Introduction
    
On September 18, 2007, a joint session of the House and Senate Health, Education, and Social Services Committees met to discuss what is sure to be a major topic of interest when the Legislature returns to session in January: the Certificate of Need (CON) program. The Certificate of Need work session was led by Senate HESS chair Senator Bettye Davis and House HESS chair Representative Peggy Wilson. Many legislators joined the work session throughout the afternoon, both in person and via teleconference.
    
The purpose of the work session was to bring together stakeholders in the Certificate of Need program and key legislators to discuss the current and potential impacts of the program. State and national experts on healthcare and certificates of need offered their opinions and experience to the discussion, and laid out several issues and concerns that they felt any new legislation would have to address. As Senator Davis pointed out at the beginning of the meeting, the most recent Certificate of Need bill was only heard in the House; it never received a hearing in the Senate.
    
Testimony given presented a wide array of views about the Certificate of Need program, and the issue proved to be one that nobody in attendance was indifferent towards. Problems with and concerns about the program were raised, and opinions ranged from full support and a desire to see stronger CON regulations, all the way to calls for a total repeal of Alaska's CON laws. A few key issues and concerns were repeatedly addressed by the presenters, and it was those issues that appeared to be the focal points of the Certificate of Need debate in Alaska.

CON: Policy Success or Failure?
    
One of the major points of dispute among the speakers was whether CON could even be considered a successful program. Several speakers supplied research that supported their points, which ranged from saying that CON was a useful and successful policy to calling it a total policy failure on both national and state levels.

Robert Cimasi, president of Health Capital Consultants, who testified via teleconference from St. Louis, Missouri, called CON anti-competitive, and said that it was a completely failed public policy and should be completely rejected. His organization had done in-depth research tracking the successes and failures of various states' CON programs and published the "Certificate of Need Source Book" at the end of 2005. In his testimony to the committee, Cimasi made eight points that he believed were necessary to understand why certificate of need policies should be repealed. He stated that "CON has a well-documented history of failed health planning policy," and referred to academic studies which showed that CON had not met its main purpose: to reduce overall medical costs.

Perhaps his sharpest criticism of CON, however, came after discussing a joint Department of Justice-Federal Trade Commission report on health care published in 2004. The 2004 report supported CON programs, but at a 2005 Homeland Security conference, the Commission said that they had been wrong in the 2004 report, and that CON programs generally are not successful and that they pose anti-competitive risk. As a legislative matter, Cimasi said that there is no evidence that bringing certificate of need policy to states raises their quality of health care.

Agreeing with this point was Jeremy Hayes, Anchorage director of Advanced Medical Centers of Alaska. He offered that Alaska had the most restrictive CON program of any state, that there is no evidence that CON has done anything to control medical costs in Alaska, and that the program thwarts entrepreneurial competition. He added that an ideal solution would be to repeal the program entirely.

"If you look at states with similar demographic characteristics, you'll find that they have done just that. Wyoming has no Certificate of Need program; Idaho has no Certificate of Need program; North Dakota, no CON; South Dakota, no CON. Realistically," he continued, "a reevaluation of the current system to bring Alaska in line with other demographically comparable states is a very valid approach."

Hayes pointed out four areas where he would recommend the program be reevaluated: 1) the $1,050,000 threshold for requiring CON approval; 2) threshold items including but not limited to the value of land acquisitions, net present value of the lease, and other line items; 3) the appeals process; and 4) the general and concurrent review standards (referencing another speaker).

A sharp contrast to Robert Cimasi's and Jeremy Hayes's arguments came from Norman Stevens, CEO of MatSu Regional Hospital Center, and Shawn Morrow, CEO of Bartlett Regional Hospital in Juneau. Stevens argued that proponents of repealing CON legislation are financially motivated: "I suppose we all are, at some point, financially motivated. I would ask you, as you consider this, to look at who's getting rich and who's not, on this issue."

He also believed that "what you're seeing here is boutique providers, people who can come in and set up niche markets, and they can carve off some of the hospital's more profitable programs, which might be surgery and radiology and different procedures that you've heard about today. They want to present this as if it's really going to reduce the costs of health care, and I think what they do is they tend to skew public opinion" by playing on the public's sense of dissatisfaction with health care. Stevens also testified that MatSu Regional underwent a two-year CON review process and is now able to bring world-class health care to Valley citizens.

