Economics

The Real Cost of CON Laws: The Long, Hard Road to State Approval

A surgery center offers much-needed services for consumers and confronts the power of a monopoly

Image Credit: Huntstock/Getty Images

“I would expect this to get worse and worse actually, as we get more healthcare consolidation—bigger entities running hospitals—because at larger and larger sizes, they just become more sophisticated and powerful when it comes to rent-seeking behavior, and they know how to use things like CON boards to shut down potential competition.” —Eric Citron, attorney

Almost six years ago, Amy Cooper submitted a certificate-of-need (CON) application to open a “multi-specialty” ambulatory surgery center in Colchester, Vermont, the only one of its kind in the state. Under current law, any new medical facility or significant expansion of an existing facility must get approval from the Green Mountain Care Board before it can build and begin operations. In its original application, Green Mountain Surgery Center identified five specialty surgeries it planned to offer—gastrointestinal, pain management, gynecology, orthopedics and general surgery.

As Cooper, who is the center’s CEO and lead investor, points out, “We originally included only specialties for which we already had commitments from the doctors, but we knew that other doctors in other specialties would show interest—such as podiatry, urology and ear nose and throat—so our application was for an Ambulatory Surgery Center not limited by specialty.”

It took two years of debate and intense opposition before Green Mountain won approval for a CON. One of the biggest obstacles it faced was incumbent competitors who opposed the application. The Vermont Association of Hospitals and Health Systems, which includes the University of Vermont Medical Center (UVM), and Northwestern Medical Center (NVM), filed motions to intervene as interested parties. Jill Berry Bowen, CEO of NVM, warned that should the new surgical center be allowed to open, the community “could be negatively impacted by higher costs and restricted access” as a result of the financial challenges her institution would face.

Green Mountain finally received a CON in July 2017, after which it was allowed to begin construction of the facility, an investment of $11 million. By March 2019, the surgery center was ready to welcome patients. Even then, however, the center continued to deal with red tape. For example, before it could open publicly, it had to win Medicare certification. This involved a rigorous two-day inspection, plus an unannounced visit to observe actual medical procedures, such as colonoscopies. This further delayed Green Mountain’s opening.

These protracted steps to CON approval and a fully operating business were both irksome and ironic. The state of Vermont has very high healthcare costs—some of the highest per capita in the nation. Experts say that it is because the UVM Health Network has essentially monopolized the medical system in the state. Surgical centers such as Green Mountain generally offer less expensive and more efficient options for patients than do hospitals for certain procedures and surgeries. So it is troubling to see the state put up obstacles to giving patients more broadly available and cost-efficient medical services.

Four months after Green Mountain opened its doors in 2019, the Care Board decided to restrict the center to the five specialty surgeries listed in the application. That was a problem, because during the time it had taken for the CON application to be approved—and the center to be built—a number of the initial partners had left, as had some of the original surgeons who’d intended to use the surgery center. At the same time, new surgeons, with different specialties, came on board. In short, by the time Green Mountain opened, the specialties listed in the original application had changed.

Image Credit: Top Kat Photography

The Care Board’s decision to restrict the surgery center to five areas of practice was largely based on objections raised around adding cataract surgery to the list of Green Mountain specialties. In Vermont, cataract surgery is a lucrative and growing business, due in part to the state’s aging population. In a series of letters to the Care Board, Dr. Juli Larson, founder and medical director of The Eye Surgery Center in South Burlington, opposed allowing Green Mountain to perform cataract surgery, arguing that it would negatively affect her ability to retain her current ophthalmology patients, as well as to attract new surgeons and investors.

One interested party—the Vermont Education Health Initiative (VEHI)—begged to differ. VEHI is a 43,000-member nonprofit that provides health benefits to school employees and their dependents. In a court filing in support of the surgery center, it argued that cataract procedures are about half as expensive in ambulatory surgery centers such as Green Mountain than they are in hospitals.

So, in December 2019, Green Mountain took legal action, asking the Vermont Supreme Court to free it from the limits placed on it by the Care Board. Green Mountain argued that it shouldn’t have to go back to the Care Board every time it wants to add a specialty. It also argued that although the CON imposed 29 conditions on how the center could operate, none of them included a restriction on the types of specialties it could offer.

Eric Citron, an appellate attorney from Washington, DC, who was hired to represent Green Mountain, admitted that when it comes to antitrust enforcement, he doesn’t exactly have  a libertarian viewpoint. But he believes CON laws are an issue where people from different camps can see eye to eye. Characterizing CON regulations as “an abomination,” he stressed how the Green Mountain case was “a really good example of the way these kinds of laws frustrate growth, investment, and efficient operation of markets.”

Citron called the state’s CON regulations a “make it up as you go” legal system where regulators go easy on a hospital when it wants to add a specialty or build a new facility, but make it hard on any potential competitor. For Green Mountain, this dynamic forced it into a kind of Rube Goldberg machine, where what should have been a very simple process was overly complicated, protracted and confusing.

In early October 2020, Green Mountain lost its appeal before the state’s supreme court. The Care Board had argued that it had approved the surgery center’s CON based on “detailed projections” of caseloads in the five specialties it expected to offer. While the Care Board acknowledged the potential for future demand from surgeons in other specialties, that didn’t give Green Mountain carte blanche to simply add specialties. The Care Board asserted that it had always intended to limit the types of procedures that could be done at Green Mountain. The court agreed, dealing Green Mountain a setback.

After the decision came down, Cooper remarked that not only was the long-term viability of the surgery center “seriously undermined,” so was its ability to adequately serve the needs of the community. As a result of the ruling, Green Mountain will not be able to add any new specialties for nearly five years.

Throughout the appeals process, the surgery center had tremendous backing from the local community. According to Citron, the outpouring of public support for what Green Mountain was trying to do was overwhelming. As Citron shared, “There were literally hundreds of people who wrote letters saying, ‘Please don’t stand in the way of this.’ Unfortunately, that won’t have as much impact as the voice of one hospital that is a monopoly provider.”

Citron describes Green Mountain’s efforts to get a CON as “herculean.” Dr. David Weissgold, who has a small private practice in South Burlington and is one of Green Mountain’s partners, agrees. In a December 2019 article in the Burlington Free Press, Weissgold said he had hoped to do retina surgery at the Green Mountain Surgery Center. But after the court’s ruling, that may not happen for some time, if ever. “The Green Mountain Care Board is trying to change the rules of play,” says Weissgold, “after literally years of applications and many rounds of questions—all of which were answered to their earlier satisfaction. Vermont’s CON regulatory apparatus has gone off the deep end.”

There is no easy way to scale back CON laws: it is a state-by-state battle that relies on convincing legislatures and courts in the 39 states that have them that it is in the public interest to have more competition among healthcare providers. “There should be bi-partisan support for getting rid of these regulations,” says Citron. “But at the local level it’s very hard to circumvent the power of incumbent interests.”

Cooper admits that the application process was arduous, but insists that they’d go through it all again on behalf of their community: “The most difficult aspect was trying to interpret vague or confusing conditions that were placed on the CON. We always knew the process would be difficult before we even started out. But it is definitely worth it to be able to bring patients another option for accessible affordable care in this community.”

This article is the third in a series that looks at the real-world cost of certificate-of-need (CON) laws. The first article in the series focuses on how CON laws interfere with care and treatment options for patients. The second article focuses on how CON laws prevent businesses from serving the urgent needs of customers of healthcare services.

Submit a Letter to the Editor
Submit your letter
Subscribe to our newsletter