FTC Staff Comment to the Hon. Culver Kidd Concerning Georgia S.B. 398 to Exempt Certain Facilities from Certificate of Need Laws for One Year

Ul\ITED STATES Of AMERICA
FEDERAL TRADE COMMISSION
ATLA~IA REGJOl\AL OFFlCE
COMMISSION 	AUTHORIZED
f\oom '000
01& P..eh.,.. 81., IJW.
.6.11'''''. 006/gl. IlOJ07
(404) '''.4U6
March 	4, 	1988
2
The 	Honorable 	culver 	Kidd
Room 	453
State 	C~pitol
Atlanta, 	Georgia 	30334
Deer 	Senator 	Kiddt
The 	staff 	of 	the 	Federal 	Trade 	Commi8Bion 1 	is 	pleased 	to
commem:. 	on 	Senate 	Bill 	398 	("5.B.398"). 	If 	enacted, 	the 	bill
would 	~xempt 	from 	the 	requiranll::lnts 	of 	Georgia' 8 	Certificate 	of
Need 	("CON") 	process 	for 	a 	period 	of 	one 	year 	the 	offering 	by
"health 	care 	facilities" 	of 	new 	"clinical 	health 	ae5viceB" 	that
do 	not 	result 	in 	the 	addition 	of 	new 	hospital 	beds. 	It 	would
not, 	however, 	exempt 	from 	the 	CON 	proces6 	either 	home 	healt.h 	care
1 	These 	comments 	represent 	the 	view8 	of 	the 	Federal 	Trade
Commission's 	Bureaus 	of 	Competition, 	Consumer 	Protection 	and
Economics, 	and 	of 	the 'Atlanta 	Regional 	Office, 	and 	not 	necessarily
those 	of 	the 	Commission 	itself 	or 	any 	individual 	Commissioner.
_____ .'rhE;__Commission 	has, 	however, 	voted 	to 	authorize 	the 	staff 	to
8 ubml't-t'i)'es-e 	c omments 	tD}'6Ti7' 	.--------__. 	.
For 	CON 	purposes, 	the 	Georgia 	Code, 	§ 	31-6-2(5), 	defines
"Cl inical 	Health 	Services" 	to 	mean: 	,. diagnostic, 	treatment, 	or
rehabilitative 	services 	provided 	in 	a 	health 	care 	facility, 	or
parts 	of 	the 	physical 	pl~nts where 	such 	health 	services 	are
located 	in 	a 	health 	care 	facility, 	and 	includes, 	but 	is 	not
limited 	to, 	radiology; 	radiation 	therapy; 	8urgery; 	intensive 	care;
coronary 	care; 	pediatrics; 	gynecology; 	obstetrics; 	dialysis;
general/medical 	care; 	medical/surgical 	care; 	inpatient 	nursing
care, 	whether 	intermediate, 	skilled, 	or 	extended 	care; 	cardiac
catherization; 	open-heart 	surgery; 	inpatient 	rehabilitation; 	and
alcohol, 	drug 	abuse, 	and 	mental 	health 	services."
A 	"Health 	Care 	Focility" 	is 	defined 	in 	S 	31-6-2(8) 	as:
hospitals; 	other 	special 	care 	units, 	including 	podiatric
facilities, 	skilled 	nursing 	facilities, 	and 	kidney 	disease
trea~men~ centers, 	including 	freestanding 	hemodialysis 	units;
intermediate 	care 	facilities; 	personal 	care 	homes 	not 	in 	existence
on 	the 	effective 	date 	of 	this 	chapter; 	ambulatory 	surgical 	or
obstetrical 	facilities; 	health 	maintenance 	organizations; 	and 	home
health 	agencies."

3
intermediate, 	skilled, 	or 	extended 	inpatient 	nursing 	care.
Moreover, 	the 	bill 	provides 	that 	the 	capital 	costs 	expended 	to
initiate 	the 	clinical 	health 	services 	that 	it 	does 	exempt 	"shall
not 	be 	reimbu~sed by 	the 	Department 	of 	Medical 	Assistance 	under
the 	Medicaid 	proBpective 	payment 	8Y8tem.~
Although 	we 	have 	~ot made 	a 	study 	of 	the 	effects 	of 	CON
regulation 	in 	Georgia, 	we 	believe 	that 	Georgia's 	CON 	regulatory
process 	may 	not 	benefit 	health 	care 	consumers 	for 	the 	reasons
discussed 	below. 	Ongoing 	improvements 	in 	health 	care 	financing
are 	resolving 	the 	principal 	problems 	that 	prompted 	CON
regulation. 	Moreover, 	the 	benefits 	of 	CON 	regulation, 	if 	any, 	are
likely 	to 	be 	outweighed by 	its 	adverse 	effects 	on 	competition 	in
health 	care 	market8. 	As 	a 	result, 	CON 	regulation 	may 	have 	a
negative 	effect, 	increasing 	the 	price 	and 	decreasing 	the 	quality
of 	health 	services 	in 	Georgia.
We 	will 	focue 	our 	comments 	on 	the 	general 	ineffectiveness 	of
CON 	laws 	in 	promoting 	the 	welfare 	of 	health 	care 	consumers.
Although 	S.B. 	398 	would 	relax 	Georgia'S 	CON 	requirements 	only 	to 	a
limited 	extent, 	passage 	of 	the 	bill, 	in 	our 	view, 	represents 	a
worthwhile 	undertaking, 	which 	may 	lead 	to 	greater 	diversity 	and
better 	quality 	in 	health 	cpre 	services 	and 	increased 	price
competition 	in 	the 	health 	care 	market. 	Success 	of 	S.B. 	398 	would
provide 	incentives 	for 	further 	reductions 	in 	Georgia's 	"need"
ba5ed 	reg~lation of 	health 	care.
