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Hospital approval process sparks debate

Certificate of need programs are designed to prevent hospitals from duplicating services, but some question their usefulness and wonder whether a free-market approach could prevail in the health care industry.

Under certificate of need laws, most new construction is subject to strict guidelines that limit the number of health care facilities in a specific planning area. By limiting the number of health care facilities, the laws aim to restrain health care costs.

In order to gain approval for a project, health care systems must submit applications to the state Health Facilities and Services Review Board.

As Centegra Health System and Mercy Health System learned last week, approval from the nine-member board is not as easy as it may seem.

Centegra seeks to build a $233 million, 128-bed hospital in Huntley. Mercy wants to put a $200 million, 128-bed hospital in Crystal Lake. The review board rejected both projects with separate 8-1 votes. Both hospitals can again go before the board to prove that additional hospital beds are needed in the area at a rehearing later this year.

Certificate of need laws were federally mandated in 1974 and repealed in 1987. At that time, many states reviewed their laws for approving capital projects in the health care industry. Some states did away with certificate of need laws, and others scaled back their program's thresholds. Currently 36 states have certificate of need programs.

By restricting competition, the programs actually force the costs of health care to rise, said Katie Mason, a health policy analyst with the National Conference of State Legislatures.

"[There is] clear evidence that cost containment related to certificate of need programs is weak," Mason said. "The evidence really suggests that the process does not affect spending patterns in the state. It's unrealistic to expect that the process will reduce overall expenditures."

Most states maintain some form of certificate of need program in an effort to perpetuate quality health care. If overbuilding occurs, Mason explained, resources would be spread out and could leave health care facilities with less hands-on experience.

While 36 states still employ certificate of need programs, implementation varies from state to state. For example, Vermont and Washington, D.C., are the only places that regulate medical office buildings. Illinois has one of the more far-reaching certificate of need programs, regulating everything from ambulatory surgical facilities to dialysis centers.

Notoriously stingy with its approvals, Illinois' review board before last week had approved the construction of only one new hospital since 1976.

"The fact that one hospital has been approved since 1976 is indicative of the challenge to obtain approval for a new hospital," said Joseph Hylak-Reinholtz, a Chicago-based health care attorney and former nonvoting member of the review board.

But things might not have always been as difficult for hospitals wishing to expand. Adventist Bolingbrook Hospital was approved at a rehearing in 2004.

At the time, Will County's planning area had a medical surgical bed surplus of 265 beds, and the hospital sought to create 106 more. There was a need for only five more intensive care unit beds and 41 obstetrics beds. The Bolingbrook hospital created 12 ICU beds and 20 obstetric beds.

Hylak-Reinholtz explained the inconsistencies as "it was a completely different board, a smaller board."

Used as a mechanism to reduce costs, those opposed to the certificate of need program said it does the exact opposite.

State Rep. Jack Franks, D-Marengo, is critical of the review board and said Illinois should strip the board of its power.

"I don't think the health facilities planning board should exist," he said. "It drives up costs and protects monopolies. That's what happened in McHenry County. It's done to stifle competition and to keep costs higher."

He said the free market ought to be able to determine where and when industries expand.

"To impose limitations and interfere with business decisions makes absolutely no sense," Franks said. "In the real world when you have excess capacity, in order to fill that capacity, what you do is cut prices to attract new business."

But as Hylak-Reinholtz sees it, hospitals are not held to the same set of standards as other businesses. If the hospitals aren't filling their beds, they might need to raise the cost to make up the losses.

"[Certificate of need programs] help protect existing providers from too much surplus in a planning area," he said. "Obviously if you can't fill your facility, you're going to place your facility at risk."

That's a balance the review board has to find: determining whether there is need while at the same time making sure expansion is not going to harm existing providers who then would have to raise costs to make up for lack of patients, Hylak-Reinholtz said.

"Healthy competition can definitely help reduce costs in health care," he said. "On the flip side, overbuilding in an industry can end up driving up costs."

Not so, Franks says. "When it comes to your health, you're going to go to where you receive the best treatment."

While Franks advocates for a smaller governmental role, Hylak-Reinholtz said there is too much at stake.

"If taxpayers are footing the bill for Medicare and Medicaid, you want to do everything in your power to regulate the costs of those programs," Hylak-Reinholtz said.

Hylak-Reinholtz admitted that Illinois' program is not perfect. Hospitals must show a bed need of at least 100 beds before expanding. McHenry County's planning area currently has a need for 83 beds, and reaching that "magic number" may come quickly.

"The planning board should be planning; it shouldn't be reacting," Hylak-Reinholtz said. "We need to look into the future."

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