Eugene Weekly : 12.15.05

CON Job

Hospital certificate of need process leaves out consumers.

By Alan Pittman

While PeaceHealth and Triad/McKenzie-Willamette Medical Center snap and hiss at each other over state certificate of need regulations for their competing new hospitals, consumers may be bit by high hospital bills.

The state Certificate of Need (CON) program is supposed to be about controlling health care costs for consumers by requiring that new hospitals demonstrate that they are needed. "It's for the public, we're here to serve the interests of the public," said Jana Fussell, director of the state CON program.

But Maribeth Healey, director of Oregonians for Health Security (OHS), a union-backed consumer group, laughs when asked how reducing health consumer costs is included in the CON program. "I don't think that's in the law at all."

Competition usually means lower prices and increased quality for consumers. But the CON program assumes that's not the case when it comes to health care. In health care consumers can't shop by price and quality. They generally do what their doctors tell them to do and aren't given clear prices to choose from. In brain, heart and knee surgery, most people don't want to trade quality and experience for price. "It's not like buying a VCR," Fussell said. "It's not a market where consumers have a lot of information."

In such an imperfect market, a new competing hospital can actually increase medical costs, according to CON advocates. To make up for the cost of construction, doctors and providers will fill the beds in the hospital whether patients actually need the health care services or not, the CON theory goes.

CONTROVERSY

But this counter-intuitive idea of competition increasing prices is controversial.

"The role of CON in health care has been subject to lots of debate," Fussell said.

Nationally, 37 states have some sort of CON program and 14 do not. The federal government had CON regulations but repealed them in 1987.

A report this year by John Abramson of the Harvard Medical School and health consultant Bruce Spitz said CON programs had "failed to encourage efficiency, reduce duplication or constrain costs. CONs did, however, protect existing institutions from new competitors." As evidence, the report cited studies by the state of Michigan and the federal Department of Justice and Trade Commission.

Consultant Robert Cimasi reached a similar conclusion in a 2002 report. He cited numerous studies indicating that CON laws have failed to reduce health care costs. "Instead CON serves to promote the oligopoly interest of existing, established provider organizations who find competition inconvenient," Cimasi reported.

Stanford University economists Daniel Kessler and Mark McClellan reported in 2000 that, contrary to a central CON idea, competition decreased costs and increased quality for heart attack patients. In competitive markets, treatment cost 8 percent less while mortality rates were 4 percent less.

In Oregon, there's apparently also little evidence CON has controlled costs. Oregon hospital costs are rising at more than twice the rate of inflation and are the major driver of double-digit yearly increases in insurance rates, a study this year by Oregonians for Health Security (OHS), a consumer group backed by labor groups, found.

Oregon's hospital costs and their rate of increase are substantially above the national average and Oregon is now the fifth most expensive state in the nation to spend a day in the hospital, according to the report. A lack of competition created by monopolistic hospital groups has increased health care costs, according to OHS. Such consolidated hospital systems have higher administrative costs and prices and "use their market power to drive up the cost of health care."

Hospital CONFLICT

Here in Eugene/Springfield, PeaceHealth and Triad are using the CON law to pummel each other. PeaceHealth successfully lobbied in Salem and fought in court to keep regulators from examining Triad's request for more hospital beds alongside PeaceHealth's request. Triad has testified extensively against PeaceHealth's application for more beds.

PeaceHealth (above) and Triad (below) want to build two new hospitals on the edge of town at a combined cost of $600 million.

PeaceHealth has about 80 percent of the local health care market. Its revenues of $506 million a year dwarf Triad's $120 million. Triad/McKenzie accused PeaceHealth of violating anti-trust laws with it's near monopoly and recently won a $16 million jury verdict against PeaceHealth.

Triad was losing money in 2003, but PeaceHealth, a non-profit, is one of the most profitable hospitals in the state. PeaceHealth's Sacred Heart reported an 11 percent profit margin, triple the state average. At the same time, PeaceHealth gave the poor uncompensated care at a rate well below the state average. Triad's uncompensated care rate was just below average.

The battle of the two health care titans has left most health care consumers on the sidelines. Hospitals use the CON law to go after their competition, but there's no way for consumers to use the law to control health care costs, according to Healey.

