Missouri Debates Future of Certificate-of-Need

Published July 1, 2001

At the end of 2001, some elements of Missouri’s Certificate-of-Need (CON) law are set to expire. The looming deadline has opened debate in the state about the continuing need for the program, which first went into effect more than 20 years ago.

Effective January 1, 2002, several types of medical services–including acute, rehab, psychiatric, or other hospitals (except long-term acute care), freestanding hemodialysis units, and ambulatory surgery centers–would no longer require review under CON. Unchanged by the sunset, CON will continue to review such facilities and equipment as nursing homes and residential care facilities, long-term care beds in acute care hospitals; new hospitals; and major medical equipment costing $1 million or more.

The purpose of the CON statute, according to its “purpose and structure” provision, “is cost containment through health cost management, assurance of community need and the prevention of unnecessary duplication of health care services. CON is based on a goal of public accountability through public review of proposed health care services, value promotion and negotiation among competing interests.”

Tom Holloway, director of government relations for the Missouri State Medical Association, told the Kansas City Business Journal, “the Certificate of Need program has outlived its usefulness. It doesn’t do anything but stifle competition and innovation. It’s extremely bureaucratic, and no one relishes having to go through it. It’s the people who have existing projects who want it to continue. It helps them keep competition out of their back yard.”

Border Conflicts

In the Kansas City area, the debate over renewing the CON law has pitted Saint Luke’s-Shawnee Mission Health System against Health Midwest. Repealing the CON program would give Saint Luke’s the freedom to expand in Eastern Jackson County, meaning increased competition for Health Midwest.

“For the benefit of the community and to ensure there’s a fair and equal playing field for all, CON is in our best interest,” Barry Seward, a senior vice president for Health Midwest, told the Business Journal. “We should be able to demonstrate to our communities and the state regulatory body that there is a need for a particular program.”

Sen. Marvin Singleton (R-Seneca) disagrees, believing the environment fostered by the CON program is more detrimental than deregulation would be. Singleton, a practicing physician, served on the Health Facilities Review Committee, which oversees the CON program, in the early 1990s.

The problem with CON, according to Singleton, “is that it’s not based on need but on marketing.” Singleton said members of the committee often bowed to political pressure from lawmakers and campaign contributors when voting on CON requests. The end result, he said, has been a disproportionate allocation of resources in certain parts of the state and the protection of monopolies.

“I’m ready to say enough’s enough,” Singleton said. “What we have right now is unworkable, expensive, and guarantees a monopoly for often inefficient, poor operators of health care facilities.”

Kansas City has encountered especially thorny CON-related conflicts because it straddles the Kansas-Missouri state line. In documented cases, health care providers have opted to locate centers on the Kansas side because the state has no CON program. Johnson County, Kansas has become a hotbed of health care activity, boasting several new hospital and ambulatory care centers.

Dr. Charles Rhoades, CEO of the Kansas City Orthopedic Institute, a free-standing surgical center in southern Johnson County, Kansas never considered building in Missouri because of CON. John Hennessy, executive director of Oncology & Hematology Associates, the largest oncology practice in the Kansas City metropolitan area, said his group launched its effort to build outpatient cancer care centers on the Kansas side of the metro area because of CON restrictions.

Eliminating Competition

CON laws were aggressively adopted by states across the country in the 1970s, in an effort to encourage consolidation of small and presumably inefficient hospitals and reduce expensive duplication of medical services. Since then, empirical research has concluded the laws were effective in slowing the growth in the number of hospital beds in a community. But that restriction on supply did not have the desired effect on health care costs.

Writing in Why We Spend Too Much on Health Care, authors Joseph L. Bast, Stuart A. Wesbury, and Richard C. Rue, explain: “Hospitals use CON laws to prevent rivals, including lower-cost out-patient surgical clinics, from entering their markets; and hospital operating costs increase due to the failure to make more efficient investments in capital.”

“Restrictions may sound good in theory,” writes Professor James Henderson in Health Economics and Policy, “but one of the unintended consequences of any limits placed on a market is the elimination of competition. Reduced competition leads to market power and market power leads to market failure.”

In response to the unintended consequences inherent with CON law, many states have eliminated or revised the way they are enforced. Tennessee, Kentucky, and Georgia have retained their CON programs, but revised them to lessen their impact on nonprofit and university hospitals.

Nearly a dozen states, including Arizona, California, Colorado, Pennsylvania, and Texas, have completely repealed their CON programs. Kansas repealed its CON law in 1985 . . . one good reason for neighboring Missouri to consider doing the same.

For more information . . .

on Missouri’s Certificate of Need program, visit the plan’s Web site at http://www.health.state.mo.us/CON/Title.html. For additional information on CON, use PolicyBot, The Heartland Institute’s free online research service. Go to www.heartland.org and click on the PolicyBot icon, then search on keywords “certificate of need.”