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Alaska Legislature

Legislators revive bills to abolish certificate of need program for health care facilities

Two legislators are again seeking to end the state’s health care certificate of need program.

Identical bills filled prefiled for the 2019 legislative session by Rep. George Rauscher, R-Wasilla, and Sen. David Wilson, R-Wasilla, would abolish the program. It’s at least the third year in a row the Legislature will have considered a bill that would do so.

The certificate of need, or CON, program sets up a protocol for hospitals, nursing homes and other health care facilities seeking to expand the services they offer. In order to build a new expansion costing more than $1.55 million, facility administrators must document and demonstrate a need for the added service capacity in the community to the state.

Alaska is one of 35 states that have a certificate of need program; since the federal requirement for the programs was repealed in 1987, a number of states have scrapped them, according to the National Conference on State Legislatures.

Those opposing the program say that it unnecessarily restricts health care facilities from developing new services and competition that could drive down prices.

Small communities may not be able to open a full-service hospital or nursing home, for example, because the population is not large enough to pay for it and it does not meet the certificate of need requirements.

In other cases, independent ambulatory surgery centers are not able to open and compete with hospitals because the hospital already provides that service.

During committee discussions in the legislature in 2017, the federal government offered support for the repeal of the program in Alaska. The Federal Trade Commission and the U.S. Department of Justice submitted a joint letter in response to a request from Wilson detailing problems with the certificate of need program and stating that it may be limiting competition.

“CON laws raise considerable competitive concerns and generally do not appear to have achieved their intended benefits for health care consumers,” the FTC and DOJ wrote in their letter. “For these reasons, the Agencies historically have suggested that states consider repeal or retrenchment of their CON laws. We respectfully suggest that Alaska repeal its CON laws.”

Federal agencies have been working on ways to implement better competition in the health care industry after President Donald Trump issued an executive order in October 2017 to facilitate choice and competition in the health care industry. The U.S. Department of Health and Human Services identified the repeal of certificate of need laws as a priority in an update to the president.

The hospital and nursing home industry largely opposes repealing the program. The Alaska State Hospital and Nursing Home Association testified against the bill in previous committee hearings and, in response, convened a workgroup last summer to outline suggested changes to the bill. Though the stakeholders see room for improvement in the program, a full repeal is overly simplistic, said Jeannie Monk, senior vice president of ASHNHA.

“The people who want to repeal it think that we need to repeal it and just let the free market take over, and then prices will go down,” she said. “Based on what we’ve seen, we just don’t think that health care in Alaska is a typical free market system.”

The competition argument doesn’t hold a lot of water for the industry, Monk said. Health care doesn’t behave like a typical capitalist market — when a new service is installed at a facility, it often just results in more people receiving that service rather than a price decrease, she said.

Alaska also has the limiting factor of being an isolated state; unlike in the Lower 48, where people can cross state lines to visit competing hospitals in a neighboring state, Alaska is not a hotspot for medical tourism and has a relatively small population.

“It’s not like you put in a new hospital and you can draw more people to use it,” she said. “(In Alaska) you’re either here or you’re not.”

Hospitals have a disadvantage in competing against standalone facilities like independent ambulatory surgery centers; they are obligated to provide some services, like 24-hour emergency center care, regardless of the patient’s ability to pay.

Hospitals rebalance that with a mix of insurance payers and across services. Private organizations, which do not have the same service obligations, would not have to take patients on Medicaid or Medicare, which have a lower reimbursement rate and are less profitable, Monk said.

“(Hospitals) come with significant fixed costs,” she said. “Basically, without CON, health care providers can open up facilities that compete on the profitable services but not the unprofitable ones.”

The workgroup convened by ASHNHA developed a series of recommendations for changes to the certificate of need program, all of which could bypass the Legislature and be done through regulation change.

Many of those changes are technical, including how the net present value of a lease is calculated or how a “community” is defined. The suggested changes were sent to the state in June 2018; however, they didn’t get through the department before the transition in administrations in November, Monk said.

Rauscher’s and Wilson’s offices could not be reached for comment. The two bills have not yet been scheduled for committee hearings.

Elizabeth Earl can be reached at elizabethearl@gmail.com.

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