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50-State Scan Shows Diversity of State Certificate-of-Need Laws

As states respond to the need for increased hospital bed capacity due to COVID-19, governors and legislatures in 22 states have waived certificate-of-need (CON) requirements – streamlining the process for hospitals to add bed capacity. These waivers have focused attention on decades-old CON laws and their utility in a changing health care landscape. The National Academy for State Health Policy’s (NASHP) 50-state scan of CON laws shows which facilities are subject to CON, the range of activities that trigger a CON review, and the information considered during review.

Background

Faced with rising health care costs, inadequate health resource distribution, and inequitable access to care in many regions, Congress enacted the National Health Planning and Resources Development Act in 1974. At the time, Congress had documented that previous infusions of federal funds to the existing health care system had contributed to inflating costs while failing to provide an adequate supply or distribution of resources. The law amended the Public Health Service Act (PHSA) and created national, state, and area-wide health planning councils.

It required each governor to designate a “State Health Planning and Development Agency” to design a state health plan and administer certificate-of-need programs. The law created annual grants to the state agencies to cover up to 75 percent of their annual costs. In order for a state to receive this additional funding as well as any funding under the PHSA, it needed to comply with the new law and establish a CON program by 1979. At that time, many states already had CON programs in place either through state laws or Medicaid Section 1122 waivers. Federal funding for state CON programs began to decrease in the early 1980s before the federal CON mandate was eventually repealed in 1987. Despite the repeal, 35 state CON programs remain in place today and many state programs still rely on entities, such as statewide health planning councils or state health plans first initiated under in the federal 1974 law.

A CON is a regulatory tool primarily designed to control the number of health care resources in a given area. At its core, it requires a hospital or health system to obtain approval from the state before establishing or expanding a health care facility or service by demonstrating a need for it. Historically, the theory behind CON was that by managing the volume of health care resources available in a region, policymakers would be able to mitigate overuse of health care services and thereby contain health care costs for patients, payers, and providers. Critics of CON argue that it creates more barriers to entry for new facilities leading to greater consolidation and higher health care costs. Some also argue that “regulatory capture” has led the industry to steer the CON review process – meaning that CON agencies may reflect the interests of large health systems that are able to use the process to keep out potentially more affordable options. Evidence suggests that the effectiveness of CON programs to limit consolidation and contain rising health care costs largely depends on how a state program is designed and implemented.

State CON Programs by the Numbers

States with operating CON programs: 35

State CON laws that govern hospitals: 28

States that waived CON requirements during COVID-19: 22

State CON programs that require review when services are eliminated or substantially changed: 9

State CON programs that require review when ownership of a facility or large practice is transferred: 13

Range of capital expenditure thresholds triggering CON reviews: $1 to $10 million

CON laws differ across states but are generally organized around the following common domains, as detailed in NASHP’s 50-state scan:

  • The types of health care facilities governed by CON requirements;
  • Activities that trigger CON review;
  • The agency or board that reviews and approves applications; and
  • The information considered during state CON review.

Facility Types Governed by CON

Individual state laws determine which types of entities are subject to a CON application and review process, for example, 28 of the 35 states with CON programs require general hospitals, among other facilities, to comply with CON requirements. Six states focus exclusively on long-term care facilities and one addresses the establishment of new facilities in rural areas.

While the majority of state laws specify the types of facilities governed by CON, a few states’ statutes apply to all health care facilities except those specifically exempted. This is the case in Connecticut, Kentucky, and New Jersey.

Activities that Trigger CON Review

The most common activities that trigger a CON review include:

  • Establishment of a new health care facility (34 states)
  • Change in bed capacity (27 states)
  • Capital expenditure greater than the minimum cost threshold (20 states)
  • Addition of services (24 states)
  • Acquisition of major medical equipment (16 states)
  • Conversion of beds/change in bed complement (15 states)
  • Relocation of beds or facilities (15 states)
  • Transfer of ownership of facility or large practice (13 states)
  • Expanding hospice, nursing home, or home health agency services (12 states)
  • Termination or substantial change in approved services (9 states)

State Entities that Review Applications: The agency or entity that reviews CON applications also varies across states. In 20 states, applications are reviewed by the Department of Health or another state health planning agency, while in 15 states the CON approval process is conducted by an independent board or council appointed by the governor or legislature. For example, in New York, the Public Health and Health Planning Council – comprised of 25 members representing state health officials, general hospitals, payers, health care workers, and consumers – reviews CON proposals.

Information Considered during State CON Review: Common information considered in review of CON applications includes:

  • Whether the proposal demonstrates need in the community;
  • Availability of alternative services that may be as effective and less costly;
  • Availability of resources to sustain a proposed project;
  • Relationship between a proposed project and a state health service plan or public health planning process;
  • Immediate and long-term financial feasibility of a project;
  • Applicants’ competence or experience in providing health care services; and
  • Special considerations for critical populations, such as rural, elderly, low-income populations.

Cost and Health Planning

Some state CON programs consider how a new facility or new services would impact overall health care costs in the state. For example, when reviewing a CON application, Connecticut’s Health Systems Planning Unit must consider, among other things, how a proposed project will impact the financial strength of the health care system and improve cost-effectiveness of health care delivery.

In some states, CON programs are considered part of a broader health planning process, rather than solely a mechanism to review community need for health system expansion. At least nine states’ CON programs reside in a planning and development-focused agency rather than an office more directly focused on facility licensure. For example, Hawaii’s CON program sits in the State Health Planning and Development Agency and applications are reviewed by three different bodies – a CON review panel, local councils, and a statewide coordinating council. CON applications are assessed for their proposed cost impact as well as their relationship to the state health services and facilities plan, among other factors. Similarly, Delaware’s Certificate of Public-Review-Process is closely tied with the state’s overall health planning efforts to ensure each resident has geographic and economic access to health care facilities. The program is guided by the state’s Triple Aim Plus One: Better Health Outcomes, improved health care quality and patient experience, and lower growth in per capita health care costs, and enhanced provider satisfaction.

As states work to balance health care cost containment with patient access to care in the wake of COVID-19, policymakers may seek to re-invest or re-envision health planning considering recent lessons learned from the pandemic, while in a new challenging economic environment. Are existing oversight tools, such as CON laws, effective in controlling costs? NASHP’s Center for Health System Costs is examining CON laws in more detail and reporting on their future as states consider whether and how to leverage or adapt the CON infrastructure to address health system cost and capacity needs.

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