With squads of high-priced lobbyists, attorneys and consultants, hospitals have shaped the CON regulations and used them too often for "protecting their domain or expanding it," said Ellen Pinney, director of the Oregon Health Action Campaign consumer group. "It should be more about what the community needs than what the hospital needs," she said. "I'm not sure the Certificate of Need process allows for the best interests of the community to surface."

CONSUMERS

CON has its problems, but the basic idea is right and the regulations should be strengthened and focused on consumers, consumer advocates say.

"CON laws can be useful," said Lynn-Marie Crider, a health care policy analyst with the Oregon Service Employees International Union. While competition is usually good elsewhere, "it's not true in health care," she said. When it comes to health care, expensive new facilities get used whether needed or not, driving up health care costs. "If you build it, they will come."

Health care consumers just don't have enough objective price and quality information to take advantage of hospital competition to reduce prices, according to Crider. "Instead of competing based on price, hospitals tend to compete by advertising."

Pinney agreed. "You always have to evaluate whether competition is really in the best interests of the community." The free market works when people have educated choices, "in health care people don't really have a choice." Doctors tell patients which hospital to use and how, and "there is no incentive to control cost."

Also, if a competing hospital staff doesn't have practice in risky procedures, patients don't want to go there, no matter the price, Pinney said.

Another counter-productive way hospitals compete is by avoiding the people who most need their health services. Crider and Pinney note that both local hospitals chose suburban locations, far from the downtown poor and homeless who lack insurance and don't offer high profit margins for hospitals.

But despite their good intent, Oregon's CON laws have been distorted, according to reformers. "It's not being utilized the way it could," Pinney said. "It needs lots of changes."

Oregon's CON regulations have been "grossly watered down" over the years, Pinney said. Unlike other states, Oregon's CON laws don't cover expensive equipment, such as MRI scanners and many other expensive hospital expansions. Oregon has only one part-time staff person working on reviewing CON applications.

PeaceHealth took advantage of a loophole in the CON laws for large existing hospitals which exempted it from CON review for its $350 million new hospital at RiverBend.

Under CON rules regarding expansion within service areas, RiverBend "wasn't considered to be a new hospital," Fussell said. In contrast, Triad's $250 million new hospital will be considered a new hospital. Asked if it makes sense to exempt one hospital given the stated purpose of the law to control costly duplication, Fussell said that's up to the Legislature. "We're following the law."

"All of those big-ticket items ought to be covered," said Crider.

Consumer groups pushed a package of reform measures to reduce health care costs in the Legislature this year. The measures would have strengthened the CON process to make it more consumer focused and would have set up a system of regulating hospital charges. Maryland regulates hospitals and has better controlled cost increases, and has hospitals that give twice as much uncompensated care to the poor as Oregon, OHS reported.

But the consumer reforms were blasted by Oregon's powerful hospital lobby and went nowhere this session.

Despite the defeat, Crider said reform will come eventually. Their proposal to control health care costs by regulating hospitals was new this session. In time, she said powerful business groups will eventually overcome their "queasy" attitude to regulation and realize that the legislation would help them.

Businesses are starting to realize that they can't keep paying for increasing hospital costs, Healey agreed. "It's eating such a chunk of their bottom line."

The state government is also trying to cope with huge health care costs — $1.2 billion a year for the Oregon Health Plan, Healey said.

Higher health care costs in Oregon hurt business competitiveness, reduce wages and cut jobs, Healey said. If Oregon could reign in the costs, "it would be the biggest economic boon to our state."

Stuck with the Bill

But even if the state eventually comes around, it may be too late for Eugene-Springfield.

The $600 million cost of the two new hospitals here will be passed through to local consumers and increase the cost of private health insurance in Eugene-Springfield, said Bart McMullan, president of Regence BlueCross BlueShield of Oregon, the state's largest health insurer. "Yes it will, absolutely."

PeaceHealth and Triad officials have denied they'll charge significantly more to pay for the new hospitals.

But few people appear to believe them. "The folks who are going to pay are everyone in Lane County who ever needs to pay for hospital services," said Pinney.

Healey calls the hospitals switching cities here a "debacle" that will cost consumers money and waste scarce health care resources.

Lane County has an estimated 50,000 uninsured people. If distributed evenly, $600 million is about $12,000 for each uninsured person to buy health insurance.

"It just seems like a whole lot of wasted health care dollars," said Healey. "How many people could get health care for that kind of money?"