I. 	INTERES'T' 	AND 	;;Xp~RrENCE 	OF 	'l'~E 	t:'J:;D'r:'3Ar· 	TRADE 	CQ!1Y.ISSION
For 	more 	than 	a 	decade, 	the 	Federal 	Trade 	Commission 	has
ena-aaea -~~n1--exte-risiVe-efforts---r.-o-'P'!'es-erVB---and-Dromote-comDeti~i-on----------
in-health 	care 	markets. 	The 	Com~ission and 	its 	staff 	ha~e been
active 	both 	in 	antitrust 	law 	enforcement 	and 	in 	advocacy 	of
regulatory 	reforms. 	Those 	efforts 	are 	based 	on 	the 	premise 	that
competition 	in 	health 	care 	service 	markets, 	like 	other 	markets,
One 	of 	~he 	areas 	with 	respect 	to 	which 	you 	have 	indicated 	an
interpst 	in 	our 	comments 	is 	t~e ef:ect 	of 	CON 	regulation 	on 	the
provision 	of 	health 	care 	facilities 	and 	services 	in 	rural 	areas 	of
Georsia. 	As 	stated 	i~ 	the 	~ext, 	we 	have 	not 	made 	a 	study 	of 	CON
regulation 	in 	Georgia. 	Conseguently, 	we 	are 	not 	in 	a 	position 	to
make 	any 	statements 	about 	the 	relative 	impact 	of 	CON 	regulation 	on
rural 	and 	ur~an areas 	of 	the 	state. 	Nor 	are 	we 	aware 	of 	any
d~scussion of 	this 	i5sue 	in 	the 	economic 	literature 	dealing 	with
CON 	regulation 	generally. 	This 	is 	not 	to 	say, 	of 	courss, 	that 	such
reg~lation may 	not 	have 	a 	disproportionately 	adverse 	effect 	on
rural 	areas.
2
'-'"='1 ... J-r-" -r:::- ...	.= _ ..... 1· _".:.:... ,. WI" 	. '7 ,-" -.-\

5
benefits 	consumers 	by 	strengthening 	incentives 	for 	providers 	to
eatisfy 	the 	demands 	of 	health 	care 	consumers. 	As 	a 	reoult 	of
economic 	analyses 	of 	the 	effects 	of 	CON 	regulation, 	the
Commission's 	staff 	h~s 	gained 	considerable 	experience 	with 	the
economics 	of 	health 	care 	competition 	and 	with 	how 	CON 	regulation
effects 	that 	competition. 4 	In 	addition, 	part 	of 	the 	Commission's
antitrust 	law 	enforcement 	effort 	in 	the 	health 	care 	field 	focu5ee
on 	competitive 	problems 	that 	would 	not 	exsst, 	or 	would 	be 	les6
severe, 	if 	there 	were 	no 	CON 	regulations.
II. 	CON 	REGULATION 	IS 	INEFfECTIVE, 	~ND PROBABLY 	COUNTER-
EP.ODUCTIVE, 	IN 	PROMOTING 	~HE 	[EErelENT 	PRoyrsr 0 N Of 	HEALTH
CARE 	SERVICES
A. 	CON 	RPOl11 B t 'on 	Is 	Unnecee sarr 	to 	Cons tn:, in 	Hea 1th 	en re
COElts.
The 	traditional 	justification 	advanced 	in 	favor 	of 	CON
regulation 	of 	health 	care 	has 	been 	that 	unregulated 	competition
would 	result 	in 	the 	unnecessary 	construction 	or 	expansion 	of
facilities 	or 	in 	other 	unnecessary 	capital 	expenditures. 	The
assumption 	underlying 	this 	theory 	is 	that 	health 	care 	providers
have 	a 	tendency 	to 	expand 	~heir facilities 	or 	purchase 	equipment
excessively. 	CON 	edvocates 	contended 	that 	this 	tendencywes 	not
sufficiently 	cons~rained by market 	forces 	because 	many 	health 	care
consumers 	were 	covered 	by 	insurance 	policies 	issued 	by 	third-party
payers 	requiring 	little 	or 	no 	out-o:-pocket 	peyment 	for 	heal~h
care 	services. 	Consumers 	were 	therefore 	thought 	to 	be 	ins~nsitive
to 	.price 	differences 	among 	providers, 	thus 	insulating 	providers
--_f~r.vonL-P.t:ic:..EL-c:.omp.aU.t.ion~_-MoLeOY_e=-(-he_alt.h_c_a.r_e_-PI.o.Yicier_s_~ere. 	_
often 	reimbursed 	by 	third-party 	payers 	on 	a 	retrospective 	cost
basis, 	which 	provides 	little 	incentive 	to 	con~ain costs.
4 	~, 	~., 	Sherman, 	Th~ 	Ef;ect 	of 	Stcte 	Ce=ti£iccte-of-Neec
Laws 	Qn 	HQs~ital COSts: 	An 	EconQmic 	Policy 	Ane 1 ysis(1988) 	(FTC
staff,report)i 	Noether, 	CQmpPtitio~ Amono 	~Qs~itals 	(1987) 	(FTC
staffJreport); 	and 	Anderson 	& Kess, 	Certi;'ca:e 	0; 	Need 	Be~ula~ion
of 	f;,t~v into 	Heme 	Eealth 	Carp 	(1986) 	(FTC 	staff 	report).
~, 	~, 	Ho~pital Corp. 	of 	b~erica [Chottanooga
acquisitions), 	106 	r.T.C. 	361, 	489-96 	(1985), 	eff'd, 	807 	F.2d 	1381
(7th 	Cir. 	1986), 	cP~t. 	denied, 	107 	S.Ct. 	1975 	(1987); 	Hospital
Corp .. of 	America 	[Forum 	acquisitions], 	106 	r.T.C. 	298 	(1985)
(sett~ed by 	consent 	order); 	and 	American 	Medical 	Int'l, 	Inc., 	104
r.T.C. 	1 	(1984).
3
:-:J . :! 	- -'-.-	-'':'' . '-" 	: =- 1

To 	the 	extent 	th~t these 	contentions 	were 	accurate{ 	health
care 	providers 	would 	have 	had 	incentives 	to 	compete 	primarily 	in
terms 	of 	quality 	ratger 	than 	price, 	although 	limited 	price
competition 	existed. 	Providers 	had 	an 	incentive 	to 	compete 	for
patients 	and 	physicians 	by 	offering 	wider 	ranges 	of 	diagnostic 	and
therepeutic 	services 	and 	equipment 	and 	more 	comfort~ble
facilities{ 	even 	if 	the 	new 	facilities 	were 	underutilized. 	The
initial 	concern 	expressed 	by 	the 	proponents 	of 	health 	care
planning 	was 	that 	these 	expenditureB 	would 	increase 	overall 	health
care 	costs 	and 	be 	passed 	along 	to 	the 	public 	through 	hospital
charges, 	insurance 	premiums, 	and 	taxes 	(to 	support, 	~.~., 	Medicare
and 	Medicaid). 	Thus, 	the 	primary 	purpose 	of 	CON 	regulation 	was 	not
to 	assure 	that 	facilities 	were 	placed 	where 	needed; 	rather, 	it 	was
to 	control 	the 	perceived 	tendency 	to 	unnecessarily 	increase 	health
care 	costs 	by 	providing 	duplicative 	facilities 	or 	~e~vices.7
As 	a 	result 	of 	significant 	changes 	in 	health 	care 	markets 	in
recent 	years, 	many 	of 	the 	assumptions 	underlying 	the 	arguments
offered 	in 	favor 	of 	CON 	regulation 	are 	probably 	no 	longer 	valid. 8
There 	has 	been 	a 	trend 	toward 	increased 	competi~ion, particularly
price 	competition, 	among 	health 	care 	providers. 	Third-party
payers 	~nd consumers 	are 	no 	longe~ insensitive 	to 	the 	prices 	of
health 	ca~e services. 	Conyentional 	health 	benefit 	programs 	now
qenerally 	provide 	subscribers 	with 	financial 	incentives 	(such 	as
co-payments) 	to 	patroniz8 	more 	economical 	providers, 	including
nen-hospital 	providers, 1 	In 	addition, 	health 	maintenance
organizations 	and 	p+eferred 	provider 	organizations 	tend 	to 	channel
--- ,,----6--s..e.e.-r--EO s pi-ta l-Co.rp~-_oL_A.m_e_=:_L~~-1_tQ-Ll'-,~C~~	t _ 4 78- 7 9 .
