Is there indeed a need for the state’s hospice Certificate of Need (CON) program?

Before diving into this bubbling cauldron of policy stew, many might find it helpful to understand just what is the Certificate of Need (CON) program. This exotic, bureaucratic creature is a type of regulatory review process which requires healthcare providers to obtain state approval before offering certain new or expanded services. A few years ago, for example, one couldn’t just decide on one’s own to open up a new hospital for business, without first getting permission, in the form of CON, from regulators.

On paper, CON was conceived with the noble intent of controlling healthcare costs by avoiding duplication of services, maximizing efficiency, and ensuring the provision of necessary healthcare services to all, including the underserved communities.

Nonetheless, the conservative argument against Certificate of Need is straightforward. Skylar Zander, Florida State Director for Americans for Prosperity, summed it up neatly in an op-ed earlier this year:

Imagine you want to open a small music shop, but the state tells you that first you need to do a detailed economic analysis to determine if you can afford to stock your shop with instruments. Or you want to start a lighting business, but the government insists on a study showing how your enterprise will impact other lighting stores in the community.

If this sounds like unnecessary government regulation, you’re right. Now, consider the burden on hospitals and other health care facilities, which have been struggling for decades under a bureaucratic requirement called “Certificate of Need” (CON). Under CON, new providers had to prove that their move into a region wouldn’t oversaturate it or create an excessive burden for existing providers. But CON also creates artificial barriers that protect the fiefdoms of existing providers and allow them to maintain the bare minimum – no worry that a competitor might swoop in and provide a better service.

The end result, Zandar argues, is that there is less competition in the healthcare industry under a certificate of need program, because consumer choices are artificially limited by government bureaucrats. It’s a powerful argument that resonates with Republicans and free-market champions everywhere.

In contrast, supporters of the Certificate of Need program point out that the healthcare industry isn’t exactly a free-market system in the first place – it’s a third-party payer system, with insurance companies, or taxpayer-funded government entities, footing health care bills. This matters because in that kind of system, there’s significantly less competition for healthcare consumers (i.e. patients), because it’s not the patients who are shopping around for the best price or best service. Most health care end users are generally locked into a “silo” of health care providers and services based on their insurance network. But that only partially undercuts the “competition” argument.

That’s why supporters of Certificate of Need also point out that if healthcare providers were completely free to compete, they would (and do) concentrate their efforts in places with the best chance to make a profit. That means high population areas with even higher concentrations of wealth get nearly limitless healthcare choices, while poor, rural counties almost always see a shortage of providers.  And worse, if CON gets eliminated, existing providers get driven out of business by larger, better-funded institutions that cherry-pick the most profitable services – say kidney dialysis – while leaving the smaller rural providers to provide less lucrative services and struggle to deliver quality essential services while still making ends meet.

It’s a powerful argument, made even more so with the backing of one of the most unlikely allies of Certificate of Need in the Sunshine State. Florida TaxWatch, a fiscal watchdog nonprofit group that generally doesn’t care much for the existence of needless government bureaucracy, has a lot of positive things to say about Florida’s CON program:

Florida’s hospice delivery system works. The Certificate of Need Program has intentionally planned and developed a network of high-quality, readily available hospice providers. Florida TaxWatch recommends the CON program be retained in statute, and that hospice regulators continue to identify ways that Florida hospice providers can continue to provide high quality care for Floridians.

One of TaxWatch’s primary arguments in support of the CON program is the trainwreck state of California. By default, many might think America’s most progressive state would have a nearly impenetrable wall of red tape and bureaucrats ready to stand in the way of hospice care innovation, backstopped with a robust Certificate of Need program. But that’s not the case. When it comes to Certificate of Need in hospice care, California is a free-market free-for-all, but the results aren’t pretty.

A May 2023 report published by TaxWatch points out that Governments lack control over where hospice providers locate their services, resulting in clusters near urban areas and dense populations. In Nevada, a state without CON, three-fourths of providers are concentrated in Las Vegas, while the remaining are spread across four other cities. Similarly, in Texas, a third of providers are in five cities that account for less than a quarter of the population.

And then there’s California.

The perfect example of what can go wrong when a state changes or gets rid of a hospice Certificate of Need (CON) program, California has over a thousand hospice providers, and state regulators seem convinced that many of them are committing fraud on a large scale. According to the California Attorney General, just in Los Angeles County in 2019, hospice agencies charged Medicare $105 million more than they should have, and overcharged the state’s Medi-Cal by $3.1 million. Notably, since 2014, the number of hospice providers in California has increased by about 67 percent.

Florida, by contrast, ranks 2nd in the nation in hospice utilization, while California ranks 42nd. While Florida provides complete hospice coverage in all 67 counties, California has eleven counties with no licensed hospice agencies. Meanwhile, Los Angeles County alone has over 1,800, a prime example of providers concentrating their services in high population, high wealth areas, while ignoring poorer, rural counties. In all, California has 22 times more hospice providers than Florida, but served less than one percent more patients in 2021.

The conclusion is hard to ignore: Florida, even with far fewer hospice providers than other big states, manages to serve nearly the same number of patients as California. There may be an argument for improving Florida’s hospice Certificate of Need program to make it less burdensome for potential care providers to get approval to offer additional services. But based on the data, Florida’s Republican lawmakers are right to be wary of California’s wild west approach.