Regional Healthcare Planning Benefits All
By: Ray Lefton
As we have painfully relearned with the recent economic crisis, greater oversight is sometimes needed against good ole American ingenuity and/or greed. Blame the free market economy and Americans itching to “supply” the “demand” and make a profit in the process. However, in health care, what’s good for the entrepreneur is not always good for the public.
No one wants to slow down innovation, especially in a business like health care that saves and improves human lives. In health care, an organization that is only focused on its own needs can produce unanticipated, harmful results. As providers, we need to encourage more planning and cooperation on a regional level to ensure that the healthcare needs of all Americans are met with the fewest dollars.
Five counties in southeastern Pennsylvania are now home to more heart programs than the entire state of New Jersey, which has double the population. Community hospitals have seized upon open heart surgery—particularly bypass and angioplasty operations—for the status and money these services generate, and for the range of other life-saving procedures that cardiac programs make possible.
As community hospitals duplicate services traditionally handled by teaching hospitals, they are financially harming our safety net hospitals. Even as teaching hospitals lose volume to community hospitals, they must continue to maintain the high overhead costs associated with their teaching missions and commitments to the indigent.
We also need to ask whether patients are receiving the same level of care for specialty procedures at community hospitals as they are at teaching hospitals. In general, surgeons at teaching hospitals operate on more patients and, thus, have more experience. A study in JAMA reported that states with a free market in open heart programs had a 21 percent higher death rate than states that limit expansion (Vaughan-Sarrazin, M.S., et al., “Mortality in Medicare Beneficiaries Following Coronary Artery Bypass Graft Surgery in States With and Without Certificate of Need Regulation,” JAMA, Oct. 16, 2002). This is not surprising, given that researchers have documented the link between the volume of procedures performed and quality for more than 20 years.
Apart from quality issues, the rush for hospitals to provide high-demand services and technology without any regard to regional planning drives up overall healthcare costs. For example, the emergence of proton beam therapy, the latest advance in radiation treatment, has started a new medical arms race as hospitals try to take advantage of the prestige and the profits associated with these machines. A 222-ton accelerator and the facility to house it can cost more than $100 million. In Philadelphia, the University of Pennsylvania is building a proton beam program and Jefferson University Hospital has announced intentions to do the same. Will this spur the other nearby teaching centers to get a proton beam, too?
This very issue is being played out in Michigan. A consortium of six Michigan health systems has created a joint venture to bring this emerging cancer treatment to the state’s residents. Independent of the consortium, Beaumont Hospitals has received approval from the Michigan Department of Community Health to develop the state’s first proton therapy center for $159 million, and the center is expected to be operational by 2010. Estimated projections show that Michigan will need one proton therapy unit for every 10 million people by 2020. That means the state can support one proton unit based on current population projections.
Some experts say that physicians will be under pressure, once proton units are built, to guide patients toward proton therapy when a less costly alternative might suffice. Also, recognizing the potential of this technology, much venture capital money is being invested in hopes of creating less costly, smaller units in the price range of $10M to $20M for community hospitals. The science for smaller units is still unproven.
Without some intervention, the medical arms race will continue. Clearly the question exists whether the problem can be solved through free market forces or whether greater regulation, such as imposed in New York under the Berger Commission, is the solution. The nonpartisan Berger Commission was created by former Governor Pataki and the New York State Legislature to undertake a rational, independent review of healthcare capacity and resources. The Berger Commission wants to eliminate 4,200 hospital beds across the state (7 percent of total capacity). Some 3,000 nursing home beds would also vanish. Forty eight hospitals would be restructured or merged, and nine hospitals would be formally shuttered. The Berger Commission claims the plan will save about $1.5 billion per year over the next decade, through reduced costs and reinvestment of savings in health care. As expected, there has been much political push back, and questions remain whether the ultimate aims of the Commission will be achieved. Moreover, some government relief may be required from an antitrust perspective to facilitate cooperation.
The bottom line: Certificate of need (CON) laws as they currently exist are not cost effective and do not reduce overall costs, according to an analysis for the Commission on Rationalizing New Jersey’s Health Care Resources. CON laws are intended to prevent competing hospitals from delivering more services within a market than the market can bear, thereby protecting the hospitals margins. However, in New Jersey, average hospital operating margins in 2007 and for the first six months of 2008 were less than one percent, even with many payers paying well above Medicare rates. Upwards of 40 percent of New Jersey hospitals lost money from operations in 2007, and 48 percent are losing money from operations at the midpoint of 2008.
Implications: Many healthcare experts believe market forces can and would eliminate inefficient providers and expensive duplication; however, this approach may take many years to play out--and at what cost? Ultimately, stronger providers will survive, and weaker ones will see their assets degrade. This may lead to access issues in rural and poorer, inner-city communities. Clearly state planning doesn’t work, and the risk of leaving it to market forces is too great. As such, an alternative approach must be conceived. Health care is a local/regional phenomenon. I would suggest that regional planning boards be developed that work under state/federal guidelines and a set of mandated guiding principles.
Ray Lefton, DDS, FHFMA, CPA, is vice president, finance, Princeton HealthCare System, Princeton, N.J., and a member of HFMA’s Metropolitan Philadelphia Chapter (rlefton@princetonhcs.org).
This article is excerpted from a series of columns Ray Lefton wrote about healthcare reform for hfm magazine. Lefton has proposed 14 strategies for meaningful reform. Read all of Lefton’s 14 strategies. (HFMA membership required).