7 	~ 	P. 	Joskow{ 	Controlling 	Hospital 	Costs: 	The 	Role 	of
Government 	Regulation 	(1981),
8 	Indeed, 	the 	United 	St~tes Congress 	recently 	repealed 	~he
National 	Health 	Planning 	and 	Resources 	Development 	Act 	of 	1974,
which 	had 	p~ovided incentives 	and 	penalties 	~o encourage 	states 	to
enact 	CON 	regulations. 	~ 	?L. 	99-660, 	S 701 	(1986).
9 	~
~ 	~., 	Hospital 	Corp. 	0: 	America, 	106 	F.~.C. 	at 	480-82;
HQspi;al 	Indu5:~ Price 	Ware 	~oe: 	U~, 	Hospitals, 	Oct. 	1, 	1985, 	at
69; 	Noether{ 	~u~ra 	note 	4, 	at 	81-89.
10 	See 	Manning{ 	Newhouse, 	Liebowitz, 	Duan,.Keeler, 	& Xarquis{
Heelth 	105u~2nce end 	the 	Demend 	for 	~odiccl Ca=e, 	77 	American
£conom:"c 	Review 	251, 	267-68 	(June 	1987); 	IT'C'Jlrcnce 	CoveY-tOO 	r; .... ivps
CQn~urnor Prices, 	Hospitals, 	Nov. 	l{ 	1985, 	at 	91.
., -	~--'
_.-.-

11
subscribers 	to 	health 	care 	providers 	offering 	lower 	rates .. The
increasing 	sensitivity 	of 	both 	individual 	and 	institutional 	health
care 	purchasers 	to 	the 	prices 	at 	hospital 	eervicee 	limite 	the
ability 	of 	hospitals 	to 	pass 	on 	to 	consumers 	the 	costs 	of
facilities 	and 	services 	that 	are 	not 	useful 	in 	meeting 	consumer
demands.
Programs 	such 	a5 	Medicare's 	"prospective 	reimbur8ement"
system 	rein:orce 	this 	trend. 11 	Medicare 	presently 	reimburses
hospital 	operating 	costs 	at 	prospective 	rates 	that 	are 	ba5ed
principally 	(and 	soon 	will 	be 	based 	exclusively) 	on 	flat 	rates 	for
specific 	diagnosis 	related 	groups 	(DRGs) 	rather 	than 	the 	actual
costs 	incvrred 	by 	a 	particular 	hospital 	for 	its 	Medicare
patients 12 . 	As 	this 	reimbursement 	system 	is 	implemented, 	the 	costs
of 	a 	hospital's 	inefficiencies 	may 	increasingly 	be 	borne 	by 	that
hospital, 	thUB 	creating 	incentives 	for 	more 	cost-effective
provision 	of 	hospital 	services. 	Indeed, 	the 	prospect 	of 	future
reimbursement 	reforms 	i~ 	already 	encouraging 	greater 	efficiency 	on
the 	part 	of 	hospitalB. 1J
~ 	Robinson, 	~ 	~, 	Hospitel 	Competition 	and 	SurQical 	Len~tb
of 	Stay, 	239 	Journ~l of 	the 	American 	Medical 	Ass'n 	656, 	700 	(1988)
(prospective 	payment 	systems 	counteract 	the 	tendencies 	of
hospitals 	to 	compete 	for 	su~geons by 	allowing 	the 	surgeons'
--.----.---pa--:...ien.:..5-t0-~c_=.e_~s_~_t_he_l_~D9~D_Q_~~b_~i.LJ'~oSE_~_~~l_5taxsL~ 	. 	._
12 	Medicare 	had 	planned 	to 	begin 	~eimbu~sing hospital 	capital
costs 	in 	a 	somewhat 	simila= 	manne=. 	~ 	42 	U.S.C.A. 	S
1395ww(a)(4), 	(d) 	(West 	Supp. 	1987); 	52 	:'ed. 	Reg. 	18840 	(1987)
(proposed 	regulation 	to 	phase 	in 	flat 	prospective 	rates 	for
capital 	cos~s 	over 	three 	years 	for 	movable 	equipment, 	and 	over 	~er.
years 	for 	other 	capital 	cos~s); 	~ 	~ 	~odprn ~ecl:hcc-e, Aug.
1, 	1986, 	at. 	20; 	HEelth 	Ce.re 	Compe~ition WEPt, 	Ja~. 	l2, 	1987, 	at 	4.
~owe~er, the 	recent 	budget 	compromise 	:n 	Congress 	~ncl~ced a 	fcur-
year 	moratori~m on 	implementation 	of 	prospective 	rates 	fer
rei~bursement 0: 	capital 	costs. 	Sec 	MQdo~n BP21thcG~e, Dec. 	18,
1987, 	at 	015.
13 	s..ae. 	Raske, 	"Association 	Seeks 	Seund 	Capital 	Pay 	?olicYt"
r:Qde~n ~eelthse=e, Nov. 	7, 	1986, 	at 	120 	(uncer~ain~y about 	the
future 	of 	~eimbursement for 	capital 	expenses 	is 	encouragi~g
hospitals 	to 	make 	more 	ccnserva~ive capital 	inves~ment decisions
for 	i~patient services).
5

B. 	CON 	ReoulatiQc 	Has 	Been 	Ineffectiye 	as 	a 	CQ6t-
Containment 	Mechoniem.
