Certificate of Need and the
Price Paid for Inpatient Services
for Privately Insured Patients
William S. Custer, Ph.D., Robinson College of Business
Patricia Ketsche, Ph.D., Robinson College of Business
Mei Zhou, MS, Georgia Health Policy Center
Dawuud Ujamaa, MS, Georgia Health Policy Center
This research was supported by funding from the Department of Community
Health and the Georgia Commission on the Efficacy of the Certificate of Need
Program.
Why study CON……AGAIN?

Extensive literature that indicates that CON
affects markets but has little or no effect on
hospital costs and does not slow health care
cost inflation:





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Salkever and Bice (1976, 1979)
Sloan and Steinwald (1980); Sloan (1981)
Joskow (1981)
Farley and Kelly (1985)
Sherman (1988)
Conover and Sloan (1998)
Evidence Is Not Widely Accepted
States with recent /
current CON study
groups or commissions
 Georgia
 Maryland
 Michigan
 Missouri
 North Carolina
 Illinois
 Washington

Commissions presented with
non-peer reviewed studies
suggesting that CON controls /
reduces cost
 Often commissioned by
hospitals and hospital
associations

Policymakers weigh prior peer
reviewed studies equally with
consultant reports and anecdotal
evidence
Georgia Commission Asked:




Does CON restrict the supply of services?
Does CON affect consumer costs?
Does CON affect the quality of health care
services?
Does CON affect hospitals’ abilities to provide
care to the uninsured?
Research Methods

Compared Georgia to 10 other states with
varying degrees of CON rigor. Surveyed
states and found



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3 non-CON states
4 states with less rigorous CON programs
3 states with comparable CON programs
Used hospital discharge data to define
markets using patient flows
Market Structure

Hospital Competitiveness - HHI

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Most markets above FTC guidelines for
competitive markets
Markets in general have become less competitive
No association between change in
competitiveness and CON
Tier 2 CON states are significantly associated
with less competitive markets
Data / Methods

Study of prices paid by private patients


If there are economies of scale/ scope, CON could lower
production costs
If CON restricts competition incumbent providers could
raise prices to private payers

Assume public payments are unrelated to CON

MedStat private inpatient claims data for 2 years

Estimated reduce form price equation (fixed effects)
Findings

CON is associated with higher inpatient
prices for privately insured patients

The effect is robust with respect to:

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Diagnosis and procedure
Specification of CON as binary or ranked by rigor
Effect of CON on inpatient costs is smaller in
rural areas
The number of Ambulatory Surgery Centers
per capita is associated with higher utilization
rates and higher inpatient prices
Other Findings

CON has no measurable effect of hospital quality

CON has no measurable effect on access for the
uninsured

However, in CON markets the ambulatory care
sensitive (ACS) admissions for the uninsured were
higher
Implications of the Findings

If CON reduces production costs, privately
insured consumers do not benefit

CON could reduce the need to explicitly
subsidize providers through taxes and
provider payments

CON and Medicaid reimbursement may not be
independent
Arguments Made by Stakeholders

Argument 1: Hospitals require CON to ensure
access


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We do not see higher admission rates per
uninsured
We do not see evidence of improved primary care
access for the uninsured
Argument 2: Hospitals require CON to
ensure quality

We see no association between quality outcomes
and CON
Conclusion

Additional (recent) peer reviewed research is
needed to inform the ongoing debate.


Findings suggest the need for broader analysis of
the distributional effect of CON on health care
costs
Importance of translational work to make the
entire body of research accessible and useful
to policymakers.
Certificate of Need and the
Price Paid for Inpatient Services
for Privately Insured Patients
William S. Custer, Ph.D., Robinson College of Business
Patricia Ketsche, Ph.D., Robinson College of Business
Mei Zhou, MS, Georgia Health Policy Center
Dawuud Ujamaa, MS, Georgia Health Policy Center
This research was supported by funding from the Department of Community
Health as part as part of a larger analysis of the effect of CON in Georgia on cost,
quality, and access.