Certificate of Need and the Price Paid for Inpatient Services for Privately Insured Patients

William S. Custer, Ph.D., Robinson College of BusinessPatricia Ketsche, Ph.D., Robinson College of BusinessMei Zhou, MS, Georgia Health Policy CenterDawuud Ujamaa, MS, Georgia Health Policy Center

This research was supported by funding from the Department of Community Health and the Georgia Commission on the Efficacy of the

Certificate of Need Program.

Why study CON……AGAIN?

Extensive literature that indicates that CON affects markets but has little or no effect on hospital costs and does not slow health care cost inflation: Salkever and Bice (1976, 1979) Sloan and Steinwald (1980); Sloan (1981) Joskow (1981) Farley and Kelly (1985) Sherman (1988) Conover and Sloan (1998)

Evidence Is Not Widely Accepted

States with recent / current CON study groups or commissions

Georgia Maryland Michigan Missouri North Carolina Illinois Washington

Commissions presented with non-peer reviewed studies suggesting that CON controls / reduces cost Often commissioned by

hospitals and hospital associations

Policymakers weigh prior peer reviewed studies equally with consultant reports and anecdotal evidence

Georgia Commission Asked:

Does CON restrict the supply of services? Does CON affect consumer costs? Does CON affect the quality of health care

services? Does CON affect hospitals’ abilities to

provide care to the uninsured?

Research Methods

Compared Georgia to 10 other states with varying degrees of CON rigor. Surveyed states and found 3 non-CON states 4 states with less rigorous CON programs 3 states with comparable CON programs

Used hospital discharge data to define markets using patient flows

Market Structure

Hospital Competitiveness - HHI Most markets above FTC guidelines for

competitive markets Markets in general have become less competitive No association between change in

competitiveness and CON Tier 2 CON states are significantly associated

with less competitive markets

Data / Methods Study of prices paid by private patients

If there are economies of scale/ scope, CON could lower production costs

If CON restricts competition incumbent providers could raise prices to private payers Assume public payments are unrelated to CON

MedStat private inpatient claims data for 2 years

Estimated reduce form price equation (fixed effects)

Findings CON is associated with higher inpatient

prices for privately insured patients The effect is robust with respect to:

Diagnosis and procedure Specification of CON as binary or ranked by rigor

Effect of CON on inpatient costs is smaller in rural areas

The number of Ambulatory Surgery Centers per capita is associated with higher utilization rates and higher inpatient prices

Other Findings

CON has no measurable effect of hospital quality

CON has no measurable effect on access for the uninsured However, in CON markets the ambulatory care

sensitive (ACS) admissions for the uninsured were higher

Implications of the Findings

If CON reduces production costs, privately insured consumers do not benefit

CON could reduce the need to explicitly subsidize providers through taxes and provider payments CON and Medicaid reimbursement may not be

independent

Arguments Made by Stakeholders

Argument 1: Hospitals require CON to ensure access We do not see higher admission rates per

uninsured We do not see evidence of improved primary care

access for the uninsured Argument 2: Hospitals require CON to

ensure quality We see no association between quality outcomes

and CON

Conclusion

Additional (recent) peer reviewed research is needed to inform the ongoing debate. Findings suggest the need for broader analysis of

the distributional effect of CON on health care costs

Importance of translational work to make the entire body of research accessible and useful to policymakers.

Certificate of Need and the Price Paid for Inpatient Services for Privately Insured Patients

William S. Custer, Ph.D., Robinson College of BusinessPatricia Ketsche, Ph.D., Robinson College of BusinessMei Zhou, MS, Georgia Health Policy CenterDawuud Ujamaa, MS, Georgia Health Policy Center

This research was supported by funding from the Department of Community Health as part as part of a larger analysis of the effect of

CON in Georgia on cost, quality, and access.