A number 	of 	empirical 	5tudies 	suggest 	that 	CON 	regulation 	has
not 	controlled 	general 	acute 	care 	hospital 	costs 	by 	preventing
expenditures 	on 	unnecessary 	beds, 	eervices, 	and 	equipment. 14
Early 	studies 	of 	the 	affects 	of 	CON 	regula~ion 	found 	that 	it 	had
no 	effect 	on 	constraining 	overall 	hospital 	costs; 	rather, 	it 	may
have 	simply 	caused 	hospitals 	to 	reallocate 	their 	resourr.p.8 	BO
that, 	while 	some 	types 	of 	hospital 	costs 	were 	constrained 	by 	CON
regulation, 	othe= 	costs 	increased. IS 	Later 	studies 	reached
similar 	conclusions, 	finding 	that 	CON 	regulation 	did 	not 	reduce
14 	A 	1986 	FTC 	staff 	report 	reached 	a 	similar 	conclusion 	about 	the
effect 	of 	CON 	regulation 	on 	home 	health 	care 	services. 	Anderson 	&
Kass, 	~uD=a note 	4, 	at 	87-92 	(1986). 	A 5tudy 	of 	the 	economic
behavior 	of 	n~rsing homes, 	which 	did 	root 	focu5 	on 	the
effectiveness 	of 	CON 	regulation, 	found 	evidence 	that 	CON
regulation 	increases, 	rather 	than 	decreases, 	the 	average 	cost 	of
nursing 	home 	services. 	Lee, 	Birnbaum 	& Bishop, 	HeXx' 	Nu"'-::::inQ 	Homes
Beheve: 	A Mu 1 t1-EguetiQn 	Mod~' 	of 	Nursing 	Horne 	Behavior, 	17
Social 	Science 	an~ Medicine 	1897, 	1906 	(1983).
,--~ 	Salkever 	& Bice r 	Hospitel 	Ce~tificete-Qf-Need Contrn)s; 	Impact
on 	inyp~tmp,nt, Cost/ 	end 	U~ 	(1979); 	Salkever 	& Bice, 	The 	Impact
of 	Certi~icatP-Qf-Need ContrQls 	on 	HQspit~l Inve~tm~nr., 54 	Milbank
---MHemori al-rund-Q-.--1-B5--(-Spring.-l9.l6 ) . 	. 	.__. 	.
It 	is 	true, 	of 	courEe, 	that 	if 	the 	CON 	?rocess 	significantly
reduces 	the 	level 	of 	capital 	investment 	i~ hospitals, 	equipment,
and 	other 	assets 	below 	the 	level 	t~at would 	otherwise 	obtain,
total 	health 	care 	costs 	at~ributeble to 	these 	factQrs 	will 	be
less: 	Whether 	this 	is 	desirable, 	however, 	depends 	on 	the 	extent 	to
w~ich the 	reduction 	in 	the 	output 	c£ 	pcrticular 	health 	care
services 	due 	to 	the 	CON-imposed 	constraint 	advances 	the
regul~tionjs prQffered 	justification 	-- 	t~e curtailment 	0: 	capital
investments 	that 	are 	financially 	feasible 	only 	if 	costs 	can 	be
shifted 	to 	third-party 	payers. 	~f 	additional 	investment 	is
curtailed, 	then 	some 	health 	care 	services 	for 	which 	cons~mErs
wo~ld have 	been 	willing 	to 	pay 	more 	than 	is 	necessary 	to 	cover 	all
of 	the 	capital 	and 	other 	attendant 	costs 	Qf 	providing 	them 	will
nonetheless 	not 	be 	supplied. 	In 	addition, 	the 	prices 	of 	each 	of
the 	particular services 	whose 	sup~ly is 	curtailed 	by 	the
regulation 	wi:l 	rise 	above 	competitive 	levels.
6
''-.' -' 	; __ F 	- ) ~.
.-- - 1 .- • ..--	
_.=: . .;,. •

costa 	per 	unit 	of 	hoepital 	output. 16 	finally, 	studies 	using 	both
cross-section 	and 	time-6eries 	data 	have 	shown 	that 	the 	adoption
and 	maintenance 	of 	,ON 	regulation 	is 	associated 	with 	higher 	levels
of 	hospital 	costs. 1 	These 	studies 	suggeet 	that, 	as 	a 	means 	of
~coet containment," 	CON 	laws 	may 	be 	at 	best 	ineffective 	and 	at
worst 	cost 	increasing.
C. 	CON 	Reou]atjoo 	Interfe~PB With 	CQmpetition 	tnd
Innoyetion 	in 	Hecltb 	Corp 	Merkets
On 	balance, 	CON 	regulation 	may 	not 	be 	merely 	ineffective 	but
actually 	counterproductive 	in 	its 	cont=ibution 	to 	the 	control 	of
he~lth care 	costs. 	As 	discussed 	below, 	the 	CON 	regulatory 	process
itself 	imposes 	substantial 	costs 	on 	applicants 	in 	terms 	of 	both 	the
effort 	required 	to 	obtain 	regulatury 	approval 	and 	~he 	deloys
occ6Bioned 	by 	the 	regulatory 	process. 	Moreover,to 	the 	ex~ent that
CON 	regu12tion 	reduces 	the 	supply 	of 	particular 	health 	services
below 	competitive 	levels, 	their 	prices 	can 	be 	expected 	to 	be 	highe=
than 	they 	would 	be 	in 	an 	unregulated 	ma=ket. 18 	Curtailment
16 	Policy 	Analysis, 	Inc.-Urban 	Systems 	Engineering, 	Inc.,
EyaluBticn 	of 	tbp 	Fffects 	of 	Cp~rificate of 	Nepd 	P~oQrams 	(1980);
Steinwald 	& Sloan, 	ReQulato~ ~pproacbes to 	HOfpital 	CQ5t
Corte; nment; 	b 	Syntbes;:3 	of 	the 	Em~i dee 1 	Ey; dence! 	in 	A Nc·...
Ap~rQ~cb 	to 	:be 	Economics 	Q: 	HAc 1 tb 	Ca~e, 	American 	Enterprise
Institute 	(1981).
-----17---~--Sherrna-:Tf_;3up=o-not-e-4-;-Noet-her-r_-5up	.... o--note-4 ;--Coe~en_n_-
& Sullivan, 	An 	Analysis 	of 	the 	Effects 	of 	Prospective
Reimbu=5emen~ on 	HQspital 	Expenditures, 	~eelth Care 	Fin~n,,~no
Reyiew, 	3 	(Winter 	1981), 	1-40; 	and 	Sloan 	& Steinwald, 	Effects 	of
Regulation 	Qn 	Hospital 	Costs 	and 	Inpu~ Use, 	JQu~na' 	Of 	Law 	and
~conQrnics 23 	(1980), 	81-109. 	Sloan 	& Steinweld 	and 	Coelen 	&
Sull{van 	ob~eined this 	result 	using 	pooled 	cross-sec~icn end 	time-
se=ies 	data. 	Noether 	and 	Sherman 	used 	cross-section 	data.
