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Tennessee Lawmakers Pursue CON Reform

April 4, 2016
By Matthew Hazelton and Michael Hamilton

Twin bills offered in the Tennessee House and Senate would make it easier for hospitals to add beds, perform construction projects, and acquire MRI machines, by removing the requirement to acquire a certificate of need (CON) from the state’s Health

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Twin bills offered in the Tennessee House and Senate would make it easier for hospitals to add beds, perform construction projects, and acquire MRI machines, by removing the requirement to acquire a certificate of need (CON) from the state’s Health Services and Development Agency in some cases.

House Bill 1730 and Senate Bill 1842 would allow hospitals to increase their bed capacity by 10 percent in each treatment category every three years without seeking a CON. The bills would set a similar 10 percent rate for raising the threshold at which construction projects would require a CON, currently set at $5 million.

Current Thresholds Called Arbitrary

State Rep. Cameron Sexton (R-Crossville) says Tennessee’s CON law restricts hospitals from adding beds and from building, renovating, or making other improvements beneficial to patients.

“One of the problems with the CON is hospitals do not have room to grow,” Sexton said. “If a hospital wants to increase by one bed, the state has to grant a CON.”

CON application fees are nonrefundable and are calculated as a percentage of the estimated project cost, ranging from a minimum of $3,000 to a maximum of $45,000, according to Tennessee’s CON application form.

“The bill does away with an arbitrary threshold,” Sexton said.

Preventing Upgrades, Competition

Sexton says the state’s CON law keeps healthy competition out of the health care marketplace.

“The system doesn’t force people to improve what they have, because they know the CON prevents other people from entering their market,” Sexton said. “What we have in this dynamic is some people in rural areas and even in big cities are unwilling to spend money to upgrade their equipment.”

Sexton says the CON law places rural communities at a disadvantage by making it easier for larger counties to obtain MRI machines.

“The system is not set up to be fair to everyone,” Sexton said.

Patients Lose at Monopoly

Lindsay Boyd, director of policy at the Beacon Center of Tennessee, says Tennessee’s CON program has given large hospitals a government-protected monopoly on health care services by creating a barrier blocking potential competitors from entering the market.

“Large hospitals have, since the time of the institution of CON by federal law in the late 1970s, capitalized on these protectionist policies that have allowed them to hold monopolies over many of the essential services within the health care marketplace, including the ability to regulate the number of hospital beds allowed by competing, smaller hospitals and the ability for clinics to obtain MRI machines,” Boyd said.

Congress repealed the federal CON mandate in 1987 “after 10 years of evidence that they drive up prices for patients and help create cartels within the industry to keep out the competition,” Boyd said.  “States that have maintained CON are suffering from the limited supply of services at affordable prices and the ability to expand access to rural, often low-income areas.”

CON Reform Confidence

Of the 36 states with CON programs, Tennessee has the seventh-most restrictive law, according to the George Mason University Mercatus Center study Certificate of Need Laws: Implications for Tennessee.

After studying the state’s CON laws for nine months, Sexton says an open market will lower costs and increase access to affordable health care more effectively than CON regulations.

“Our CON laws are stringent,” Sexton said. “We’ve talked about having a system that has a more free-market approach, one that brings about improved quality, lower costs, and better patient access.”

Matthew Hazelton (mhazelton@hillsdale.edu) writes from Hillsdale, Michigan. Michael Hamilton (mhamilton@heartland.org) is The Heartland Institute’s research fellow for health care issues and managing editor of Health Care News. Dustin Siggins contributed to this report.

Internet Info:

Matthew Glans, “Tennessee Considering Certificate of Need Reform,” Research & Commentary, The Heartland Institute, February 16, 2016: https://www.heartland.org/policy-documents/research-commentary-tennessee-considering-certificate-need-reform

Christopher Koopman and Thomas Stratmann, Certificate-of-Need Laws: Implications for Tennessee, Mercatus Center, George Mason University, March 24, 2015: https://www.heartland.org/policy-documents/certificate-need-laws-implications-tennessee

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