Morrow also supported this position. He said that most of his experience was based in Oklahoma, which did not have CON programs for acute or specialty care--including diagnostic and surgery centers, and hospitals--but only for long-term care centers. Morrow argued that a lack of CON regulations for acute care had played a part in the deteriorating financial stability of community-based hospitals and had weakened access to the health care system. He also said that Oklahoma's lack of CON regulations increased the tax burden on citizens, opposing Cimasi's view that CON regulations are what hurt the economy. He noted that since 1990 in Oklahoma, 13 hospitals closed and that seventeen communities have instituted a sales tax to keep their hospitals viable.

Morrow echoed Steven's thoughts about the financial motivation behind certain arguments against CON: "When high-profit, high-margin services are carved out by niche specialty providers it leaves less money to offset basic and essential services that lose money. Oklahoma ranks fifth in the United States for niche specialty facilities." Based on his experiences there, he said he anticipated that physician and investor-owned niche facilities would proliferate in a non-CON Alaska. While Morrow believed that hospitals would "weather the storm," his "real concern is that many community hospitals will be severely weakened over the next five to ten years as changes in reimbursement occur that are aimed at lowering health care costs. I think our hospitals will be in a much more vulnerable state."

Thomas Piper, the director of Missouri's CON program in Jefferson City, Missouri, delivered a presentation that chronicled the history of national CON programs and that addressed some of the specific issues and concerns that have been raised since the program's inception. He presented evidence from studies conducted by the "Big Three" automobile companies that analyzed whether health care costs were lower in states with CON programs or without CON programs. The DaimlerChrysler Corporation found in 2000 that their employees in CON states actually had health care costs up to 164 percent lower than their employees in non-CON states did. General Motors Corporation found that health care costs in CON states, from 1996 to 2001, were nearly one-third less than costs in non-CON states. The Ford Motors Company's study in 2000 (which was broader than the GM study) found that health care costs in CON states were about 20 percent less than in non-CON states.

Does CON Help or Hinder Attracting Physicians to Alaska?
    
Norman Stevens of MatSu Regional brought up the issue of physician attraction and retention as a problem he's heard discussed as part of the CON debate. Using his experiences as the head of a major community hospital, Stevens said that of the thirty-four physicians he has personally recruited in the last three years--and in the process of hiring, interviewed probably twice as many--not a single one has brought up CON regulations as a concern that would affect whether they took the job.

"The only physicians that I think bring that up are radiologists who find themselves somewhat restricted by it. I feel for them in some respects, but I also know that there's no shortage of jobs for radiologists out there, and the fact that the radiologists would like to have this lifted so they can get rich, with the ability to do both their professional fee as well as the facility's technical fee benefits them but it doesn't benefit the community." He said that in his experience, doctors do not see restrictive CON regulations as a concern.

Thomas Piper believed that repealing or weakening CON is what causes problems of physician recruitment, retention, and other staffing-related problems. He noted that "on the other side of the coin" of the arguments against CON, "unrestricted health care competition has some serious consequences," in which it "splinters the provider delivery network which causes staffing shortages, and in turn lowers quality and fragments the health care support system."

A direct counter-argument came from Jeanine Hinman, an attorney for Advanced Medical Center of Alaska (AMCA). She spoke as the wife of a physician and as an attorney with experience in medical litigation. Hinman spoke about both her personal and professional thoughts regarding the current environment the CON program creates for physicians and their families when considering moving to Alaska. "I think if we had known the hostility of the legal environment which uses the CON program as its vehicle for litigation that has hamstrung AMCA in three different markets, I don't think we would have moved here. I think there is a recruitment problem; I know there is, because my husband's trying to get several of his colleagues to come up here. He's a board-certified anesthesiologist," with a professional background she believed would benefit Alaska's citizens. Hinman also said that if she were convinced that hospitals would be hurt by repealing CON, she wouldn't support the repeal. As she does not believe that is the case, she supports repealing CON.

Robert Cimasi also addressed this issue during his testimony. "We know from the study that was done in Alaska--the report of the Physicians Supply Task Force--that Alaska has significant challenges in terms of their physician-to-population ratio. They're seventeenth-lowest in the nation according to that report. Certificate of Need is one of the most anti-physician pieces of regulatory policy that a state can pass. And as it is used to block physicians from being able to share in the ancillary services and technical component revenue stream of health care, it has nothing to do with lowering costs, it's simply to avoid physicians from being able to share in that revenue stream and being restricted to only being paid the professional fee component. This is an aggravating factor that makes it extremely difficult for states that have this to recruit high-quality physicians into working in the state. Especially in Alaska, something that I think bears noting."
    
The Issue of Access to Care
    
Testimony was firmly divided into two camps on this issue: those who thought that CON restricted access to health care facilities, and those who thought CON improved access to facilities.

