The CON statute, enacted in 1979 as a part of the Pennsylvania Health Care Facilities Act, was designed to contain rising health care costs by avoiding unnecessary capital expenditures, and intended to ensure the access and quality of care to specific complex medical procedures, including, among others: open heart surgery, ambulatory surgery centers, MRI and PET. The statute, considered at the time to be ineffective or only marginally successful in controlling costs, was allowed to expire in December of 1996.

Since the CON expiration, the rapid proliferation of "niche providers" including imaging centers, specialty services, and outpatient ambulatory surgery centers has some powerful stakeholders, including organized labor and some in managed care claiming a health care market without CON is a health care market out of control. Others, like hospitals and doctors, say CON is too restrictive, discourages competition, and is not the answer to what ails the system.

Legislators, convinced that only stricter regulation can quell unfettered growth and rein in costs, have introduced legislation in both the House and the Senate to reestablish a CON program. "This is part of my ongoing effort to limit surging costs of health care for workers and businesses," says Pa. Rep. Phyllis Mundy (D-Luzerne), a co-sponsor of one of the House CON bills. Mundy contends that increases of this magnitude "are just not sustainable for Pa. families, individuals, or business and labor."

Analysts concur. As the burden of double-digit cost increases shift to those who use health care services, researchers predict workers and employers will find it increasingly difficult to pay for family health coverage. The average annual employee-sponsored health insurance premium rose five times faster than workers’ earnings in 2004, according to the Kaiser Family Foundation.

One cost driver considered to play a significant role in the dramatic increases in health insurance premiums is the extraordinary growth and utilization of advanced diagnostic imaging. Diagnostic imaging is the fastest growing medical expenditure in the United States with an annual growth rate of nine percent. And there are no signs of a slowdown; the American College of Radiology (ACR) reports that over 500 million imaging procedures were performed last year alone. In Pa., the growing number of imaging centers and their utilization has placed imaging on the CON-policy hot seat. A November 2003 Health Affairs report on the relationship between the technology availability and health care spending finds that the number of freestanding (non-hospital) MRI units in Pennsylvania increased 47 percent from 1999 to 2001. Moreover, ACR data shows that for that same time period, utilization in Pa. rose as well, with the number of MRI scans increasing by more than 45 percent. Concerns about overutilization of imaging services have prompted policy review among insurers and government agencies alike. And, while some conclude that self-referral, patient demand and physicians practicing defensive medicine are what’s behind escalating utilization, advocates for CON say the Health Affairs report, which finds that the availability of technology alone is almost always associated with increases in utilization and spending, supports their case for reenactment. Under CON, healthcare facilities are required to prove they are providing a needed service in the communities in which they operate before receiving approval to construct or expand facilities.

Advances in medical technologies and the growth in spending associated with such services may have not been foreseen, but other growth –without the constraints of CON regulation - was predicted. A November 1996, Legislative Budget and Finance Committee report recommending the reauthorization of CON, warned legislators of increasing costs due to an expected greater proliferation of services, such as open heart surgery, long-term care and ambulatory care, without CON oversight.

It took exactly one day for the committee’s prediction to come true. On December 19, 1996, the day after CON expired, Abington Memorial Hospital, a hospital formerly embroiled in a battle against CON, entered the heart-surgery market. And the open heart surgery market has grown from there. Between 1990 and 2002, the number of hospitals in Pennsylvania with open-heart surgery units grew from 35 to 62. Volume, on the other hand, has not kept pace. According to a PCH4 report on coronary artery bypass graft (CABG) surgery, the average number of open-heart surgeries per hospital, including CABG, has slipped from 499 in 2000 to 408 in 2002. While there is no consensus on a correct volume threshold number, some, including the Leapfrog Group, say the national standard should be 450 bypasses a year – the number once required under Pa.’s CON. In 2002, only seven hospitals reporting to PCH4 had enough volume to meet the former CON standard. Mary Ellen McMillen, Vice President of legislative policy for Independence Blue Cross (IBC) calls that fact, "disturbing," and reason enough to "re-enact" CON.

