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Should Delaware repeal Certificate of Need laws? Caesar Rodney Institute kicks off debate

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The Free Market-leaning Caesar Rodney Institute has launched a campaign to convince state lawmakers to repeal Delaware’s Certificate of Need (CON) laws governing approval of new healthcare facilities, expansion of existing facilities, and even purchase of new equipment.

“The health care market is dynamic and has changed significantly, especially over the last decade,” said State Rep. Steve Smyk. “Given those changing conditions, I think there is merit in reviewing our Certificate of Public Review program to see if it still serves the public and whether revisions need to be considered.”

Working with the Mercatus Center of George Mason University, CRI says the actions of the Delaware Health Resources Board (DHRB) don’t accomplish the goals of reducing spending, expanding access to services, and improving quality ““ three areas they say have bipartisan consensus in Congress and elsewhere. The system has instead, they say, created monopolies in New Castle and Kent counties for Christiana Care and Bayhealth, respectively and established what amounts to a “competitor’s veto” of new market entrants.

“This is an important topic for business owners who buy health insurance for their employees,” says John Toedtman from the Caesar Rodney Institute. “Their premiums are directly tied to health-care costs and this initiative could positively impact their costs.”

‘Permission slips’

Mercatus likens CON laws to permission slips to compete in a state’s healthcare market, requiring applicants to prove that the community needs the new or expanded service. But Senior Research Fellow Matt Mitchell, who authored a 2017 study highlighting 30+ years of data comparing outcomes between the 36 states with CON laws to the 14 states that rescinded them after Congress repealed the 1974 federal law in 1986. Mitchell says six other states besides Delaware are having active discussions about repealing the law and that many other states have eased CON regulations and raised thresholds for what needs to be reviewed.

“CON programs are a remnant of an era in which it was thought that central regulatory planning could yield better outcomes by restricting the supply of services valued by consumers,” Mitchell says. “The justifications for these programs are compelling when they are taken at face value, but a review of the literature finds that CON regulations fail to achieve their worthy goals.”

“Mercatus says DE healthcare expenditures would be reduced by $270 million,” says CRI Chairman John Stapleford, who is also director of its Center for Economic Policy and Analysis. “The simple idea is that increased competition reduces prices, increases supply (access), and forces providers to up their game on quality. Markets work.”

“CON is incredibly complex and sits on a market that is anything but free,” said Wayne Smith, president and CEO of the Delaware Healthcare Association. “In health care, payment is divorced from consumers because of the third-party payment system that’s existed since World War II. This causes incredible market distortion.”

Representatives from Christiana Care Health System and Bayhealth deferred comment to Smith, who argues that insurers pay the bulk of most hospital bills and consumers are only exposed to out-of-pocket expenses.

He says CON was first advanced to deal with a highly regulated market where pricing doesn’t provide the resource allocation feedback that exists in other markets like the grocery business.

“We are very open to discussing CON in contemplating ways to protect the public and ensure adequate resource allocation decision making in this very imperfect market,” Smith said.

The DHRB Certificate of Public Review (CPR) program was created to regulate the number of beds in hospitals and nursing homes and essentially prevent excessive purchasing of expensive equipment. The board now falls under the Delaware Health Care Commission. The current board is comprised of health-care professionals, government leaders and administrators, and members of the public.

A forming consensus

There does seem to be general agreement that the HCRB could be improved. Both Smith and Beebe Chief Strategy Officer Alex Sydnor agree that there are problems getting enough members to meetings (three of five 2019 meetings have been cancelled-and there are at least five open slots on the board) and that it could use additional funding to hire more full-time professional staff analysts who are capable of supporting the decision-making process.

While there are DHRB members associated with some of the hospital systems ““ Bayhealth’s former CEO and a current doctor in the system are both members ““ Smith and Sydnor both say that the current recusal process works well and reduces the chance that a hospital will protect its own market position.

The strongest data indicates that access is harmed in states with CON laws still in place,” says Mitchell, pointing to per capita data showing “fewer hospital beds, fewer dialysis clinics, greater travel distances to hospitals (particularly in rural areas), and greater racial disparities in the provision of care.”

“What’s the problem (that CRI is) trying to solve for here,” Sydnor asks. “We need to focus more attention on ensuring payments are tied to the value of care, on reducing costs, and on achieving quality outcomes. Payment reform will bring great value to healthcare consumers but that’s not without risk to providers.”

And it’s important to note that on the quality issue, U.S. News and World Report ranked Delaware first in the nation for the quality of its nine hospitals this year.

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