18 	Woore 	prices 	l:.re 	=egula-:ed, 	the 	"pr':'ce 	increase" 	may 	take 	the
form 	Qf 	=eciuctions 	in 	service 	quality 	so 	-:hat 	consumers 	=eceive
services 	of 	lesser 	value 	fo= 	the 	same 	?=ice 	instead 	of 	paying 	mor2
~oney for 	the 	same 	services. 	When 	seve=e 	shortages 	of 	capacity
exist, 	fi=ms 	p=oviding 	substandard 	service 	to 	consume=s 	may 	be
?=otected 	not 	only 	from 	competitive 	pressu=es 	to 	upgrade
per:ormence, 	but 	also 	from 	regula~ory pressures 	to 	adhere 	to
licensure 	req~iremen~6. 	For 	example, 	a 	state 	agency 	may 	be
reluc~an~ to 	close 	a 	nursing 	home 	for 	major 	viola~ions of
l~censu~e requirements 	if 	the 	pa~ien~s cenno~ be 	placed 	elsewhere.
7

21
of 	available 	services 	or 	facilities 	may 	create 	shortages 	that
force 	consumers 	to 	resort 	to 	more 	expensive 	or 	othQr~ise 1es8
desirable 	substitutes 	for 	the 	app~opriate form 	of 	health 	care,
thus 	increasing 	costs 	for 	third-party 	payers 	and/or 	patients. 	For
exampls, 	a 	shortage 	of 	nursing 	home 	beds 	can 	delay 	the 	discharge
of 	patients 	from 	more 	expensive 	general 	acute 	care 	hospital 	beds 19
or 	force 	patients 	to 	use 	nursing 	homes 	far 	from 	home.
Even 	if 	CON 	regulation 	does 	not 	yield 	acute 	shortages 	of
services, 	it 	can 	substantially 	interfere 	with 	competition 	in
health 	care 	markets. 	First, 	the 	CON 	regulatory 	process 	can
increase 	prices 	to 	consumere 	by 	protec~ing firms 	in 	the 	market
from 	competition 	by 	innovators 	and 	new 	entrants. 20 	Although 	the
CON 	process 	does 	not 	always 	prohibit 	the 	entry 	or 	expansion 	of
health 	facility 	enterprises 	or 	the 	development 	of 	new 	services, 	it
generally 	places 	the 	burden 	on 	new 	entrants 	to 	demonstrate 	that 	a
"need" 	is 	not 	being 	served 	by 	those 	cl:~rently in 	the 	market.
Because 	the 	views 	of 	CON 	regulators 	may 	be 	influenced 	by 	factors
in 	addition 	to 	consumer 	demand,21 	the 	CON 	process 	may 	reduce 	the
possibility 	of 	entry 	by 	more 	ef:icient 	firms 	that 	could 	provide
higher 	quality 	and/or 	lower 	COSt 	services 	and, 	possibly, 	repl~ce
less 	efficient 	providers.
~ 	Feder 	& 	Scanlon, 	ReQule.tinQ 	the 	BeC 	SU;2Dly 	in 	N\lT'"c::inQ 	Homes,
58 	Milbank 	Memor~a~ Fund 	Q. 	54, 	76 	(1980).
19 	U.S. 	General 	Accounting 	Office, 	CQ~st;ai~inQ Health 	Care
----E-:Kpe-rrd:tn:;.-.,..e-~q---Achr_eyimr-Qm;--ti:"ty--c2.-;-e	--ebeffcT'"dp~le-c;o<=<t-,--a t---9 3-9 4 .----- ,--------
(1985).
20 	?osner, 	Cprti~;cpte of 	Need 	fc~ He~lth C2;e 	racilit~es; 	~
Dissentinc 	View, 	in 	Re~u'~t;~Q 3eelth 	Fecil::v 	CQnft;~ction at 	113
(C. 	Havighurst, 	ed. 	1974); 	Noether, 	;~r-a note 	4, 	at 	62 	(CON
restrictions 	on 	entry 	are 	associated 	witn 	hospital 	price 	increases
of 	approximately 	4 	to 	5 	percent, 	as 	well 	as 	inc~eases in 	hospital
costs 	of 	approximately 	3 	to 	4 percen~).
Georgia 	Code 	S 	31-6-42, 	dealing 	",'ith 	"Qualifica:'ions 	for
issue 	of 	certificate," 	is 	a 	good 	exar.::;;le 	of 	this, 	:::n 	addit:on 	to
consu:ne:.- 	"need," 	the 	planning 	agency 	takes 	into 	account 	such
factors 	as 	~hethe= in 	its 	view 	existin; 	:acilities 	are 	adequate
for 	p=ovicin~ a 	proposed 	health 	service, 	whether 	a 	proposed
project 	is 	deemed 	adequately 	financed, 	a 	project's 	likely 	effect
on 	third-party 	payers, 	and 	whethe~ a 	proposed 	health 	facility
would 	conduct 	bio-medical 	research.
8
. --	-' .:.

In 	addition, 	the 	process 	ot 	preparing 	and 	defending 	a 	CON
application 	is 	often 	extremely 	costly 	~nd time 	coneuming
(particularly 	if 	the 	application 	is 	oppoeed 	by 	firms 	already 	in
the 	market) .22 	CON 	regulation 	can 	also 	crQate 	opportunities 	for
existing 	firms 	to 	abuse 	the 	~egul~5ory process 	80 	as 	to 	further
prevent 	or 	delay 	new 	competition. 	CON 	regulation, 	therefore,
makes 	entry 	and 	expansion 	less 	likely, 	or 	at 	least 	less 	rapid.
Firms 	in 	any 	given 	market 	need 	not 	be 	as 	competitive 	on 	price 	or
as 	sensitive 	to 	consumer 	demand 	for 	new 	services 	if 	they 	know 	that
it 	will 	be 	difficult 	and 	expensive 	for 	new 	firms 	to 	enter 	the
market 	and 	offer 	competitive 	prices 	or 	services.
