The Battle Over
Certĩcate of Need
Physicians free of CON restrictions
contend specialty hospitals can
provide better outcomes for patients and lower costs. Community
hospital leaders counter the laws are necessary to level the playing field.
Is it innovation or greed?
provide better outcomes for patients and lower costs. Community
hospital leaders counter the laws are necessary to level the playing field.
Is it innovation or greed?
Dissatisfied with the surgical services at
their local hospitals, 48 orthopaedic surgeons in Indianapolis
recently took matters into their own hands and began building
their own surgical specialty hospital. The 42-bed facility,
which will be owned and operated by the physician group known
as Ortho Indy, will have 10 operating rooms. It is due to open
in March.
The new facility will
allow surgeons to “regain control of the patient
experience” through more convenient scheduling,
specialized support staff, better outcomes and lower medical
bills, says Dr. John Dietz, the president of Ortho Indy. Physicians tried to improve these factors at
their local hospitals, but met with resistance, he says.
“I can’t
even begin to describe the depth of that problem,” Dietz
says. “We are so dissatisfied with apologizing to
patients for the difficulties they have had in the
hospitals.”
Although months from
opening, the physician-owned hospital has already set off a
firestorm of protest, one that is repeating itself in
metropolitan areas all over the country in states that have
either abolished or greatly scaled back certificate-of-need
(CON) laws.
Skimming the cream?
Doctors free from government regulation to
open their own facilities are targeting high-profit procedures
like orthopaedics and cardiovascular services. Neighboring,
not-for-profit community hospitals are crying foul because they
believe physicians like Dietz are skimming the financial cream
from their bottom lines and leaving them economically
vulnerable.
As more high-profit
patients receive care in either specialty hospitals or
privately-run ambulatory care centers, community hospitals are
left with an increasing percentage of money-losing or
low-margin services like emergency rooms, obstetrics, and burn
units, hospital administrators say.
If physicians are
allowed to get rich by cherry picking the most profitable
procedures and only treating well-insured patients at their
specialty-care facilities, community hospitals will close,
leaving no one to run essential emergency services or provide
charity care to the more than 50 million uninsured and
underinsured Americans, critics charge.
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“The problem
with specialty hospitals is they usually do not carry their
community burden for the underinsured such as Medicare and
Medicaid patients and the non-insured indigent
population,” Leahy says. “If organizations are
allowed to come into states that don’t have CON and
aren’t regulating for-profit enterprises, they will cut
into the frail hospital margins that exist. As the population
ages and demand for health care grows, somebody has to be
around to take care of all of society’s needs.”
Dietz and other
physician investors in specialty-care facilities believe
community hospitals are overreacting. In Indianapolis, Ortho
Indy’s new facility will contain just 42 of the
city’s more than 7,000 hospital beds. Even though the
physician group commands about 25 percent of the area’s
orthopaedic market, Ortho Indy doctors plan to do just 30
percent of their surgeries at their own facility. The rest will
be done-as they are now-at neighboring community hospitals,
Dietz says.
Ortho Indy physicians
will see patients and perform surgery in whatever facility is
best for the patient, not where they think they can make the
most money, Dietz says.
“The concept
that we are against the hospitals is incorrect,” Dietz
says. “We work in the hospitals... When hospital
administrators say they provide millions in charity care, I
have to get up and say ‘Sir, who is doing that charity
care? I was in the emergency room at 3 a.m. doing that charity
care. Your facility happened to be where I did it, but the care
was rendered by us.’ And we are going to continue to do
that, and we always will.”
Supporting community
hospitals is important, but so is containing health care costs
and providing the highest quality care possible, Dietz says.
Specialty-care facilities are more efficient and better suited
to achieving patient satisfaction, he says.
“One aspect of
health-care cost is efficiency,” says Dietz, who projects
he will perform two-to-three times as many surgeries at his new
specialty hospital in the time it takes to do just one in a
community hospital. “Our concept is in line with what
people call the focus-factory model: you build small,
highly efficient facilities that do just one thing and do it
extremely well. Hopefully that drives down the cost of doing
business.”