Experts say the number of surgeries performed in a hospital does not provide a definitive picture of a program’s quality, but contend there remains a strong link between volume and outcome. Drilling down in the PCH4 data to measures per-surgeon, says David Nash, M.D. M.B.A., Chair, Department of Health Policy, Thomas Jefferson Medical College, reaffirms the connection. According to the report, patients treated by surgeons with the highest number of surgeries (200-250 procedures) were twice as likely to survive in the hospital than those patients treated by surgeons with less than 100 procedures a year. That said, PCH4 reports improvement in overall quality, with both readmission and inpatient mortality rates following CABG surgery dropping between 2000 and 2002. Nash disagrees. "We were lucky." Furthermore, Nash contends mortality is a crude measure of quality. "It was an important measure in 1994," he says, "but advances in medicine over the past ten years call for better measures," including statistics like time before returning to work, and incidents of post-op depression.

Ambulatory surgery centers (ASCs) have also flourished in a market free of CON. Since 2000, the number ASCs licensed in Pennsylvania has risen from 104 to 161 - forty-eight of which opened last year. And utilization is booming; the 2004 American Hospital Association (AHA) Survey reports Pa. ambulatory surgery per 1,000 members to be 32 percent higher than the U.S average. PCH4 data shows patient visits to ASCs have increased 83 percent between 2001 and 2003, growing from 279,335 visits to 501,781 visits respectively. Mundy contends this growth raises two concerns – cost, because of duplication; and quality, because fewer procedures are performed at each facility. Earlier this year, the House, prompted by quality concerns, passed a resolution requiring the Legislative Budget and Finance Committee to review the need for performance standards for clinically effective care at the surgical centers outside of hospitals. The report is due sometime later this month.

Some opposed to the reinstatement of CON say the utilization of these facilities is a testament to the need for and quality of the services rendered, and that ASCs are more efficient than hospitals. Patients wouldn’t be showing up (at ASCs) if there wasn’t a need, says Jitendra M. Desai, M.D., former President of the Pennsylvania Medical Society. Desai contends the push for the reinstatement of CON is due to the loss of business by hospitals to the "more efficient" outpatient facilities, noting that nearly one-fifth of all outpatient surgical and diagnostic procedures were performed at ACSs last year, up from nine percent in 2000 "They’re stripping back our efforts."

Pennsylvania legislators, in exploring reasons for the reinstatement of CON, did consider "the preservation of acute care institutions." In the past ten years, the number of general acute care hospitals (GAC) in Pa. has declined from 197 to 178, and approximately 4,800 acute care beds have been taken out of service. The AHA reports that this decline in capacity is a national trend, due, in part, to shortened lengths of stay and an increasing number of outpatient procedures. That said, AHA statistics for 2002-2004 rank Pa. the third highest of all states for hospital utilization. However, PCH4 reports show that utilization has not resulted in profits; nearly half of Pa.’s GAC hospitals lost money last year, and over 38 percent sustained losses over the past three years.

Nevertheless, hospitals are not necessarily in favor of returning to the days of CON. This September, Andrew Wigglesworth, President of the Delaware Valley Healthcare Council (DVHC) argued, before legislators, that the Hospital & Healthsystem Association of Pennsylvania (HAP), of which DVHC is a part, believes, "rather than simply re-enacting the old CON law, there is a better way to ensure quality and contain excess capacity." HAP’s "better way" seeks to ensure fair competition through inclusion with regard to regulation. "The old CON focused on hospitals," says Paula Bussard, Senior Vice President for Policy and Regulatory Services at HAP. "We want equity in regulation." Citing the results of a Federal Trade Commission (FTC) and Department of Justice (DOJ) joint report, which concludes that, "CON programs are not successful in containing health care costs and, indeed, pose serious anticompetitive risks that outweigh their purported economic benefit," HAP is calling on the legislature to update and expand licensure regulations under the Health Care Facilities Act instead. Bussard says regulation should not just be about hospital care, and contends regulating limited service providers, including imaging centers and endoscopy suites, and restricting the "widespread introduction of specialized health-care services" will mean an improved standard of quality for all.