By 	reducing 	the 	likelihood 	of 	(or 	at 	least 	increasing 	the
cost 	and 	time 	required 	for) 	entry 	and 	expansion, 	CON 	regulation
can 	make 	it 	more 	likely 	that 	providers 	will 	exploit 	whatever
market 	power 	they 	have, 	individually 	or 	collectively, 	to 	rais~
prices 	above 	(or 	reduce 	quality 	below) 	the 	competitive 	level. 	4
That 	is 	why, 	in 	both 	of 	the 	hospital 	merger 	decisions 	issued 	by
the 	Federal 	Trade 	Commission 	in 	litigated 	cases, 	the 	Commi96ion
cited 	the 	entry 	barrier 	created 	by 	CON 	regulation 	~s 	a 	factor
significantly 	contributing 	to 	the 	poten~ial for 	anti-competitive
22 	An 	evaluaticn 	of 	the 	CON 	program 	in 	Michigan 	found 	that 	the
number 	and 	complexity 	of 	CON 	appeals 	increased 	dramatically 	:rom
1979 	to 	1986. 	Comparative 	reviews 	were 	found 	to 	be 	particularly
protracted. 	~ichi9an Statewide 	Health 	Coordina~ing Council, 	an
EYaluat~on 	of 	the 	Ce=tificete 	Qf 	Need 	ProQram 	(March 	19, 	1987) 	a~
------------2 9--J4-.---See-e-lsQ---1iospi-tal-Cor-p-.--o.!._Jvn.ex.i~ft_l~_h.~~~~l}.?_?sa
-----
~cquisitions], 106 	r.T.C. 	at 	490-52.
23 	Calvani 	& Averitt, 	The 	fed~ca1 	Trad o 	CQmmi~sion 	a~d
CQmpetition 	in 	the 	Delive~v of 	~ealth Care, 	17 	Cumberland 	L. 	Rev.
293 	(1987) 	(ciscussing 	poten~ial for 	heal~h providers 	to 	use 	CON
protesE 	for 	"non-price 	predation"); 	St. 	Joseph's 	Hospital 	v.
Hospital 	Corp. 	of 	America, 	795 	F.2d 	948, 	959 	(11th 	Cir. 	1986)
(defendants' 	misre?resentatic~s to 	state 	health 	planning 	body
concerning 	plain~i::'s CON 	application 	not 	protected 	from
antitrust 	scr~tiny); Hospital 	Corp. 	of 	America 	[Chattanooga
acquisitions], 	106 	F.T.C. 	at 	492.
24 	This 	is 	most 	likely 	to 	occ~r where 	there 	are 	few 	competing
providers 	in 	a 	particular 	market, 	~ 	Eospital 	Corp. 	of 	~~erica
[Chattanooga 	acquisitions], 	106 	r.T.C. 	at 	48i-89, 	such 	as 	in 	r~ral
areas, 	or 	for 	c6r~ain hospital 	specialty 	services.
9
:: 	: =-= I

27
effects 	from 	the 	mergere. 25 	CON 	regulation 	can 	thus 	render 	anti-
competitive 	otherwise 	lawful 	conduct, 	and 	ag~~avate the 	anti-
competitive 	effects 	of 	antitrust 	Violations.
In 	addition, 	the 	process 	of 	undertaking 	CON 	regulation 	may
delay 	the 	introduction 	and 	acceptance 	of 	innovative 	alternatives
to 	current 	costly 	treatment 	methods 	because 	regulators 	lack 	the
information 	necessary 	to 	evaluate 	the 	demand 	for 	new 	treatment
alternatives. 	For 	example, 	it 	is 	difficult 	to 	predict 	demand 	for
ambulatory 	8~rgery or 	any 	other 	innovative 	service, 	such 	as 	home
health 	care. 	7 	While 	state 	health-planning 	agencies 	might 	provide
information 	or 	guidance 	on 	future 	trend5, 	ae 	innovations 	are
rapidly 	becoming 	more 	accessible 	due 	to 	improvements 	in 	technology
25 	American 	Medical 	Int'l, 	Inc., 	104 	F.T.C. 	at 	200-01 	(1984). 	In
Hospital 	Corp. 	of 	America 	(Chattanooga 	ecquisitions], 	106 	F.T. 	C.
at 	489-496, 	the 	Commission 	accepted 	the 	administrative 	law 	judge's
finding 	that, 	in 	combination 	with 	Tennessee's 	CON 	process,
Georgia'S 	regulation 	of 	new 	hospital 	construction 	had 	exacerbated
the 	anticompetitive 	effects 	of 	a 	hospital 	merger 	in 	Chattanooga,
Tennessee. 	In 	the 	absence 	of 	Georgia's 	CON 	restrictions 	on
hospital 	entry, 	a 	new 	hospital 	might 	have 	been 	located 	in 	the
Georgia 	suburbs 	of 	Chattanooga 	that 	would 	have 	acted 	to 	offset 	the
increase 	in 	m~=ket power 	resul~ing from 	the 	unlawful 	merger.
26 	In 	particular, 	the 	entry 	barriers 	c=eated 	by 	CON 	regulation
can 	transform 	into 	possible 	antitrust 	violation5 	potentially
efficient 	joint 	activities 	by 	health 	care 	providers 	that 	would
"__"" 	9..;.h~r·..... ise 	be 	lawful. 	For 	example, 	in 	some 	cases, 	shared 	serv ice
a rran geme nt68ndcoi1S 0 1Tda-t"ions·couTd-:eT9TH fi cant 1i--t-h-=-e-ate-n- ---
competition, 	unless 	the 	prospect 	of 	new 	entry 	would 	keep 	the
market 	competitive 	by 	making 	any 	significant, 	sustained 	price
increases 	unpro:ita~le. 	CON 	regulation 	can 	thus 	conflict 	with 	the
achieveme~t of 	health 	planning 	objectives 	by 	limiting 	the 	£reecom
of 	providers 	to 	pursue 	efficiencies 	without 	also 	creating
unacceptable 	risks 	of 	anti-competitive 	effects.
In 	Pe~nsylvania, action 	on 	~ll 	CON 	applications 	for
=reestanding 	ambulatory 	surgical 	centers 	(?ASCs) 	was 	delayed 	by
six 	months 	while 	a 	CON 	task 	force 	reviewed 	the 	issue. 	FASCs 	offer
an 	innovative, 	less 	costly 	alter~ative to 	inpatient 	surgery.
Legislative 	Budget 	& Finance 	Committee, 	Re~Qrt OD 	a 	Study 	Qf
?p~~5ylyacia's 	Certificate 	of 	Need 	p=QQ~cn/ 	?ebruary 	1987
(hereinafter 	"LB?C 	Repo:::-t" 	), 	e.t 	16 	- 	20. 	Evidence 	suggest8 	thet
the 	growth 	of 	?ASCs 	generally 	has 	been 	hampered 	by 	the 	CON
proce~s. 	E:::-mann 	& Gamble, 	T~e Chan;in~ ;CCP 	0 f 	Affierican 	H~atth
~, 	Medical 	Care, 	1985, 	at 	40i.
