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Certificate of Need is indeed a CON

Health Care

by Thomas A. Firey

OP-EDS

MAY 9, 2004 Bookmark and Share

For the past several months, Washington County residents have followed the clash between the City of Hagerstown and the Antietam Health System over the county's hospital.
 
The health system, which is partly a private business and partly a nonprofit organization, wants to build a new hospital next to its Medical Campus on Robinwood Drive, just outside the city limits. Hagerstown's mayor and city council oppose the move, claiming they are not convinced Robinwood is the most accessible, affordable location for a new hospital. Left unstated, but very much at play, is the concern that the move would mean the city's loss of the county's largest employer.

(Two observations should be made here: (1) The city has not commented on the likely increase in health care quality that would result from locating a new hospital next to the medical campus. (2) What expertise the mayor and council have on medical planning and finances is unclear, especially in light of their performance on city finances and accessibility - particularly following snowstorms.)

The final decision on the new hospital rests not with the city or the health system, but with state bureaucrats in Baltimore. The health system, by state law, must receive a "Certificate of Need" from the Maryland Health Care Commission to build a new facility. (It would also need a CON to offer various new or expanded health services). The city has requested that the MHCC block the Robinwood move.

The city's appeal to MHCC is ironic because no organization in Maryland has done more to limit people's choices in health care and force them to use inadequate, overly expensive, outdated, poorly accessible medical services. Residents need to know more about this process that will affect Washington County's health care for many decades to come.

The MHCC is blunt about its activities. According to a 2001 report it produced for the Maryland General Assembly, the CON process is intended to ensure no "overbuilding" or "over-utilization" of health-care services, and to "limit the number of programs providing some highly specialized services." In other words, the MHCC strives to hold down the number, types and locations of various health-care facilities and services throughout Maryland, for fear that free enterprise and consumer demand would lead to too much health care provided at too low a price. The MHCC accomplishes this by using the CON process to award local monopolies to various health-care providers, thus preventing competition over price, quality and convenience.

The MHCC claims that CON is necessary for proper health-care "planning" and to ensure that health-care facilities remain economically viable. It even claims CON keeps medical costs low. But academic analysis shows that assertion is as ridiculous as it seems. Wharton School professor Mark Pauly and Duke University professor Frank Sloan have each conducted studies showing that physician prices are higher where hospital beds and nursing resources are limited, while Georgia State's William Custer has shown that physician prices are lower when multiple hospitals compete in a single marketplace.

If the stated reason for CON is ridiculous, then what is its real purpose? Just like any other monopoly, health-care facilities welcome regulation that legally establishes their market dominance and ensures a dependable revenue stream that will not be upset by some innovative competitor. It is no wonder the American Hospital Association and its state-level counterparts strongly support the CON process. Just like so much other regulation in Maryland, the CON process protects politically favored businesses from consumers and competitors.
But not all hospitals like CON. Shady Grove Adventist Hospital is currently battling through the process in an effort to open a 27,000 square-foot emergency care facility in Germantown. Its efforts are being stymied by Montgomery General Hospital because Montgomery General has Germantown in its monopoly zone. While this battle wages, some 30,000 "up-county" emergency room patients each year travel farther to receive care at Shady Grove. This is typical of the history of CON in Maryland.

But the Hagerstown saga could be epochal. Instead of one medical facility using CON to push out a possible competitor, the city's leaders want to use CON to advance their political interests over the hospital's desire to provide the facility that it thinks is best, and county residents' ability to use that facility. Such political maneuvering could change the AHA's opinion of CON.

The city's belief that it should dictate the location of a private enterprise's new facility is remarkable. Its desire to force dozens of city residents from their homes and then force the health system to build a less-adequate facility on that land is astounding. But the city's effort to impose its will through a morally bankrupt process administered by state bureaucrats with no ties to Washington County is outright perverse.

—Thomas A. Firey is senior fellow for the Maryland Public Policy Institute.