The governors of Kansas and Missouri may have signed a ceasefire agreement on the so-called Border War, but state incentives aren’t the only source of ammo in the race between states to compete for business. In one industry at least, the medical field, Kansas is outgunning Missouri.
That’s in part, due to Missouri regulations, which require would-be medical facility developers to apply for a government stamp of approval, called a certificate of need.
Missouri is one of 37 states that has some version of certificate-of-need, or CON, program. The programs require state approval in order to construct or add to medical facilities and in some cases, like Missouri, even to purchase medical equipment. Medical providers in Missouri must get the state’s stamp of approval in order to purchase medical equipment that costs more than $1 million.
According to Tim Van Zandt, Saint Luke’s Hospital Vice President of Government and Community Relations, state certificate of need programs became fashionable in the 1970s as policymakers looked for ways to control rising healthcare costs. Thinking that buying new equipment and new construction increased the price of delivering health care, federal lawmakers create a Certificate of Need policy.
“So they said we’ll just try to contain those costs by having providers justify the cost of a facility or an equipment purchase,” Van Zandt said.
The feds repealed the requirement in the 1980s, leaving states to decide whether to continue their programs. Kansas eliminated its CON program. Missouri did not.
If a developer hopes to build a medical facility, including a long-term care facility, a rehabilitation center, or even purchase an MRI in Missouri, they must apply for and receive a certificate of need by proving there’s an unmet medical need in the area where the proposed medical facility would be built. Some of the determination of whether there’s a need is based on a formula that considers 2020 population estimates. The formula says that for every 570 people in a geographic area, there’s a need for one surgical hospital bed. There’s a need for one psychiatric bed for 2,080 people in the same area and a need for one pediatric bed per every 3,830 people in a geographic area.
“The bed count stuff is not well-founded in establishing that people’s needs are met in a particular region. The only group that is served by denying the public these services are the incumbent service providers,” says Patrick Ishmael, the director of government accountability at the Show-Me Institute in Missouri.
A bipartisan committee is tasked with approving certificates of need.
“But that doesn’t make it an apolitical committee,” Ishmael says. “All of its members are subject to political pressure.”
Much of the pressure comes from existing hospitals that hope to limit competition, he says. He recalls one instance in which an existing senior care center in Missouri objected to the building of a new senior care center nearby.
“They weren’t just concerned about the competition siphoning patients, but they were concerned about it siphoning some of its employees as well,” Ishmael says.
The lack of competition results in lower wages for health care employees and higher prices for consumers.
“It’s almost like you have a Phillips 66 and a QuikTrip wanted to open up a gas station across the street from it. And Phillips 66 would have the opportunity to say, we have enough. We’ve met our gas station quota here, and you shouldn’t allow QuikTrip to come here,” Ishmael explains. “That is not something that folks would want to see. We do this in healthcare and there’s really no good reason for limiting these services that way.”
Rural hospitals are closing, but there are rarely buyers or CON applicants hoping to reopen those facilities.
Ishmael says one reason is that simply embarking on the application process for a certificate of need doesn’t guarantee success.
Van Zandt says there’s a case to be made in Missouri that it’s much more difficult to open a new hospital or even upgrade an existing one. He listed community-owned hospitals in Trenton and Chilicothe, Missouri, that Saint Luke’s operates.
“The hospitals had been around for 40 or 50 years. We were just wanting to replace them,” he said. “There’s a whole slew of hurdles to jump through.”
In Garnett, Kansas, however, Saint Luke’s recently built a replacement hospital for one the company operates.
“It just came down to making the business case in terms of securing financing,” he said. “You didn’t have to go through the state for approval.”
However, when the Kansas City Star published an article about a medical building boom in Johnson County, the author argued the boom is due to a high percentage of Johnson County residents who use private insurance. Private hospitals need a high percentage of individuals with private insurance to subsidize the cost of patients relying on Medicaid and Medicare, neither of which covers the full cost of most healthcare services. That often requires population density. And then in Missouri, potential projects face the certificate-of-need hurdle. For rural areas, requiring a certificate of need for medical equipment or for new medical facility construction is a triple whammy.
“Building a new hospital has to make business sense,” Van Zandt says.
When Saint Luke’s Hospital System wanted to provide an additional service in the Kansas City metro area, deciding to build in Kansas rather than Missouri was an easy choice. The hospital system hosted a ribbon-cutting for its state-of-the-art Saint Luke’s Rehabilitation Institute in August. The destination facility will draw patients from the Kansas City metro and beyond to utilize its leading-edge neuro-robotic equipment, participate in the latest clinical trials and to recover from brain and spinal injuries.
“Clearly, the ability to build without state approval was a large reason why we ended up building in Kansas,” he said.
Though proposals to change or repeal Missouri’s certificate-of-need regulations are sometimes introduced in the state legislature, they don’t get much traction, according to Ishmael. Existing hospitals and medical facilities typically balk at the possible competition.
“Certificate of Need puts a thumb on the scale for a relatively small number of well-represented business interests,” he says. “It’s against the interests of the public whose health care is on the line.”
The Border War ceasefire ended the use of state incentives to lure businesses from one state to hop the Missouri-Kansas border, but Missouri health care facilities are prohibited from receiving incentives from the state either way.
Ishmael says the agreement between Govs. Laura Kelly and Mike Parsons is a step in the right direction, despite it leaving health care facilities out of the equation.
“Time will tell how durable this truce is,” he said.