10
- -.-	0' '_'.
-'-. . _.	. '- . , 	- -',

-- - -------------------
and 	greater 	acceptance 	by 	physicians, 	provider 	firms 	have
incentives 	to 	gather 	their 	own 	information 	(e.g., 	by 	paying 	for
market 	research) 	and 	to 	adjust 	rapidly 	to 	unexpected 	changes 	in
trends. 	For 	these 	reasons, 	reliance 	on 	market 	forcsB 	is 	likely
to 	provide 	greater 	flexibility 	in 	adapting 	to 	changing 	conditions
while 	the 	need 	to 	meet 	CON 	requirements 	will 	eliminate 	or 	postpone
adjustments 	in 	rapidly 	changing 	health 	care 	markets.
D. 	CON 	ReOu}otion 	Is 	Not 	a 	GQQd 	Mpthod 	for 	AS8~=ino AcceQs
to 	Care 	fo: 	rndioent 	Petieots.
~t 	has 	also 	been 	asserted 	that 	CON 	regulation 	must 	be
retained 	in 	order 	to 	protect 	access 	to 	Care 	for 	indigent 	patients.
According 	to 	this 	theory, 	CON 	regulation 	prevents 	the 	conetruction
of 	facilities 	that 	would 	siphon 	off 	paying 	patients, 	leaving 	those
faciliti~s th¢~ 	treat 	indigent 	patients 	with 	no 	way 	to 	make 	up
their 	lQ6ses. 2l:J
However, 	CON 	regulatiQn 	may 	be 	a 	highly 	inefficient 	means 	Qf
trying 	to 	assure 	care 	is 	available 	for 	indigent 	patients. 	By
insulating 	providers 	from 	new 	competition, 	CON 	regulation, 	in
effect, 	imposes 	a 	"hidden 	tax" 	on 	all 	consumers 	of 	health 	services
in 	the 	form 	of 	higher 	prices. 	That 	"tax" 	may 	be 	more 	costly 	to
society 	than 	conventional 	forms 	of 	taxation 	because 	the 	CON
process 	interferes 	with 	the 	efficient 	production 	and 	delivery 	of
health-cere 	services. 	Moreover, 	the 	burden 	~g 	tha:. 	"tax" 	falls
disproportionately pn 	those 	in 	poor 	health. 	Alterna:.ive
mechanisms 	for 	funding 	care 	for 	in~igent patients 	have 	been
proposed 	that 	would 	not 	impair 	the 	efficient 	functioning 	of 	health
---__car_e__rnark~ t 13'-'.c-3_O 	_
28 	LBFC 	Report 	at 	4-5.
29 	~ 	Posner, 	~cxctiQ~ oy 	~e;ulet1on, 	2 	Bell 	J. 	of 	Econ. 	22
(19il); 	~avighurst, ReQ~'ct;on of 	Beelth 	£e;i 1 ;;1°5 	and 	Se=yicos
tv 	"Ci=>.,...tif~cc:.e Q; 	Ne~d,t1 59 	Virginia 	L. 	Rev. 	1143, 	:'188-54 	(1973).
30 	~or exarr.ple, 	rurel 	hospitals 	whose 	viability 	(and 	ability 	~o
se~e the 	indigent) 	is 	threatened 	by 	declining 	occ~pancy rates
could 	be 	encouraged 	to 	convert 	be~s 	to 	long-term 	care. 	~. 	~erner,
et 	al., 	I~Yi=>5:'get1cr, QT 	Ce=-ci~ 	Teeues 	in 	CQ00~,tiQr wi.th 	the
virQinie 	Cp.,...;i~1CFtp of 	Need 	~aw, 	at 	VII, 	13 	(final 	report, 	A~g.
lO, 	1967). 	The 	Bame 	Report 	concludes 	that 	cost 	reduction 	(the
Qrigi~al goal 	of 	CON 	regulation) 	and 	improvement 	in 	access 	may 	be
"mu:.ue2.1y 	inconsistent. 	goals," 	and 	summerized 	efforts 	by 	the
states 	to 	find 	alternative 	methods 	for 	funding 	indigent. 	patient
ca.:-e . 	.:...:.. 	at 	part 	VII, 	23-3~, 	citing 	FA::S 	Rev~pw, 	"fu;vi.ew's 	1986
11
--. ,
-' 	- ,- ~ ,_ ) _':'" -'-A~	
-=--' 	_ ... - 	., >;;..'" 	- , --	1 __ •

E. 	The 	Aesertpd 	Lack 	of 	InfQrme:iQn 	bbQut 	7~e 	Quality 	end
CQet 	Qf 	Health 	Care 	Services 	DQe~ 	NQ: 	:4~tify 	CON
ReQule.tiQ!1
~he 	unavailability 	of 	consume~ info~ma~ion about 	health 	care
quality 	and 	C05t 	has 	a160 	been 	cited 	os 	0 	reason 	for 	continuing
CON 	regulation. 	However, 	health 	ca~e providers, 	third-party
payers, 	and 	othe~ groups 	have 	strong 	incentives 	to 	provide
consumer 	infQrmation 	and 	can 	be 	expected 	tQ 	prQvide 	more 	of 	it 	as
the 	market 	becomes 	more 	competitive. 	~hese incentiv€B 	to 	pro,~de
informatiQn 	should 	increase 	in 	the 	absence 	Qf 	the 	CON 	process,
which 	insulates 	prQviders 	from 	competition.
Ilr. 	PlAC'T').,q:-;NT 	n'P 	S.B. 	398 	WOULD 	BEERE'~::NT 	A Ql:'t/l=;"r("IP..L, 	THOUGH
L:V1'T'':'D! 	B;'LAXl:TION 	0" 	GEORG!},' S 	CON 	EEG'\JLb'1"ION
For 	~he 	reasons 	discussed 	above, 	Georgia'S 	CON 	process 	may
have 	an 	adverse 	effect 	on 	competitiQn 	in 	the 	state's 	health 	care
markets; 	increasing 	the 	price 	and 	decreasing 	the 	guality 	of 	health
care 	services. 	If 	so, 	then 	passage 	of 	S.B. 	398 	should 	result 	in 	a
beneficial 	reduction 	in 	the 	costs 	that 	CON 	regulation 	im?oses 	en
health 	care 	consumers 	in 	Georgia. 	However, 	two 	Qf 	the 	bill's
provisions 	appea~ to 	diminish 	its 	poten:ial 	benefits 	to 	he~lth
care 	consumers. 	These 	provisions 	e~e 	(a) 	the 	bill's 	limitation 	to
a 	one-yea~ 	period, 	and 	(b) 	the 	exclusion 	from 	it5 	coverage 	of 	home
-------- --he a 2.-~ h-e a ~ e_ a n d-inp a.tJ._e n t 	n.~_J;:~j.~c are . ---
We 	encouraoe 	the 	sponsors 	of 	S.B. 	398 	to 	reconSlaer 	its
exclusion 	of 	inpatient 	nursing 	care 	and 	home 	heal:h 	care. 	A 1986
FTC 	s~a£f 	report 	concluded 	the: 	CON 	reg~lation 	d~~S 	net 	decrease,
and 	may 	inc~ease, 	~he 	costs 	of 	hQme 	heelth 	care. 	~Sirnilarly, a
study 	of 	:he 	econemic 	~ehavior of 	nu=sinc 	homes 	has 	noted 	:hat 	CON
regulatio~~me.y 	have 	increased 	the 	average 	cost 	of 	nursing 	home
services . .)"
