Iowa hospitals use state law to stifle competition, critics say

Certificate of Need law, in Iowa since 1977, exists in most states

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CEDAR RAPIDS — Ceiling-mounted microscopes, sterilizers and phacoemulsification equipment sit dormant in Dr. Lee Birchansky’s operating rooms — hundreds of thousands of dollars wasted because Birchansky can’t get state permission to do cataract surgery in his office at the Fox Eye Laser and Cosmetic Institute on H Avenue NE.

Birchansky operated in these rooms for six years, but in 2004 — after Birchansky asked for a change in ownership — UnityPoint Health-St. Luke’s Hospital pulled out of the deal. When he tried to get his own certificate for outpatient surgeries, which cost less than in hospitals, the state said no — four times.

“There were three entities objecting — Surgery Center Cedar Rapids, Mercy and St. Luke’s,” Birchansky said. “They all had reason to make sure no competition was entering the marketplace.”

Iowa’s Certificate-of-Need (CON) law, in place since 1977, is intended to prevent duplication of expensive health services in communities. But critics say it stifles competition that could lower costs for everyone.

Among the growing list of critics is Iowa Gov. Terry Branstad, who has spoken out against the process several times this year.

“The established health care provider uses this as a way to keep out competition,” Branstad told The Gazette last week.

Branstad said he was frustrated the State Health Facilities Council blocked a Tennessee company’s request to build a 72-bed psychiatrist hospital in Bettendorf at a time when mental health beds are in high demand.

The proposal is expected to come before the board again in October, along with a request by Mercy Medical Center in Cedar Rapids to start a cardiovascular surgical program that would allow the hospital to perform open-heart surgeries.

Most states have CON

Thirty-five states have CON laws, according to the National Conference of State Legislatures. Three additional states, Wisconsin, Minnesota and Arizona, have limited oversight of facility expansion.

Iowa’s CON law requires entities, including hospitals, nursing homes and ambulatory surgery centers, that want to offer new or changed health services to apply for a certificate. Any equipment purchase, lease or donation of $1.5 million or more in a year is subject to review.

The Health Facilities Council may grant a CON only if there aren’t “appropriate alternatives” or if other facilities providing similar services aren’t using them efficiently.

This opens the door for rival facilities to argue before the board they are already meeting patients’ needs.

“It’s absurd that a competitor can weigh in with state government to prevent the company from competing with them,” said Dr. John B. Dooley, a Davenport-based anesthesiologist.

Dooley and Dr. Michael Hendricks, a Burlington orthopedic surgeon, have filed a letter of intent with the council to start an outpatient surgical facility in Burlington that would focus on pain-management surgeries, such as carpal tunnel surgery or spinal cord implants.

Dooley said the Great River Medical Center in West Burlington has thrown up road blocks to scheduling surgeries there, so he’d like to go on his own. The hospital already has filed its opposition.

Great River did not immediately respond to a request for comment.

David versus Goliath

Critics of CON say it limits available services and allows hospitals to keep out new providers.

When St. Luke’s and Mercy Medical Center argued in 2008 Birchansky shouldn’t get permission to open an ambulatory surgery center for cataract surgeries, they said their similar units were half or less full.

And yet in January 2015, Mercy announced it planned to lease space in Hiawatha for an outpatient surgery center “primarily for ophthalmological surgeries” — the same type of procedures Birchansky had been trying to offer for years.

Mercy applied to the council for a letter stating it did not need a CON to offer outpatient surgery services in Hiawatha because its lease at 1195 Boyson Rd. was only $1.14 million a year.

The Surgery Center of Cedar Rapids, a partnership with St. Luke’s, questioned Mercy’s cost estimate. When Mercy supplied itemized costs, the total for the Hiawatha expansion rose to $1.34 million — still under the $1.5 threshold for CON review.

The council greenlighted the project in February 2015 and Mercy broke ground last August.

“History constantly repeats itself,” said Birchansky, who continues to do in-hospital cataract surgeries in Cedar Rapids, Anamosa and Maquoketa.

But Scott McIntyre from the Iowa Hospital Association said hospitals aren’t flouting the law.

“I understand there are entities out there that feel hospitals have an inroad,” he said. “But they (hospitals) aren’t circumventing the process. That is the process.”

Has CON saved money?

Proponents of CON say it reduces health care costs.

The Center for Healthcare Research and Transformation, a collaboration between the University of Michigan and Blue Cross Blue Shield of Michigan, reported in May the $2,624 per capita health care spending in Michigan in fiscal 2013 was lower than neighboring states without CON laws.

