United States: State Legislative Developments Aimed At Tackling The Problem Of Rising Health Care Costs

What happened?

The Pennsylvania House Insurance Committee held a public hearing last month to receive testimony concerning proposed legislation that would re-establish the certificate of need ("CON") process for health care providers, and prohibit physician self-referrals to health care providers in which the physician has a financial interest.

What does it mean?

If the proposed legislation is enacted, Pennsylvania would join a majority of states that have similar CON laws, which are intended to reduce health care costs by restricting capital expenditures on health care equipment and other large purchases and eliminating potentially abusive arrangements that cause over utilization of health care services. The measure is not without controversy, however, as opponents to the legislation have argued it may result in reduced access to care, and have noted the lack of evidence demonstrating that CON programs result in lower health care costs.

Pennsylvania House Bill 305¹ was introduced early in the 2007-2008 legislative session by State Rep. Phyllis Mundy (D-Luzerne). The central purpose behind H.B. 305 is to attempt to control health care costs for consumers. The vehicle by which H.B. 305 seeks to accomplish this is through the re-establishment of the Pennsylvania CON program for health care providers. Laws requiring CON approval for major capital expenditures and significant new clinical programs existed in Pennsylvania since the late 1970s as part of the Health Care Facilities Act, 40 P.S. §§ 448.101 et seq., but were left to expire in December 1996.

State CON programs typically require that health care providers seek approval from their state health departments prior to establishing and licensing a health care facility, expanding existing health care services, or embarking upon large capital expenditures to purchase health care equipment or other facility improvements. Many state CON laws were initially enacted as part of the Health Planning Resources Development Act of 1974, a federal law which required states to implement procedures for prior approval of major capital projects and equipment purchases, and allowed participating states to receive CON federal funds. In 1987, the federal mandate was repealed along with its federal funding and within 10 years, 14 states discontinued their CON programs, including Pennsylvania.

Without a CON program, Rep. Mundy asserted that "expensive high-tech equipment, physician-owned surgical facilities and other medical technology often is overused and results in the duplication of services."² Rep. Mundy has pointed out that the number of magnetic resonance imaging ("MRI") units and ambulatory surgical facilities owned by physicians in Pennsylvania have grown significantly since the expiration of the Pennsylvania CON program, and have had a substantial negative effect on the efficiency, quality and cost of health care in the Commonwealth.

The Pennsylvania Department of Health has reported that the number of physician-owned ambulatory surgical facilities has risen from 44 to more than 230 since the expiration of Pennsylvania's CON law. The medical journal Health Affairs found, in a 2003 survey, that the number of physician owned MRI units in Pennsylvania increased by 47% from 1999 to 2001. In addition, the Pennsylvania Health Care Cost Containment Council has reported that the number of MRI scans increased from 9.3 million to 13.5 million during that same time period. Rep. Mundy reasoned that when a physician buys an expensive piece of equipment such as an MRI, there is likely to be increased pressure to use it.

In addition to the CON program, H.B. 305 prohibits physicians from referring patients to any facility in which they have a financial interest.³ Rep. Mundy observed that self referring physicians order 2 to 8 times as many scans as other doctors. These self-referral provisions incorporate, in part, language from H.B. 1750, authored by State Rep. Anthony DeLuca (D-Allegheny), which was also introduced early in the 2007-2008 legislative session.⁴ Rep. Mundy believes these to be common sense methods to reduce health care costs, and feels that it is time that Pennsylvania rejoin the more than 30 states who use this process or other regulatory measures to review proposed new health facilities and/or services.

During the House Insurance Committee's September public hearing on H.B. 305, the Hospital and Health system Association of Pennsylvania ("HAP") and the Pennsylvania Medical Society ("PMS") testified largely in opposition to the bill.⁵ HAP observed that there is no evidence demonstrating that a CON program reduces or controls costs for hospitals that seek to establish new services or update existing services. HAP criticized re-establishing the CON program as an administratively cumbersome and costly process that could result in negative consequences, including stifling innovation in health care and reducing the appropriate availability of services in local communities. HAP emphasized that hospitals and health systems in Pennsylvania have worked to assure appropriate utilization of health care services, countering that the number of licensed general acute care hospitals has dropped by 18% since 1997. In addition, acute care bed capacity has declined by 10%, and patient days and length of stays in acute care hospitals have also fallen during that same time period.

Rather than resurrect the CON program, HAP urged the legislature to update the current health care facility licensing process by, among other things, broadening it to include licensure of new types of facilities such as freestanding imaging centers. Concerning physician self-referrals, HAP testified in support of the premise that referrals should be made in the best clinical interests of patients, but cautioned against a blanket prohibition on physician self-referrals. Given the complexity of the different types of physician arrangements, HAP emphasized that the standards for self-referral should be clear at the federal and state levels, and should provide for permissible self-referral arrangements so that patients' best clinical interests are met.

The PMS testified that the better approach to controlling costs is to continue to monitor and adhere to proper utilization standards. The PMS warned that a CON program could pose a significant threat to the proper performance of health care markets. Citing testimony from an antitrust lawyer at the U.S. Department of Justice, the PMS observed that CON laws "do not provide an economic justification for depriving consumers of the benefits of free markets." The PMS also warned against the negative effects that could result from the self-referral provisions of H.B. 305, as currently drafted. Without any exceptions for permissible self-referrals, PMS noted that patients could be forced to unnecessarily switch doctors or travel long distances to seek treatment, when the most appropriate care may exist in his or her own community. Such an outcome would harm consumers, as access to care would be reduced and treatment delayed, resulting in increased health care costs.

Though it remains to be seen whether H.B. 305 or some form thereof, survives this legislative session, these proposals are far from a panacea for all of the complex problems that exist in our health care system. Understandably, legislators are under immense pressure to take action to control health care costs for consumers. However, health care reforms need to be effective and properly designed to achieve their intended results, or the outcomes may result in unintended consequences and cause the system to be worse off than before.

Footnotes

1 A copy of H.B. 305 can be accessed at the following web link: http://www.legis.state.pa.us/cfdocs/billinfo/billinfo.cfm?syear=2007&sind=0&body=H&type=B&BN=0305 .

2 A copy of Rep. Mundy's testimony can be accessed at the following weblink: http://pahouse.com/PR/120090408A1.asp .

3 Under current Pennsylvania law, physicians (and other practitioners of the healing arts) are required to disclose to patients any referral to a facility where the physician has a financial interest, and must advise the patient that he or she retains the freedom to choose among any recommended facilities. See 35 P.S. §§ 449.21 – 449.23.

4 A copy of H.B. 1750 can be accessed at the following weblink: http://www.legis.state.pa.us/cfdocs/billinfo/billinfo.cfm?syear=2007&sind=0&body=H&type=B&BN=1750 .

5 A copy of HAP's testimony can be accessed at the following web link: http://www.haponline.org/communications/position/Testimony/details/PJ5LLChSHS8L52dTgNGM .

A copy of PMS's testimony can be accessed at the following weblink: http://www.pamedsoc.org/MainMenuCategories/Resources/MediaResources/StatementsTestimonyInterviews/CertificateofNeed.aspx .

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