Triad hospitals are in a high stakes battle over Certificate of Need — but what is it?

Earlier this month, the North Carolina Department of Health and Human Services gave its conditional approval to Atrium Health Wake Forest Baptist’s quarter-billion-dollar plan for a new hospital in Greensboro. Atrium says their new hospital proposal is meant to help people get health care close to home. Competing health care provider Cone Health has appealed the decision, claiming that the plan is all about profits. 

The ongoing litigation is centered around a complicated law called Certificate of Need (CON). University of North Carolina at Chapel Hill’s Arch T. Allen Distinguished Professor of law Richard Saver spoke with WFDD's David Ford.

What is CON and what is it supposed to accomplish?

CON is intended to hold down medical costs by getting rid of unnecessary duplication of health facilities. Saver says it was also established to improve access to care by preventing hospital competitors from setting up shop only in areas with lots of paying patients while creating hospital deserts — areas with little or no access to hospitals, pharmacies, and other health care providers — in lower-income areas.

"CON law requires an applicant to demonstrate that there's a need for the service or facility," says Saver. "It's a little counterintuitive because you normally think if the health care provider can show they're going to offer something that's a good quality, that's enough. But under CON laws, even high quality services and facilities can be denied if the state regulators determined that there's just not a need for that additional bed or piece of equipment or service in that geographic area." CON proponents say more master planning and stakeholder input will de-escalate the medical arms race, lower costs and increase access.

What exactly is a "medical arms race" and what's fueling it? 

When you introduce, for example, a new hospital to the community, you have an institution that has sunk millions of dollars into having built the facility and they’ve filled it with state-of-the-art medical technologies. They have to recoup that investment somehow. So, first, they come up with incentives to try to attract new patients and referrals to these facilities. Then hospitals may try to provide services to the patient while hospitalized that are wasteful, or unnecessary, or use expensive equipment to get high reimbursement. And all that is to recover the sunk capital costs of having built these new facilities, these new beds, these new services. It's kind of like, "If you build it, you're hoping they're going to come." And if they don't come, you're in trouble.

Another thing fueling the medical arms race is the need for consolidation. Big health care providers want to have integrated delivery systems. That means they need a full spectrum of services in a community from hospitals to nursing homes to rehabilitation facilities. It allows them to contract with the big insurers and major federal programs to survive. But that also means that some of the large health systems — in their aggressive efforts to build up a full suite of care — are butting heads with each other. That’s exactly what’s happening in the Triangle between UNC and Duke health systems, and in the Triad between Cone Health and Atrium Health Wake Forest Baptist.

Why don’t basic supply and demand pressures lower medical costs to consumers?

The health care market operates differently from other markets with doctors — not consumers — deciding which tests or pieces of medical equipment will be used. There is less of an incentive for patients to shop around and more of an incentive for the facility and equipment providers to build up and offer the latest new thing or new bed or new service to attract referring physicians. The attempts to attract the referral of physicians in the community can lead to duplication of services, unnecessary cost increases of services, and also deployment of services in concentrated areas in a state where other areas of the state may be experiencing severe access problems and are under-resourced.

What do opponents of CON say?

They say CON law, and the idea that limiting the number of suppliers of a particular service or piece of equipment in a community actually lowers cost, is completely counterintuitive and does not work. They point out that we don't require a Certificate of Need for other big-ticket items like shopping centers or bowling alleys or things like that. They're just built and the market decides what's an efficient allocation of those services. But the health care market is extremely complicated. And competition may not work in that market like it does in other markets.

What exactly is going on between Atrium Health Wake Forest Baptist and Cone Health and how is it likely to play out?

It’s an ongoing legal dispute playing out after one side was granted a CON even after it was loudly objected to by the competition. Atrium argues its decision to build in Greensboro is about providing increased access to care, and Cone says it’s all about profits. There are many stakeholders: multi-million-dollar health systems trying to expand in their market, a $246 million hospital construction, and lots of political pressure going on behind the scenes. For now, Atrium’s application has received conditional approval — a positive development for Atrium — and Cone has appealed. But within the minutiae of the state CON plan, there is some wiggle room. Do you account for projected population growth in the Triad? Will retirees flock to the area? And if they do, how will you meet their needs?

According to Saver, all of these concerns and more might be raised by Cone, but the legal battle will likely center around the necessity for service and additional hospital beds in the area.

"The person who already got the CON at the first level, that is a comfortable position to be in," he says. "At this point it’s going to be up to the challengers — as this goes through additional levels of appeal — to show that that initial decision was flawed and there will be some deference by the higher levels of review, and the review in courts to defer to the initial decision that granted the CON."

He says usually that decision is upheld on additional levels of review. But there has been a successful challenge that went up all the way to a state supreme court eventually overturning the initial grant.