The Iowa Hospital Association shared statistics showing Iowa’s Medicare spending per beneficiary in 2012 was $8,201 — below the national average of $9,687 and lower than Nebraska ($8,868), Missouri ($9,627) and Oklahoma ($10,243).

However, several non-CON states — including North Dakota, South Dakota, Idaho and Wyoming — had lower Medicare spending than Iowa.

“I’m not arguing that CON is why Iowa does well, but it’s our position that CON does contribute positively to quality and cost,” McIntyre said.

Critics of CON say competition among health care providers offering the same services ultimately will lower costs for consumers. The Federal Trade Commission and Department of Justice agreed in a 2004 report that recommended states consider ditching CON.

“The agencies believe that, on balance, CON programs are not successful in containing health care costs, and that they pose serious anticompetitive risks that usually outweigh their purported economic benefits,” the report stated.

Further, Medicare reimburses ambulatory surgery centers — such as the ones Birchansky and Dooley want to operate — at a lower rate than hospitals.

Medicare rates were 81 percent higher for hospital-operated outpatient departments than ambulatory surgery centers in 2014, according to MedPac, an independent government agency that advises Congress on administration of Medicare.

The Iowa Hospital Association’s McIntyre and other CON supporters warn abolishing the laws could allow new providers to cherry-pick lucrative health services in competition with hospitals. If hospitals lower their prices to compete, they may not be able to subsidize lower-reimbursement services, such as labor and delivery.

Several rural Georgia hospitals have shuttered their baby units in recent years, according to Georgia Health News. However, competition among health care providers is more likely to occur in urban or suburban areas where there is population growth.

“Nobody is claiming hospitals in Iowa are in immediate danger,” said McIntyre of the Iowa Hospital Association. “But without Certificate of Need laws, there is a danger there.”

Governor expects CON review

Branstad said he has been speaking with Republican lawmakers about legislation to overhaul CON or eliminate it. Possible changes include raising the cost threshold that triggers CON, increasing the size of the council and exempting ambulatory surgery centers from the process.

“I think it should be abolished,” said Rep. Linda Miller, R-Bettendorf, about CON. Miller, a registered nurse, has strong opinions about the process, but she’s stepping down from elected office. “I’m hoping there will be legislation, but I don’t know who will have enough guts to bring it forward.”

Rep. Ken Rizer, R-Cedar Rapids, who sits on the Human Resources committee with Miller, said he needs more information.

“I’m for increasing choice, and access and competition is a good thing, but I don’t know enough to make a cogent comment,” he said.

Branstad, who has tangled with hospitals over the Medicaid privatization, said hospitals will fight changes.

“You’re up against a very powerful lobbying group there, but the public interest is what we need to be representing,” he said.


LThe members of state board that decides whether Iowa hospitals, nursing homes and other health care facilities may expand are little known, except for groups that need their go-ahead.

The State Health Facilities Council, appointed by the governor and confirmed by the Iowa Senate, serves six-year terms.

Here are those members:

Roberta Chambers, 70, a Corydon Independent, joined the council in 2011, to fill a partial term, then was reappointed in 2013.

After being a stay-at-home mother, grain elevator employee and bridal store owner, according to the Corydon Times-Republican, Chambers earned her law degree at Drake University in 1991.

She retired from law practice in 2014, the same year ► Iowa ◄ Gov. Terry Branstad named her daughter, Dusti Relph, a 5th Judicial District Court judge.

Robert Lundin II, 70, a LeClaire Republican, has served on the council since 2011, when he retired as a corporate executive for the Quad Cities Chamber of Commerce.

The bulk of Lundin’s career was as a hospital administrator in Iowa, Illinois, Arizona and Washington state. Included in that was 11 years as a branch president for UnityPoint Health Trinity in the Quad Cities.

Connie Schmett, 70, a Clive Republican, was appointed to the council in 2013. Her application for the position listed her job at that time as a lobbyist for Schmett & Associates, a Clive firm.

Schmett worked for Branstad from 1988 to 1996, in part processing paperwork for Iowa inmates applying for commuted prison sentences and released offenders asking for rights to firearms or voting, she said on her application.

Roger Thomas, 65, an Elkader Democrat, was appointed to the council in 2015. The retired state lawmaker has been director of the Elkader Development Corp. since 2007.

Thomas served in the Iowa House of Representatives from 1997 to 2001 and from 2003 to 2015. Before his retirement, he was ranking member on the economic growth committee and served on committees for natural resources, veterans’ affairs and ways and means.

The fifth seat on the health facilities council has been vacant since May 3, when Amy Skinner resigned before moving to South Dakota. Branstad said he’s reviewing applications and hopes to name a replacement ► yet ◄ this summer.

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