Future of hospital regulators in doubt

    Beset by scandal, state board now sees federal report urging its

    By Alice Hohl[0]

    Staff writer

    With the Illinois Health Facilities Planning Board now under fire
from federal investigators and state officials alleging corruption, now
comes a federal report urging states to abandon such boards altogether.

    The culmination of events has led to soul-searching among industry
experts and hospital executives about the mission of hospital regulation
in Illinois, and whether it should stay or go.

    Many hospitals and the Illinois Hospital Association support keeping
regulations which require hospitals and others to receive state approval
before constructing a new building or embarking on a large renovation or
technology update.

    Others say a free-market system should reign, allowing price,
reputation and service to drive the market.

    At the urging of the federal government, the "certificate of need"
process began in 1974. The federal government rewarded states for setting
up boards to issue permits before new medical buildings, expansions or
renovations could go forward.

    The idea was to prevent out-of-control spending on new facilities,
which was thought to be driving up the cost of health care nationally.

    In many states, the permit process was allowed to expire in the
1980s, when the federal government stopped funding construction based on
approval by state planning boards.

    In Illinois, the Health Facilities Planning Board reviews
applications and issue permits -- or at least it did until the governor
suspended the board's operations earlier this month after news of the
corruption investigation broke.

    The process here has grown to require a state staff, a handful of
appointed, unpaid board members, and a $3.6 million budget to support it.

    The applications for two new hospitals in the Orland Park/Tinley Park
area, for example, were each about 400 pages long.

    A recently released review by the Federal Trade Commission and the
U.S. Department of Justice concluded the process often causes more cost
than it prevents.

    "Where (certificate of need) programs are intended to control health
care costs, there is considerable evidence that they can actually drive up
prices by fostering anticompetitive barriers to entry," according to the
report, issued July 23.

    Illinois' system already had been judged largely ineffective by a
state audit in 2001 that stated the board couldn't prove it was keeping
costs down. The audit also accused the board of failing to apply its
standards consistently from one project to another.

    Recent allegations of impropriety, as well as federal subpoenas
issued to board members, have raised concerns the board has been
infiltrated by lobbyists and industry insiders who approve pet projects
and reject legitimate proposals.

    Another mission, too

    Many concede the permit process has not kept down health costs, which
are influenced in far more dramatic ways by the skyrocketing cost of
prescription drugs and the administration of managed care programs than by
the construction of new facilities.

    But the permit process has had another important effect.

    It has protected hospitals in urban areas that often supply expensive
emergency services to patients who have no insurance or are covered by
Medicaid, which doesn't reimburse hospitals fully for their costs.

    Some of those hospitals might have had to shut their doors if not for
the business of some "paying" customers from wealthy areas who have no
other hospitals to patronize.

    Hospitals that serve disadvantaged areas fear if the permit process
ended, new hospitals would abandon poor regions and "cherry pick" the
insured patients, luring them with shiny new buildings and specialty

    Some Southland hospitals say that is exactly what Advocate Health
Care and St. Francis Hospital and Health Centers are doing by trying to
build in Orland Park.

    They had hoped the state board would deny the applications,
protecting the market share of hospitals such as Ingalls Memorial Hospital
in Harvey and St. James Hospitals and Health Centers in Chicago Heights
and Olympia Fields.

    Neither Advocate nor St. Francis wants to see the permit process
abolished. Both currently operate hospitals that serve uninsured and poor

    Dan Parker, spokesman for Advocate, said limiting new facilities has
the important effect of keeping patient volume high at existing hospitals,
which helps keep surgeons sharp and improves results for patients.

    "Will we have a board? Won't we have a board? Should we have a board?
Our position is there is some role for some regulatory entity to focus on
ensuring quality," he said.

    "If there are absolutely no regulations, you potentially have
multiple entities replicating the same services, dragging down volume and
affecting quality."

    Parker said the current standstill is problematic.