Robert Cimasi said that there is no evidence that continuing CON would enhance access, and there is no evidence that repealing CON would restrict access to care. He also said that research done by his group has shown no impact on access among patients with government programs, such as Medicaid or military health care, due to repealing CON legislation. Cimasi added that "we know from studies that have been done that Alaska has one of the most significant access challenges of any state in the nation because of the wide geographic dispersion of the population."

Co-chair Wilson responded to his comments about access by noting that ambulatory surgical centers or imaging center groups haven't even wanted to go out to those parts of the state, and that she wasn't sure how repealing CON would help access in those conditions. Due to time constraints during the meeting, Cimasi was unable to respond to Co-chair Wilson's comments, and Co-chair Davis said this would be a point of discussion during the upcoming legislative session.

Dean Montgomery of the American Health Planning Association in Falls Church, Virginia, said that it's relatively easy to establish new services in this state as compared to other states. His testimony was based on research he did for the Alaska Hospital and Nursing Home Association. "When you look at the combined effect of the health community capital expenditure review threshold in Alaska, the major medical equipment capital expenditure review threshold, and the new service review threshold--all three are $1,150,000--the combined effect of that is it's relatively easy, compared with the other twenty-nine states that regulate acute care services under Certificate of Need to establish a new service" or facility in Alaska.

He continued, saying that "given the distribution of population, given the concentration of services in areas such as Anchorage, Fairbanks, the southeastern part of the state in the Juneau area, this puts community hospitals in those areas at substantial risk that hospitals similarly sized and similarly located in other states are not at." Access becomes an issue because CON guidelines give the free-standing facility clear advantages over the typical community hospital in Alaska, which may be small, have fewer backup services, higher emergency caseloads, and high charity caseloads.

Thomas Piper touched on the question of access to services obliquely, but his comments addressed access directly. "Certificate of Need has been criticized since its inception, and the reasons are fairly simple. Many believe that CON only tries to restrain market entry, or to lower market outlays, or to cap technical innovation, all of which are ways to control cost." He went on to say, "they also believe CON is more concerned about geography and access rather than social and system access questions." Earlier in his presentation, Piper noted that some of the conceptual purposes of CON were to support community-based health services and health facility planning, and to support community-oriented planning by health service programs, facilities, and systems. "A unique concept and tool, CON covers a broad range of important features." One of those features, Piper said, is that CON is "a market compensator, because the market has gaps and excesses, like the avoidance of low-income populations and the concentration of services in affluent areas. CON often negotiates incentives and supports plans to strengthen services."
    
Fairness and Loopholes in the CON Program
    
Robert Cimasi raised questions about the issue of fairness in CON policy. Specifically, he was concerned with evidence that "CON has been used for anti-competitive purposes." In context, he spoke of anti-competitive measures being used by large hospitals and other powerful health care providers who used CON policy as a tool for keeping smaller providers and facilities from opening and offering services.

"We have a very large collection of research here that indicates that on a state-by-state basis, that providers will expend massive amounts of non-patient care dollars--that are diverted from patient-care activities--to essentially prevent their competitors from entering the marketplace."

Cimasi continued, citing access as another concern. He spoke of access, however, not as patients being unable to physically get to services, but as facilities that use CON regulations to dictate where and what services are offered in the market. "What happens is, only those folks that have this regulatory permission can determine what services are going to be offered, where they're going to be offered, who gets access to them, and what new technologies are going to be brought to the forefront." CON regulations, he said, make it extremely difficult for anyone to challenge the dominant forces already controlling the health care market in the state.

Jeremy Hayes also supported that viewpoint in his testimony. "The CON appeals process needs to be reevaluated. Market incumbents," he explained, are using "the appeals process built into CON regulations to stall CON applications indefinitely, sometimes as long as five years."

Dr. Chakri Inampudi, president of Alaska Radiology Associates, represented a facility with nine board-certified radiologists and two nurse practitioners and spoke about his experiences in the imaging field. He said that Alaska's CON program has several loopholes that make it difficult for radiologist and imaging facilities to get the same treatment that other facilities undergoing review do.

The "number one (concern) is removing the exemption of imaging in physician's offices, and establish the same criteria for receiving CON that's used for hospitals and IDTFs (independent diagnostic testing facilities). Number two, actually lower the dollar limit for determining the need for CON for imaging equipment and construction costs to a total of $500,000." Dr. Inampudi told the committee that "the current regulations continue to use $1 million as the cutoff, and this number has not been changed in almost close to a decade. In the past several years--as recently as the last four years--there's been a significant drop in the cost of imaging equipment. A scanner that used to cost $1 million in 2003 now can be purchased for less than $400,000 and close to $300,000 new. This would allow for the purchase and use of less expensive, possibly outdated, and certainly substandard equipment in terms of radiation care," he said, just by avoiding the CON process.

