Cashed out: The ethics of state-regulated health care equipment financing

When the staff at an American hospital, clinic or any other kind of health care facility feels the need to make a major investment in equipment – be it beds or day-to-day resources like bandages or IV tubing – one of two things can happen. Either way, they'll send the information through the proper channels in-house and an advisory board will consider whether or not to fund the endeavor. However, in 36 of the 50 states, even if the executives have reached a conclusion, the government must still weigh in on the decision according to law.

"Certificate of need" programs have been at the heart of health care's biggest conundrum for close to 50 years: How do medical professionals increase the quality of their patients' care without increasing overall costs? This month, North Carolina lawmakers will mull over two separate bills targeting the state's CON legislation, one calling for adjustments on the organizations covered under state CON, the other seeking its immediate end. As this controversial program finds its way into the spotlight, let's examine its history and the ramifications of its continued adoption or possible repeal.

"Many states believe CON laws adequately supply hospitals while protecting patients from cost spikes."

What exactly is 'certificate of need'?
Basically, CON forces health care institutions to disclose information regarding large investments to state government, which reviews the necessity of these purchases or acquisitions and ultimately approves or denies the proposal.

In the mid-1960s, New York adopted the first CON laws as checks and balances against frivolous expenditures that would inevitably trickle down into patients' bills. According to a University of Pennsylvania study, national spending on health care ballooned between the 60s and the mid-80s. The general public in 1985 spent more than five times the money invested in medical procedures in 1970. Federal government expenditures on Medicare and Medicaid rose to $95 billion by 1985, more than nine times its contribution only 15 years prior. Once New York passed its CON laws, others followed suit until eventually the federal government mandated total adoption for every state with the Health Planning Resources Development Act of 1974 according to the National Conference of State Legislature.

Though the measure was dropped at the federal level in 1987, many states believe CON laws adequately supply hospitals while simultaneously protecting patients from cost spikes.

Should state government have a say in how hospitals finance their equipment?Should state government have a say in how hospitals finance their equipment?

Not an issue of one or the other
Expensive or not, patient bills ultimately dictate whether or not a hospital or clinic can build and furnish more rooms or purchase high-tech devices to provide more well-rounded care for their patients. Though some might see CON as a redundancy capable of bogging down care with bureaucracy, others argue how the laws are support beams for small hospitals and clinics who could lose business to private practices.

Certain medical procedures draw in more money based solely on the cost of the advanced equipment and grade of medicine used. If smaller clinics were able to bankroll their growth in an unregulated way, they could invest entirely in a single division of medical care. This new specialization would detract great amounts of revenue from other care centers. Sandra Greene, interim chair of health Policy and Management at the University of North Carolina, believes abolishing CON laws could become an issue for modestly sized health care facilities in rural areas.

"The free market doesn't work in most health care," she said to WRAL, "It's going to cost you less for your individual procedure, but in the long run, it's going to cost you more."

Perhaps lawmakers and doctors must find a middle ground to keep patient care at the center of the discussion. A one-size-fits-all measure could be adopted at first, then honed by state legislators in a way that addresses regional needs. According to the West Virginia Gazette, the state's CON laws were amended last year as a proactive approach to providing care for infants born with drug addictions. Clinics like Lily's Place, the facility that inspired the bill, won't have to limit its purchases or seek government approval to expand its services. In turn, the organization can continue to increase its Medicaid billings as it sees fit.

Equipment and healthcare industry piece brought to you by Marlin Equipment Finance, leaders in healthcare equipment financing. Marlin is a nationwide provider of equipment financing solutions supporting equipment suppliers and manufacturers in the security, food services, healthcare, information technology, office technology and telecommunications sectors.