This February more than 80 organizations—businesses, hospitals, and labor and other groups—submitted their names to Michigan legislators, Governor Engler, and others as supporters of Michigan’s Certificate of Need (CON) program. Although no legislation has been introduced yet this session to repeal the CON program, past sessions, including the last, have seen proposals and substantial support to limit, if not abolish, the program. Facing a flood of information from both sides of the issue, many policymakers and pundits are shrugging their shoulders in confusion. This Bulletin attempts to sort through this complex matter.

What is the CON Program?

The CON program is a result of the rapidly expanding health care system of the 1960s and 1970s. During that period, communities saw a sharp rise in the number of new and modernized health facilities and the extent of services provided at those facilities. Such growth brought with it substantial capital expenditures, and policymakers feared that the quality and cost of care would be diminished, and communities’ investments lost, if the supply of health facilities and services was not monitored. 

In 1972 lawmakers responded to these fears by adopting statutes requiring health facilities to obtain permission—in the form of a certificate of need—before making large capital investments for construction. Lawmakers later expanded the CON program to apply to expensive supplies and equipment: Their goal was to make health care entities show the need for an investment before making it. Currently, such entities must obtain a CON if they wish to 

• purchase certain advanced medical equipment (e.g., magnetic resonance imaging [MRI], lithotripsy for kidney stone treatment, air ambulances);
• provide or expand certain specialized medical services (e.g., cardiac catheterization, angioplasty, open heart surgery, certain organ transplantation, neo-natal intensive care units, freestanding outpatient or ambulatory surgical services); or
• buy, build, add to (including beds), convert, or renovate surgical facilities (those within hospitals and also those that are “freestanding”) and acute care, psychiatric, and long-term care facilities.

Health facilities may undergo renovation or expansion without obtaining a CON if the cost is less than $2.24 million for a clinical purpose (that is, it pertains to patient diagnosis, treatment, or rehabilitation) or $3.34 million for a nonclinical purpose. Also, new facilities may be built without a CON as long as the project is part of a relocation initiative, and the relocation site is less than two miles away in a metropolitan county or five miles in other counties. In addition, in Michigan’s lower peninsula, no more new-bed CONs may be issued to health facilities, because there is an excess supply; in some cases, however, facilities may replace beds. 

CON Controversy

Opponents of CON cite two main reasons for repeal. First, they argue that the program diverts to a painstaking administrative process financial and other resources that could be dedicated to providing health care services. For example, each time a health care entity applies for a CON, it must pay an application fee of up to several thousand dollars. It also must complete detailed paper work describing the reason for the project, the project’s scope and timetable, the funding source, the estimated increase or decrease in annual operating costs resulting from the project, and other information. State review of an application may take several months. 

Second, CON opponents argue that the program stifles free-market competition, preventing patients from receiving the best value from their health care dollars that are spent on health care infrastructure, especially when they have fewer choices about where they obtain their care. 

Dr. Kenneth J. Edwards, an orthopedic surgeon in St. Joseph, points out that because of CON, his city has only a portable MRI that a company delivers for local use only a few days a week. “If a patient has a brain injury or some other problem, and the portable MRI is not [available], the person has to be transported from a clinic to the nearest hospital. This raises the cost of care and delays treatment.” He adds that if a local patient needs treatment for kidney stones, the nearest lithotriptor is a considerable travel distance. Another problem is the absence of a surgical center: “Having to go to a hospital for procedures like relieving carpal tunnel syndrome adds 40–45 percent to the cost,” he says. 

Supporters of CON counter that the program has proven essential to ensuring the affordabil-ity, accessibility, and quality of health care services. Larry Horwitz, president of the Economic Alliance for Michigan, argues in a January statement advocating for maintaining the current system, that CON “helps avoid unnecessary and costly duplication of facilities and services.” 

Others of this view point to Ohio, which recently finished phasing out its CON program and has seen a surge of new facilities and services: 4 new transplantation and 6 new heart-surgery programs in hospitals, 54 new MRI machines, 12 new lithotriptors, 430 new rehabilitation beds, 75 new ambulatory surgery facilities, and the list goes on. 

While CON opponents may applaud the potential for competition, Amy Barkholtz, assistant director of regulatory issues for the Michigan Health and Hospital Association, and Nancy McKeague, vice president of human resources for the Michigan Chamber of Commerce, see a problem. “Hospitals have a legal obligation to treat anyone who walks through their doors, regardless of their [health, economic, or other status],” says McKeague. “If CON is repealed, freestanding facilities will take routine and profitable business out of hospitals, which still have to provide other, more costly services, and the loss will be borne by taxpayers and the business community.”

Responding to McKeague and Barkholtz, Dr. Edwards asks, “If an element of CON is to protect hospitals that provide care that is more costly, what is the motivation for keeping CON?” McKeague answers that hospitals still will face the cost of providing certain services: Even if repealing CON were to lower the cost of providing some kinds of care, it would substantially raise the cost of providing others, and the result likely would be an overall increase in providing care. “The health system typically does not respond well to econometric models,” concludes McKeague.

Middle Ground

Rather than outright repealing the CON program, many believe that policymakers should continue to make changes to improve the program. Barkholtz suggests streamlining the CON application process to make it less costly and time-consuming, both for the state and providers. She also says that the CON Commission should ensure that it regularly reviews the list of covered services and makes revisions, including elimination, when appropriate. 
Although the Michigan Osteopathic Association has no position on repealing CON, Dennis Paradis, the organization’s executive director, suggests finding ways to make it easier for physicians to purchase certain equipment and open facilities. Others suggest establishing a work group to make recommendations concerning possible CON changes, rather than forcing legislators to resolve this complex issue.

Conclusion

CON supporters have been working for months to build statewide consensus on the issue, but both the Michigan legislative and executive branches are controlled by the Republicans, and market competition and deregulation are central tenets of the GOP. Thus, CON repeal or substantial, rather than modest, reform may be the order of the day. Regardless of the outcome, rethinking CON likely will be a focus of the 1999–2000 legislative session.