The Michigan Certificate of Need Program

In Brief

• Michigan is one of 36 states with a Certificate of Need (CON) program.
• A CON is required when a provider begins, upgrades, expands, relocates or acquires a covered health service or entity
• No analysis is available that clearly identifies the overall effect of the CON program in Michigan
• Michigan CON has features that distinguishes it from many other states
• Michigan CON is the subject of ongoing debate and adjustments
• The Michigan CON program administered by the Department of Community Health has not been sufficiently staffed to carry out its responsibilities
• Recent fee increases will permit staff growth from 10 to 14
• CON is not designed to address all of the health concerns of Michigan residents

Introduction

The Michigan Certificate of Need program has been the subject of heightened debate and review in recent years. Three subjects have been prominent: the overall value of the program; the setting of standards used to evaluate applications and for monitoring ongoing operations of certificate recipients; and, the inability of certain hospitals within the City of Detroit to open new hospitals in suburban locations.

Certificate of Need Beginnings

In 1974, the federal government passed the Federal Health Planning and Resources Development Act. It was enacted in response to both a general concern with increasing inflation and the view that Medicare and Medicaid had resulted in duplicative, unneeded and costly health system capacity expansion. It provided federal funds for state health planning and development agencies as well as local health planning agencies.
By 1975, 31 states had enacted CON statutes. In 1976 the federal government passed an amendment to the Social Security Act (SSA) that had the effect of mandating states to pass CON acts by denying federal Medicaid and Medicare funds for the costs of health facility capital construction if they were not formally approved by a state or the federal government. By 1983, all but Louisiana had a CON law (Louisiana passed CON legislation in 1991). Federal action in 1983 eliminated this requirement and currently 14 states have repealed their CON programs. In 1986, Congress repealed the Federal Health Planning Act and federal funds for state and local health planning agencies were terminated effective January 1, 1987.
In 1964, local businesses and Blue Cross in Rochester, New York established a community health planning council composed of payers, consumers and providers to evaluate the need for hospital beds. The council concluded that there was a surplus. This work led to the passing of the nation’s first Certificate of Need (CON) legislation by the State of New York in 1966.
While attention is given to the construction and related costs of capital expansion and improvements, the focus in New York, Michigan and many other states is on the increase in health care costs that can arise from the availability of unneeded service capacity and total operating expenses that are more costly than necessary. CON is directed at constraining excess capacity by requiring health care service providers to demonstrate the need for the initiation, upgrading, expansion, relocation and acquisition of services and beds subject to CON review. It also addresses the potential impact of excess capacity or inefficient design on the higher total operating costs that are the concern for those who make payments for care – particularly employers, health insurers and the state and federal governments.
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