1
~o~eQver, 	by 	restricti~g ~he relaxation 	of 	Georgia'S 	CON
regulatio~ 	to 	a 	one-year 	period, 	:he 	potential 	co~sumer benefits
S:e~e-by-Sta:e Survey: 	A Specie.l 	Report," 	Se?:./Oct. 	1986 	at 	27-42.
31
32
Anderson 	& Kase, 	~u~=e note 	4, 	at 	74, 	82.
Lee, 	3irnbauffi, 	and 	Bishop, 	5u~r: note 	14, 	at 	1906.
12
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..
of 	S.B. 	398 	are 	further 	limited. 	Although 	the 	bill'e 	enactment
should 	provide 	substantial 	relief 	for 	any 	present 	underinvestment
in 	beneficial 	health 	care 	facilitieg 	and 	services 	that 	ie 	due 	to
the 	past 	imposition 	of 	inefficient 	CON 	constraints 	(i.e., 	some
investment 	opportunities 	that 	have 	been 	deterred 	in 	the 	past 	by
the 	actual 	or 	perceived 	inability 	to 	obtain 	CON 	opproval 	could
now 	be 	undertaken), 	it 	would 	leave 	in 	doubt 	the 	status 	of 	future
beneficial 	investment 	opportunities 	that 	would 	be 	unde~taken if
the 	bill 	provided 	for 	a 	more 	extended, 	or 	permanent, 	relaxation 	of
Georgia'S 	CON 	constraints. 	Because 	of 	the 	time 	restriction, 	some
beneficial 	investment 	opportunities 	that 	arise 	in 	the 	future 	will
be 	blocked 	by 	the 	reEumption 	of 	CON 	regulation 	at 	the 	conclusion
of 	the 	one-year 	period. 	On 	the 	other 	hand, 	Borne 	investments 	in
facilities 	~nd 	services 	that 	would 	be 	postponed 	until 	a 	more
opportune 	time--if 	passage 	of 	S.B. 	398 	either 	abolished 	CON
regulation 	altogether 	or 	relaxed 	its 	effectivenes8 	for 	a 	longer
time--may 	be 	made 	during 	the 	one-year 	open 	period. 	Those 	capital
outlays 	accelerated 	by 	the 	anticipation 	of 	CON 	regulation's
resumption 	at 	the 	close 	of 	the 	one-year 	window 	may 	combine 	with
those 	investments 	in 	health 	ca~e 	facilities 	and 	services 	which,
abser.~ CON 	regulation 	in 	the 	past, 	would 	have 	been 	made 	in 	earlier
years, 	to 	cause 	a 	surge 	of 	capital 	expenditures 	during 	the 	one-
ye~r open 	period. 	It 	should 	be 	emphasized, 	however, 	that 	even
though 	the 	accelerated 	investments 	might 	be 	distributed 	more
efficiently 	over 	time 	if 	the 	time 	period 	p~ovision in 	S.3. 	398
were 	longer, 	health 	care 	consumers 	would 	still 	likely 	be 	better
off 	with 	the 	bill's.proposed 	one-year 	window 	than 	they 	would 	be 	It
Georgia'S 	prevailing 	CON 	regulatory 	scheme 	is 	not 	relaxed 	at 	all.
--_.-.----- CITf{CLUSrQN------------ --. -------- -----.---
We 	believe 	that 	t~e continued 	existence 	of 	CON 	reg~lation 	may
be 	contrary 	to 	the 	interests 	of 	health 	care 	consumers 	in 	Georgia.
Ongoing 	changes 	in 	the 	health 	care 	financing 	system, 	including
prospective 	payment 	~echani6ms and 	increased 	consumer 	Friee
sensitivity 	fostered 	by 	private 	insurers, 	are 	eliminating 	the
principel 	problems 	that 	prompted 	CON 	regulation. 	Moreover, 	the
CON 	r~gulatory 	process 	does 	not 	appear 	to 	serve 	its 	inte~ded
O " ........ oc:e 	o~ 	-,.,n~.,..ol1~ng he""~'n c"' .... e 	- 	d 	d'- 	. 	-',	_ .... _~ 	- 	- 	"" 	... - 	_... 	.....:. ......._ 	cos ... s 	n 	ee 	, 	.1 ... 	may 	;';0_1'
counter 	to 	that 	p~rpose because 	it 	interferes 	with 	competitive
market 	forces 	that 	would 	otherwise 	help 	contain 	costs." 	More
importantly, 	CON 	regulation 	tends 	to 	foster 	highe~ prices, 	lower
quality, 	and 	reduced 	innovation 	in 	health 	care 	markets. 	We
conc~ude 	thct 	enactment 	of 	Se~ate Bill 	398 	by 	the 	General 	Assembly
would 	li}~ely have 	jeneficial 	consequences 	for 	Georgia 	health 	care
consumers 	a~d believe 	the 	results 	of 	the 	bill's 	enactment 	wo~ld
13
.; --' ,--	....... .:.. --.-	. ,_.' 	~ - - . -,-.. - 	-, - - - - -. :. .:'

provide 	an 	incentive 	for 	further 	reductions 	of 	CON 	regulation 	in
the 	future.
We 	would 	be 	happy 	to 	answer 	any 	questions 	you 	may 	have
regarding 	these 	comments 	and 	to 	provide 	any 	other 	assistance 	you
may 	find 	helpful.
"Sincerely yourB I
\......... _, 	~.:::-......
\ 	':. 	'-.",
1r- e.- 	CJ 	\'. 	L) ~
Paul 	K. 	DeviB
Director
Atlanta 	Regional 	Office
._-------