    The current board has been ordered by Gov. Rod Blagojevich to suspend
its activities and cancel meetings until a federal investigation is

    Legislation to replace all the board's members was introduced after
reports that members participated in debate and voted on proposals that
compete with systems in which they have a controlling interest, and that
members tried to use their influence to direct construction contracts to

    "I think it's tough to speculate what this means for Advocate and St.
Francis," Parker said.

    Many had expected the board to approve one or none of the Orland
hospitals, but if the board is abolished, both would be free to build
hospitals at their planned locations: eight blocks apart on LaGrange Road
just north of Interstate 80.

    "Everything's on hold, and that's the frustration," Parker said. "Our
desire is to move ahead, and we can't do that in this environment, and our
competitors are plagued with the same problem."

    Debra Robbins, spokeswoman for St. Francis, said the board should
remain in place.

    "St. Francis Hospital and Health Centers, as well as the Illinois
Hospital Association as a whole, supports the (certificate of need)
process," she said. "It serves an important function in that it helps to
keep costs down and avoid unnecessary duplication of services."

    Indiana as a case study

    In Indiana, hospitals were allowed to build without certificate of
need permits beginning in 1985.

    Some for-profit facilities moved in, and some specialty heart
hospitals opened their doors in the suburbs, taking business away from
older, inner-city hospitals.

    Dire prophecies of a free market driving all the traditional,
not-for-profit hospitals out of business did not come to pass.

    But Bob Morr, vice president of the Indiana Hospital and Health
Association, said it is difficult to tell whether things were better under
the old certificate of need system.

    "Here we are 20 years later with no one able to nail down with any
certainty whether the competitive experiment worked," Morr said.

    A proposal to bring back a review board in Indiana was introduced
during the state's most recent legislative session, but the measure

    "Our own membership is divided on the issue. ... Generally the
membership -- hospital CEOs -- concur that if the objective is to control
health care costs, it does not serve that end," Morr said.

    "It may slow growth or entry of new services, but ultimately the
demand of the public will still result in those facilities coming in."

    But Morr said the issue of protecting hospitals that serve the poor
is a stickier one.

    "There isn't a true free market in health care when Medicare and
Medicaid get to decide how much they reimburse, regardless of cost," he

    "What our members are talking about is, if the competitive model is
to exist, there ought to be an even playing field, and right now there's
not," he said.

    "The community hospital is expected to provide community safety nets
like emergency rooms, and somebody's got to have the burn center -- things
that are never going to be profitable."

    Morr said members have discussed taxing specialty hospitals to help
fund emergency rooms at traditional, full-service hospitals.

    Different opinions

    The Southland hospitals that have opposed a new Orland hospital want
the Illinois Health Facilities Planning Board back in operation.

    The hospitals believe a new hospital in Orland will pull in affluent
patients, leaving older hospitals to serve the poor.

    Greg Repetti, chief operating officer at Silver Cross Hospital in
Joliet, said hospitals like his will suffer the most if the process is

    Repetti said he wonders who will take care of the poor if his
hospital is forced out of business by a shiny, new Orland hospital.

    "Before we throw the baby out with the bathwater, we need to make
sure whatever resolution comes of this is made with a lot of thought and
foresight," he said. "Everybody needs to take a deep breath and really
think about what would happen if (certificate of need review) were
eliminated across the board."

    Repetti said just because the current board has been accused of
corruption and conflicts of interest doesn't mean the process is bad.

    "We're managing an asset that our community has had for 110 years,
and we want to make sure that's available for people (in the future)."

    Brian Timpone, who owns a software company in the south suburbs and
has been active in the Republican Party in Illinois, said capitalism works
in every other industry and should be allowed to rule in health care, as
well, especially when it costs so much to administer the certificate of
need review process.

    "The market does a fine job of giving us what we need in every other
sector of our economy," Timpone said. 'The whole concept of a planning
board is Stalinist. It's incongruent with American values," he said.

    Timpone said the money spent on staff who analyze the applications
and then make recommendations to board members who ignore the analysis
would be better spend elsewhere.

    "What this board does is, it discerns need. Do we need a hospital?
Well, how do they know?" Timpone asked.

    "And why should we trust them when (the members) own hospitals of
their own?"

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