How D.C.—and 16 Other States—Hurt Patients in the Name of Protecting Them

"Certificate of Need" rules needlessly restrain competition in the health-care industry.

In 2010, Melanie Lamar wanted to expand her business, Right at Home, which since 2005 has provided in-home medical care to hundreds of Washington D.C. residents. Right at Home helps people who are sick, disabled, or elderly but don't need a hospital or nursing home. A registered nurse from a military family, Lamar wanted to hire licensed and board-certified physicians, physical and occupational therapists, and nurses to help veterans who were coping with serious physical trauma, post-traumatic stress disorder, and an array of other issues.

According to staff at Walter Reed Army Medical Center and the D.C. Veteran's Administration hospital (VA), veterans living in the district need more home-care options. In most of the U.S., that would be enough for an experienced practitioner like Lamar to get started. But in 16 states and D.C., home health agencies that send skilled medical professionals directly to patients must get permission from the government. And when Lamar asked to expand the city's health planners told her no. 

She is one of many. Since 2007, the district's State Health Planning and Development Agency (SHPDA) has rejected 46 of the 49 home health applications submitted—including all 21 of the applications submitted in the last three years. "They're hurting the residents of the District by this silent moratorium because they are not allowing new, fresh agencies to come on board that are providing quality services," says Lamar.

Before offering new or expanded services, home health agencies must obtain a certificate of need (CON) from SHPDA. And to do so, applicants must convince SHPDA that there is a public need for the services they propose to provide—an impossible task because SHPDA has decided that the city's 27 existing providers are satisfying all demand.

"It's like you saying to a certain extent that you have enough doctors in the District of Columbia so you won't license any more doctors," says Eric Walcott, executive director of the D.C. Home Health Association, a trade group. "You can't do that really. No one ought to have the ability to do that. The marketplace will dictate that—if, in fact, doctors are not receiving enough clients. What will they do? They'll go where they can find the opportunity."

D.C. adopted its CON requirement in 1980 in response to a federal law, the Health Planning Resources Development Act, which required states to create health planning agencies with veto power over the provision of new medical services. Congress jettisoned the mandate, which was intended to restrain health care spending, in 1987.

Since then 14 states have dismantled their CON regimes entirely; D.C has not. As a result, no one buys, builds, moves, or expands a hospital, outpatient center, clinic, hospice, or nursing home in the District without SHPDA's permission. Nor do they purchase high-tech equipment, perform new medical procedures, put ambulances on the road, or manage skilled care in the home without the nod from SHPDA.

Before granting a CON, SHPDA purports to assess whether the new venture is financially viable, has a coherent business plan, and, of course, whether there is a public need for the proposed services. This, according to D.C.'s State Health Plan, protects "residents by increasing the accessibility, continuity, and quality of health services, restraining increases in health care costs, preventing unnecessary duplication of health resources, and maintaining and enhancing competition in the health service area."

Applicants must submit a 74-step application, along with a $5,000 to $300,000 fee, depending on the size of the project. Typically, applicants also hire a consultant to guide them through the process, which pushes the cost of applying well into the five figures for home health agencies, as it did for Lamar.  

Businesses that already hold a CON can object to applications from potential competitors and can even sue to tie new entrants up in litigation. That hasn't happened since 2003, however, when an existing provider tried to prevent the opening of a new 20-station dialysis center and lost in the D.C. Court of Appeals (the district's highest court).

(Story continues below video.)

[Click above to watch Reason TV's "Treat Me Like a Dog: What Human Health Care Can Learn From Pet Care," which looks at the way that certificate-of-need programs affect the amount and level of health care.]

Lamar thought she had identified an underserved niche. Only two existing agencies contract with Walter Reed and the VA—and neither of them offered physician visits or had staff trained specifically to work with veterans. Moreover, head discharge planners at both hospitals wrote to SHPDA, testifying that current providers "fail to show up for veterans who are dependent on their care," are "over capacity," and that there is a "strong need [for] a home care agency that provides physician house calls."

But SHPDA ruled Lamar had "not demonstrated the need for an additional home health agency," citing a lack of precise data on the number of veterans living in D.C. who are not receiving adequate home care. (Walter Reed and the VA did not respond to Freedom of Information Act requests for this data.)

Asked if 49 applications in five years might indicate a market opportunity that is not apparent to SHPDA, Department of Health (DOH) spokesperson Mahlori Isaacs said, "The people applying cannot determine the need…. [SHPDA] knows if there's a need or not just based on how we work with the community and the organizations that we've already given a CON."

It's not clear, however, that community input plays much of a role in SHPDA's decision-making. Lamar submitted 30 letters of support from long-term-health advocates, local health professionals and clients, and even city health workers—and was rejected. Kennedy Care, another rejected home care applicant, provided letters of support from the local Advisory Neighborhood Commission (a neighborhood association that voices neighborhood concerns to city government) and from Councilman Harry Thomas, Jr. 

Spurned applicants can appeal to an administrative law judge, and Melanie Lamar did. But the judge sided with SHPDA, finding that Right at Home failed to "quantify its proposed patient base" and that "the military institutions did not indicate the number of patients who would need the proposed services or commit, in writing, to referring patients to the proposed agency."

Quantifying a patient base does not satisfy SHPDA, however. In 2009, M.J. General applied for permission to care for 75 dual-diagnosis patients who have mental disabilities accompanied by medical issues. A director in the city's Department of Mental Health identified 205 such patients that needed care and were not receiving it. Nonetheless, SHPDA determined there was no need for M.J.'s services.

A different administative judge ordered SHPDA to issue M.J. a CON last year—an order SHPDA appealed and lost. M.J. became the only agency to receive a CON over SHPDA's objections in the last five years—and it took three years of administrative hearings and litigation.

So what does pass muster with SHPDA? One successful applicant had been operating for decades (apparently without a CON) and was already providing care to hundreds of patients. Second, a children's hospital got the OK to start its own home care agency because it found existing ones were inadequate. And the third specializes in refilling an implanted spinal device that administers neuromuscular relaxant medication to chronically ill patients.

According to Dr. Ernest Brown, who supported Lamar's application, the lack of competition means existing providers do not have to provide high-quality service. "Here I have a patient who needs care, but I find that the quality of the care is poor," says Brown, a Howard University-trained family practitioner who started a nonprofit, Health Care for the Home Bound, to provide house calls in underserved areas of the district. "I think when you don't have a competitive market, people don't try harder. It's a lock on the system for poor performance. There's no incentive."

D.C.'s certificate-of-need requirement for home health agencies has tripped up nearly 50 businesses in the last five years—and perhaps more that did not even bother to apply. The requirement does little to protect patient health and safety, as doctors, nurses, and therapists already must be licensed and board-certified in their specialties. If the requirement was abandoned, patients would have more health care options. And Melanie Lamar would be free to work in the occupation of her choice.

A 2010 push from a working group of home care providers and health advocates to scrap the CON law for home health agencies fizzled for lack of interest from City Council members. However, DOH officials are currently rewriting the city's health licensing rules, including the CON requirement. Community health activists say those deliberations are taking place in secret, so no one outside the DOH knows if the intent is to ease or strengthen entry barriers.

Legislators elsewhere in the country are considering relaxing CON laws: Maine might eliminate the CON entirely. A pair of bills in Washington state would eliminate the certificate of need for an array of services, including home care. A bill in Mississippi would lift the state's moratorium on new home care agencies. And Tennessee's rules are the subject of a sunset review this session to determine if the regulations are still needed.