and expense of filling out NH's 23-page application, increase the true costs of entering NH's health care marketplace.

GraniteCON

New Hampshire's CON panel is dominated by incumbent health care providers. Of its 10 members, one comes from the NH Department of Health and Human Services, five represent hospitals, health care providers, and county nursing homes, and four are consumers. But three of those consumer seats are currently vacant, leaving five of the seven votes with a vested interest in preventing new competition.

Not surprisingly, the CON Board hasn't done much to limit the growth of NH's hospitals. Over the last five years, all but one application was approved. Of the 33 projects submitted, 28 were approved, two were withdrawn, and three are under review. One of the two withdrawn applications was later resubmitted and approved. More than half were for acute care expansions at current hospitals.

State bureaucracies are not in a great position to judge what consumers need. And they are especially ill-equipped to imagine the next generation of medical and technological breakthroughs that could deliver better health outcomes at lower costs. For years, the CON Board stood in the way of Ambulatory Surgical Centers coming to NH. Now, those centers have a seat on the Board.

Steve Jobs made a fortune by ignoring what customers said they needed. The iPod, iPhone, and iPad didn't fill any existing need. They created new demand, delivered tremendous benefits and forced innovation from competitors. Now imagine Jobs first needing to prove to a government panel that his gadgets were needed. And imagine that Microsoft, Google, and Blackberry all had votes.

The House has passed both a complete repeal of the Certificate of Need process and a bill exempting specialty hospitals from CON and the Medicaid Enhancement Tax, hoping to attract Cancer Treatment Centers of America. Both bills are now in the Senate.

Grant Bosse is lead investigator for the Josiah Bartlett Center for Public Policy, a free-market think tank based in Concord. He can be reached at Grant Bosse at JBartlett dot org.