Published 7/1/2008
Charlene MacDonald

GOS plays key role in CON reform

By Charlene MacDonald

AAOS grant helps fund successful effort

Just hours before the 2008 Georgia state legislative session ended, the state’s medical community claimed a historic victory. More than 2 years of coalition-building and aggressive lobbying, spearheaded by the Georgia Orthopaedic Society (GOS) and the Medical Association of Georgia (MAG), resulted in overturning the state’s anticompetitive Certificate of Need (CON) law. With the passage and signing of Senate Bill 433, the harsh regulations that limited the construction of ambulatory surgical centers (ASCs) were eliminated.

CON laws, which emerged on the federal level as part of the Health Planning Resources Development Act of 1974, were intended to control healthcare costs by regulating healthcare facility construction. Although the statute was repealed in 1987, CON programs persisted in 36 states. The growth of ASCs and specialty hospitals has led many states to resist CON reform, despite the fact that a free market approach to health care actually decreases the financial burden on consumers.

Hospitals and their trade associations tend to support, if not actively promote, CON programs, claiming that they are necessary to ensure equilibrium in the supply and demand for facilities and curtail inflation in healthcare costs resulting from a surplus of hospital beds. According to this theory, empty beds beget higher charges to compensate for the fixed costs associated with maintaining large hospital facilities.

Problems in Georgia
The Georgia CON law required physicians who wanted to open an ASC to obtain a “Letter of Non-Reviewability” (LNR). A lack of clarity in the statutory language resulted in a barrage of costly and time-consuming lawsuits and severe­ly hindered construction of most freestanding healthcare facilities.

The restrictions on ASC construction included a $1.7 million cap on construction costs, which encouraged cost-cutting and restricted expenditures. Waldo Floyd III, MD, GOS president, pointed out that “The repeal of these policies allows surgeons to invest in the highest quality medical equipment, ensuring that patients receive the best care available.”

In 2007, Gov. Sonny Perdue filed CON reform legislation that would have removed the construction cap and enabled physicians to build larger ASCs, provided they treat a sufficient number of Medicaid recipients and indigent patients. Although the measure was ultimately tabled, the governor continued his reform efforts.

At the same time, the GOS, led by Dr. Floyd, took on the cause, hiring DLA Piper, a high-profile lobbying firm, and mobilizing a coalition of supporters. The political struggle that followed initially pitted the Georgia Alliance of Community Hospitals (GACH) against the state’s medical and specialty societies, resulting in a legislative battle.

Steps to a solution
With a $5,000 grant from the American Association of Ortho­paedic Surgeons (AAOS) Health Policy Action Fund, GOS took the unprecedented step of opening a dialogue among all stakeholders at its 2007 annual meeting. GOS leaders convened a panel discussion with representatives of the GOS, GACH, MAG, patient community, and governor’s office.

It was the first step in what would be months of arduous negotiations between private practice physicians and the hospital industry. Hospital representatives maintained that relaxing CON laws would exacerbate access problems for the uninsured and Medicaid recipients. They argued that ASCs would attract insured, profitable patients, leaving community hospitals to subsidize uncompensated care and unprofitable units, such as emergency departments.

GOS and its allies countered that CON laws actually contribute to rising healthcare costs by imposing anticompetitive restrictions and costly administrative burdens. Furthermore, they contended that ASCs increase access to care by providing patients with a larger selection of providers covering a wider geographic area.

“Georgia is generally considered a pro-business state; the fact that CON policies endured through the years was a testament to the power of the state’s hospital lobby,” stated Guy Foulkes, MD, former legislative chair of the GOS.

Observers predicted the fight would continue into 2009, but as the 2008 session drew to a close, GOS efforts to reconcile the two sides’ differences finally paid off. The resulting compromise legislation provided significant relief for physicians investing in ASCs.

“The deal we agreed to gives us the ability to build new facilities without the nebulous rules concerning concurrent construction and cost limitations that made us vulnerable to frivolous lawsuits,” said Dr. Floyd.

Charlene MacDonald is manager, state legislative affairs, in the AAOS office of government relations. She can be reached at macdonald@aaos.org

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Highlights of the legislation
Among the highlights of the new law are the following provisions:

  • An exception from LNR requirements for facilities owned by single-specialty practices and solo practitioners
  • Elimination of the existing exclusion of psychiatrists from the definition of groups that meet the single-specialty requirement
  • Inclusion of plastic surgery members with a Certificate of Added Qualifications in hand surgeon groups
  • Elimination of the construction cost cap of one or two ASCs, provided only one ASC per group exists in a county
  • An increase in the construction cost cap for groups with more than one ASC in a county to $2.5 million
  • An increase in the construction cost cap for ASCs in a joint venture with a hospital to $5 million
  • Clarification of statutory language to reduce the number of ASCs tied up in litigation
  • A requirement for Medicaid participation and/or provision of charity and indigent care
  • A grandfather clause to exempt existing LNR facilities from the Medicaid/indigent care requirement

The GOS experience provides a model legislative strategy for CON reform. The AAOS stands ready to provide support to the 35 state orthopaedic societies that still face excessive regulation of healthcare facility construction.