Intent and Structure of CON
The basic assumption underlying CON regulation is that excess health care facility capacity results in health care price inflation. Price inflation can occur when a hospital cannot fill its beds and fixed costs must be met through higher charges for the beds that are used. Larger institutions generally have larger costs, so hospitals and other health facilities may raise prices in order to pay for new, underused medical services or empty beds. CON programs require a health care facility to seek a health planning agency’s approval based on a set of criteria and community need. Once a health facility has applied for state approval, the health planning agency may approve, deny or set certain limitations on a health care project.
While the effectiveness of CON programs continues to be a heavily debated topic, many states consider CON programs as one way to control health care costs and increase access to care. Below is a list of both arguments in favor and against CON laws.
Arguments In Favor and Against CON Laws
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Opponents of CON Laws Argue: |
- Health care cannot be considered as a “typical” economic product. Most health services (like lab tests) are ordered by physicians, not patients. Patients do not shop around as they do for other goods and services.
- CON programs limit health care spending.
- CON programs help distribute care to disadvantaged populations or geographic areas that new and existing medical centers may not serve. Removal of CON will favor for-profit hospitals which may be less willing to provide indigent care.
- Removal of CON will lead to a proliferation of “low-volume” facilities, which some view as providing lower quality care.
- CON requirements do not block change, they mainly provide for an evaluation, and often include public or stakeholder input.
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- By restricting new construction, CON programs may reduce price competition between facilities and keep prices high.
- Some changes in the Medicare payment system (such as paying hospitals according to Diagnostic Related Groups – “DRGs”) may make external regulatory controls unnecessary by sensitizing health care organizations to market pressures.
- CON programs vary state to state, with inconsistent metrics and management.
- CON programs allow for political influence in deciding whether facilities will be built, which can invite manipulation and abuse.
- Some evidence suggests that lack of competition encourages construction and additional spending.
- Identifying the “best interests” of a community isn’t always clear; decisions ostensibly made for the greater good could have unintended consequences in the long-term, particularly in an unsteady economy or, for example, in a rapidly-gentrifying community.
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History
New York was the first state to enact a CON law in 1964; 26 states enacted CON laws throughout the following decade. Early CON programs typically regulated capital expenditures greater than $100,000, facilities expanding their bed capacity and facilities establishing or expanding health care services.
In 1972, several states adopted Section 1122 waivers, which provided federal funding to states regulating new health care services receiving Medicare and Medicaid dollars. Congress then passed the National Health Planning and Resources Development Act of 1974 bolstering federal funding for state and local health planning regulations. The federal law required states to adopt CON laws similar to the federal model resulting in all states, except Louisiana, maintaining some form of a CON program by 1982. This meant states had broad regulatory oversight of several facilities—including hospitals, nursing and intermediate care facilities and ambulatory surgery centers—as well as the expansion or development of a facility’s service capacity.
The federal mandate was repealed in 1987, along with the associated federal funding. Subsequently, several states repealed or modified their CON laws.
State Legislative Actions
In the past several years, many states have introduced or enacted legislation to change their CON program. Changes range from fully repealing an existing CON program to creating a new CON program. The following are state examples of legislative actions impacting CON programs:
- 35 states currently maintain some form of CON program. Puerto Rico, the US Virgin Islands and the District of Columbia also have CON programs. States retaining CON laws often regulate outpatient facilities and long-term care. This is largely due to an increase in free-standing, physician-owned facilities.
- At least 10 states—Florida, Georgia, Illinois, Maryland, Ohio, Rhode Island, Tennessee, Vermont, Virginia and Washington—enacted legislation in 2019 to modify CON oversight for certain health facilities and services.
- Three states—Arizona, Minnesota and Wisconsin—do not officially operate a CON program, but they maintain several approval processes that function similarly to CON.
- 12 states fully repealed their CON laws. New Hampshire was the most recent repeal, effective 2016.