Economic credentialing
Battles over specialty hospitals are
raging nationwide. The Ohio Health network recently canceled
the privileges of doctors who invested in a competing
orthopaedic specialty hospital—a phenomenon known as
economic credentialing—while the Baptist Health network
in Little Rock, Arkansas, has threatened to do the same to
physicians who invest in the nearby Arkansas Heart Hospital,
which is majority-owned by MedCath, a North Carolina-based,
for-profit heart hospital chain.
Officials with these
institutions declined to comment for this story.
“The development
of specialty-care facilities is fueling what is amounting to be
a war between hospitals and physicians,” says Tim
Maglione, the senior director for government relations at the
Ohio Medical Association. “A major hospital here in
Columbus (last spring) revoked the privileges of 17 very
qualified, very competent, very good physicians from its
medical staff solely because they went out and tried to create
a better way to take care of their patients, i.e. building a
specialty hospital.”
Situations like the ones in
Ohio, Arkansas, and Indiana have gotten so ugly that in
November 2003, at the urging of the American
Hospital Association and
others, Congress enacted an 18-month moratorium on reimbursing
physicians who provide Medicare and Medicaid services at niche
facilities in which they are investors. (See “Behind the
Ban,” next page.)
Although the law
exempts facilities that have either already been built or are
under construction, the moratorium essentially stopped new
specialty hospital construction nationwide. Lawmakers are using
this time out to study both the monetary and societal affects
of community hospitals losing market share.
The pros of CON
Niche providers do not set up shop
everywhere. They are attracted mainly to metropolitan areas,
and proliferate mostly in states that have either abolished or
greatly relaxed their CON laws. About two-thirds of all
specialty hospitals are located in just seven states, (see
above) a study by the U.S. General Accounting Office (.pdf) concluded.
Twenty-three states—all with strict CON laws—have
no specialty hospitals.
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Without government
regulation, CON supporters believe every community hospital
would want the latest technology to enhance its competitive
position, and entrepreneurs would set up free-standing services
regardless of community need. The cost of building and
operating these facilities would result in incentives to
perform unnecessary procedures, which would drive up
health-care costs, they say.
CON requires
applicants to show government regulators not only the financial
feasibility of their proposal, but submit a detailed analysis
of the community’s health-care system to show that the
requested project is medically necessary.
“In Illinois, we
have not had an influx of niche hospitals, and CON may be the
reason for that,” says Ann Guild, the vice president of
the Illinois Hospital Association. “The niche companies
tend to target non CON states.”
Pennsylvania abolished
CON during the mid 1990s. Now Harrisburg finds itself embroiled
in controversy because Holy Spirit Hospital recently opened a
$75 million cardiac specialty wing to compete with nearby
Pinnacle Health System’s well established, 30-year-old
heart center. Had CON still been in affect, Holy Spirit likely
never would have received permission to build, state health
officials say.
No one at either Holy
Spirit or Pinnacle would comment, but Pennsylvania medical
observers don’t believe there are enough patients for
both heart centers, and predict Holy Spirit’s investment
will drive up costs for other medical procedures as both
hospitals cost shift to cover expenses.
The issue has prompted
some Pennsylvania lawmakers to consider reestablishing CON
laws.
“You can’t
help but wonder how we are going to recoup that $75
million,” says Scott Johnson, the executive director of
the Pennsylvania Senate’s public health and welfare
committee, and a top aide to committee chairman Harold Mowery,
a Republican who serves the district that includes Holy Spirit.
“Is somebody
anticipating in central Pennsylvania we are going to be doing
more heart procedures? I don’t think so,” Johnson
says. “We are going to be doing the same number of
procedures, but now in two different buildings. Yet somewhere
along the line that $75 million is going to have to be made
up.”