Final Thoughts
    
Robert Cimasi: "CON should be repealed in Alaska. There are better ways to be able to control quality that would be applicable. There are better ways if you want to prevent any problem that you would raise in terms of physician referral. CON was not designed for that. That would be like trying to do heart surgery using a meat axe."

Thomas Piper: "We can establish a balance between regulation and competition by first promoting the development of community-oriented health services and facility plans, including consumers and providers, business, education, researchers, and others in its development. Second, providing pricing and quality information to consumers so that they have an educated choice, and then providing a public forum to ensure that the community has a voice in health care. This, I believe, will protect the public's interest."

Dean Montgomery: "I think if you look at the detailed analysis of the review threshold, if you examine how they are applied in Alaska and in other states, and how they interact, the argument that there is fairly intense regulation in Alaska under Certificate of Need simply does not hold; that it's relatively easy to establish the new services--they're much easier than in most other states--and that this has substantial implications for community hospitals in Alaska that are smaller in size, have fewer redundant or backup services, and indeed have higher emergency caseloads and high charity-care caseloads."

Jeremy Hayes: "The continuation of Alaska's CON regulations in their current state cannot be justified, either theoretically or empirically. If CON regulations were working as advertised and were truly successful at containing health care costs, why does Alaska have the most restrictive Certificate of Need program in the country and the highest health care costs in the country? If Certificate of Need regulations truly were working like some of these people have testified to today, Alaska should have some of the least costly health care in the country rather than the most expensive health care costs in the country."

Norman Stevens: "I think it's important that those of you who make the rules recognize the fact that hospitals are at risk nationwide. We're not making this up. Hospitals in this country are under a demand to take care of everybody without regarding their ability to pay, and run these services twenty-four hours a day, seven days a week. We have to continue to pay our payrolls. These are huge demands on us, and I know myself and none of the members on our board are getting rich off this process. I've got a great deal of strong leaders in our community who serve on the board of this hospital and none of those people are getting rich either. They're trying to do what's in the best interest of this community, and they put their time and their energy in for free."

Shawn Morrow: "What we saw happen in Oklahoma was, with no Certificate of Need for decades, in 1985 when the reimbursement rules changed, you had about a five year lag, and then you started to see hospitals closing. And then the Balanced Budget Act of 1997, you saw another wave of hospitals that went through closure. I'm not going to infer or say that CON going away is going to result in hospitals closing here, but I do think that it deteriorates the financial stability of our community hospitals that do have a responsibility and an obligation to the citizens, to see those that are not insured and that do not have a means to pay."

Dr. Chakri Inampudi: "I was asked to comment on the potential negative implications of changing the CON policy. I do not see any negative implications to the residents of Alaska, or to the state or governmental agencies. In fact, our suggested changes should eliminate the future potential litigations and appeals by closing the loopholes. Our position is to level the playing field by eliminating the loopholes, including the removal of the exemption of imaging in physician's offices."
   
Ms. Jeanine Hinman: "I know there's a lot of empirical data that's been thrown out here, and I know you have a hard job because people are quoting opposing statistics. I'd be happy to look at the empirical data that proves me wrong because, frankly, I'd like to be wrong about this. I don't like thinking there's these 'bad, greedy hospitals' and the 'victim doctors,' but it looks to me like there is a problem as far as access in the rural areas. Right now you have CON laws and hospitals and they're not addressing it, so I don't think saying we shouldn't repeal CON because that wouldn't improve access to rural health care."

In Conclusion

While the CON working group heard many diverse testimonies, a few key issues repeatedly came to the forefront of the discussion. All the speakers raised issues that will undoubtedly contribute to the debate about Certificate of Need when the legislature returns for the 2008 session in January. There was debate as to whether CON legislation was a success or a policy failure. Differing opinions were expressed regarding whether CON policies hinder physician retention in Alaska. Several speakers brought up percieved loopholes and other unfair aspects of CON legislation. Access to care under Alaska's CON program was a concern for several speakers.

What form any new CON legislation will take is still a matter of conjecture. The wide range of opinions about the program that were expressed during the committee meeting, however, indicate that no matter what CON legislation ultimately looks like, it will have a significant impact on the future of Alaska's health policy.