The federal report referenced by HAP has had a significant impact on the Pa. CON debate. The July report, which concludes that vigorous competition is what promotes the delivery of high-quality, cost-effective health care, gave pause to some stakeholders calling for CON-type regulation, none of which were more influential than the state’s largest health insurer, Highmark Inc.

Highmark, once a supporter of CON, changed its position after reviewing the FTC/DOJ report. The report recommended that states with CON reconsider the regulatory law because of the way it forestalls competitors from entering an incumbent’s market. Highmark agrees. CON protects mediocre providers, says Michael Warfel, Vice President of Government Relations for Highmark. "We don’t want to say what number is the right number (of facilities). We want consensus building - clinicians working with regulators to determine standards for quality." The insurer is advocating for the passage of House Bill 2771 (HB2771) – a bill that mirrors a peer-review model used by the New York State Department of Health, which links facility licensure, peer review, and data analysis. Peer review not only raises the bar on quality standards, it provides competition based on quality, says Betsy Taylor, Esq., regulatory affairs attorney for Highmark.

Highmark’s change in position changed the dynamics of the debate, says Pa. Rep. Matt E. Baker (R-Bradford/Tioga), Subcommittee Chairman on Health and Human Services and the author of House CON bill (HB2760). It’s been a major catalyst for the consideration of other regulatory options, says Baker.

HB2771 was passed in the House on November 9, and was referred to the Senate committee for consideration. Key features of the bill include:

·  Updating health care facility licensure regulations, establishing key quality indicators that will measure performance and outcomes, and analyze health care facility- and physician-specific data for specialized health care services.

·  Establishing State Clinical Advisory Committees, within the Department of Health, to conduct peer review of specialized health care services, including consulting with health care facilities and physicians regarding the results of on-going monitoring of data and information.

·  State Clinical Advisory Committees will advise the Department of Health on what licensure actions to take when indicators fall below acceptable ranges over a set period of time in an effort to solve quality problems and to improve program performance. Failure of health care facilities that provide specialized health care services to meet key quality indicators and correct deficiencies over a defined period of time can result in the facility losing the ability to provide that health service.

Baker, who supports the passage of HB2771, says it wasn’t just Highmark’s switch that contributed to tabling of his CON bill (the bill once thought to have the most potential for passage); it was the memory of a bureaucratic CON. "It conjured up bad thoughts," Baker says. "The whole issue was a bigger challenge than anyone thought, and while there were good points on both sides, we couldn’t reach consensus."

Others are not convinced. Mundy still supports some version of CON, and says of the FTC/DOJ report, "The proof is in the pudding." Pennsylvania health care has been functioning in a free market for eight years, and costs have soared, she says. Business groups agree. "Something’s got to give," says Cliff Shannon, President of SMC Business Councils. Shannon contends the market alone is not enough because providers don’t do a good enough job at regulating themselves and health insurers don’t control utilization.

Some insurers are trying. This summer, Highmark, in an attempt to control inappropriate utilization of imaging, embarked on an aggressive initiative that called for not only the recredentialing of all imaging providers under rigorous quality standards, but for stricter referral procedures, including the return of pre-authorization for some tests as well. And, while the concept of a return to tightened managed-care controls may send a proverbial chill down the spine of physicians already hindered by administrative duties, patients seem ready for a change. A study published last month out of the University of Chicago says consumers, once the arbiters for choice, but now burdened with higher health insurance premiums and increased cost sharing, appear receptive to a return of some managed care practices for the sake of controlling costs.