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Why hospitals oppose part of NC's Medicaid expansion bill

A medical helicopter lands at UNC Rex Holly Springs.
A medical helicopter lands at UNC Rex Holly Springs.

The North Carolina Senate for the first time has passed legislation that would expand Medicaid. The landmark move comes after liberal groups had for years been asking the Republican-led body to make this move.

However, the bill still faces a long road before it gets to Governor Roy Cooper's desk. It first has to pass the House, where Republican Speaker Tim Moore has received it rather coldly. But setting politics aside, the legislation faces other challenges as well.

The bill includes major changes to Certificate of Need laws, regulations that tightly control where and when major health providers may expand. It also changes oversight requirements on nurses that they say are too onerous. WUNC health care reporter Jason deBruyn looks at these issues here and in a companion piece.

The Medicaid expansion bill includes significant changes to Certificate of Need (CON) regulations, which has already received strong pushback from the North Carolina Healthcare Association (NCHA), a group that represents North Carolina hospitals.

The NCHA has long supported Medicaid expansion, but in a statement released this week, it said it could not support changes to the Certificate of Need process.

"If CON reforms were used as a bargaining chip to get Medicaid expanded, the association and our members are highly unlikely to support that," part of that statement read.

Here's a look into what Certificate of Need laws are, and why hospitals want to keep them.

What is Certificate of Need?

In North Carolina, health services are tightly regulated. CON laws are used to restrict the supply of a variety of services. Hospitals can't simply add more inpatient beds or open more operating rooms; they must first receive approval from state regulators who determine if there is a need for those services. If approved, the health care provider receives a "Certificate of Need," where the laws get their name.

In 1974, Congress required states to enact CON laws. The goal was to improve access, particularly for low-income and rural residents, and to lower costs.

The idea behind this is that health care marketplaces operate dramatically differently than nearly any other economy. When shopping for a car, for instance, consumers compare and contrast a car's features and price, and pay for the vehicle themselves in well-defined terms.

North Carolina has some of the most restrictive Certificate of Need laws in the nation
Mercatus Center
John Locke Foundation
North Carolina has some of the most restrictive Certificate of Need laws in the nation

In health care, people with employer-based health insurance pay monthly premiums and then their health insurance provider pays the bulk of a medical bill when it arrives. For patients on Medicare or Medicaid, the government pays the bills.

Because of this dynamic, the theory behind CON laws argues the normal economic principles of supply and demand don't work to establish a market, and prices could spiral out of control. Furthermore, health systems would focus the best services in high-income areas, ignoring other parts of the state. So, regulators split the state into geographic regions and determine an exact need for various kinds of services in that geographic area and don't allow providers to exceed those levels of need.

A full methodology used to determine need, along with a distribution of health care services is available in the annual State Medical Facilities Plan, published by the N.C. Division of Health Service Regulation.

Do CON laws increase access and reduce costs?

It's mixed, generally depending on what group publishes the research. It's likely that these regulations keep costs for certain procedures higher, and stripping them away could reduce costs for those specific procedures, especially to people with private insurance. But it could drive up overall health care spending statewide.

Services that fall under Certificate of Need laws in North Carolina
Mercatus Center
John Locke Foundation
Services that fall under Certificate of Need laws in North Carolina

At the Joint Legislative Committee on Access to Healthcare and Medicaid Expansion meeting on April 11, Ascendient partner Dawn Carter presented information to show that CON laws benefit patients and holds down total health care spending. Ascendient is a hospital consultant.

In contrast, the Mercatus Center at George Mason University has published studies showing that states with CON laws have higher costs for some procedures compared to those without. The Mercatus Center was founded in part by Richard Fink, a former executive of Koch Industries, and bills itself as a "source for market-oriented ideas."

Congress repealed the CON mandate in 1986, just 12 years after it passed that law. Now, 35 states still have some form of a CON law, with North Carolina being among the most restrictive in that it regulates 27 services.

Why do hospitals want to keep CON regulations?

Put simply: Because they limit competition, especially in high-margin services like orthopedic surgeries.

The longer answer requires a deep dive into hospital finances and economics.

Hospitals, especially those with nonprofit missions, provide care to people who cannot pay. This is generally referred to as charity care, which hospitals tout as their way of giving back to the community. N.C. Treasurer Dale Folwell has criticized hospitals for not providing enough of this charity care, particularly as hospitals get significant tax breaks through their nonprofit status, but the fact remains that hospitals do provide at least some level of charity care.

To make up for these losses, hospitals say they need to generate profits in other areas, particularly from patients with private health insurance. One place to do that is in the operating room, an area of health care regulated by Certificate of Need.

Ascendient, a consultant for the N.C. Healthcare Association, presented information showing that total health care costs per capita increased in states that deregulated CON
N.C. Healthcare Association
Ascendient, a consultant for the N.C. Healthcare Association, presented information showing that total health care costs per capita increased in states that deregulated CON

In short, the worry from hospitals is that if operating rooms are no longer protected by CON, competitors will open surgery centers and take away market share of these lucrative procedures. But those surgery centers will not include emergency rooms or provide other kinds of charity care, leaving those services to be covered by traditional hospitals.

Why do hospitals want Medicaid expansion?

It would reduce the charity care burden. Although Medicaid doesn't pay the same rates as private insurance or even Medicare, it does pay something. People without any health coverage still come to hospitals to receive care, often through the emergency room, one of the most expensive areas of a hospital. If North Carolina were to expand Medicaid, it would reduce the number of people without health insurance. Then hospitals would be able to recoup some revenue when treating these patients. Also, health systems will hope these patients can access a primary care network, reducing their reliance on receiving care through the emergency room, ultimately reducing costs for hospitals.

Will changes to CON laws be a poison pill that prevents Medicaid expansion?

That remains to be seen. The Medicaid expansion legislation passed by the Senate includes significant changes to the CON system, but that exact bill will almost certainly be changed before a final version makes it to the governor's desk.

A N.C. Healthcare Association statement released shortly after the bill's passage in the senate noted that "North Carolina's health systems and hospitals remain deeply concerned about proposed modifications to the current Certificate of Need law included in the bill."

But free market groups have been pushing to loosen CON regulations for years, and if hospitals calculate they are going to lose that battle anyway, they might see Medicaid expansion as a big enough victory.

Jason deBruyn is WUNC's Supervising Editor for Digital News, a position he took in 2024. He has been in the WUNC newsroom since 2016 as a reporter.
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