Governor makes move to eliminate state permit

Source: Homer Tribune

Certificate of Need provides protection for small-town hospitals

By Layton Ehmke

Going against the findings of the commission she appointed, Gov. Sarah Palin announced in her Health Care Transparency Act that her administration supports private enterprise — thereby shunning the protection that the longstanding Certificate of Need program offers small communities.
Department of Health and Social Services Commissioner Karleen Jackson, per Palin’s request mid last year, put together the Health Care Strategy Planning Council. The council then put together a CON-negotiating committee that came out in support of continuing the CON program as needed to “guide market development.”

In addition to that recommendation, the council offered amendments that would strengthen the program, However, Palin quashed those with her healthcare bill that contains a blanket elimination of the CON.

The certificate-of-need review program is supposed to promote responsive facilities, planning, healthcare quality and costs, while keeping excessive construction down. The attention to the certificate carries with it conversations of its application, along with possible changes to how it is used. As a member of the House DHSS Committee, Rep. Paul Seaton said the CON process will come under review next session. Several bills further restricting the CON’s uses have also been introduced — something South Peninsula Hospital administrators are not necessarily hoping for.
According to Seaton, the Murkowski administration wanted to make certain the certificates were in place for residential psychiatric centers. Seaton said he predicts there will be support for altering the certificate’s requirements, but not for eliminating the program altogether.
When it was suggested in the House that the certificate should be eliminated, Seaton said SPH became very active in seeing that it was not eliminated.

Seaton said SPH wanted to maintain the CON because smaller hospitals see most of their profit from areas like imaging and outpatient surgery.
“The purpose of the CON is to make sure you don’t over-bill services in an area,” Seaton explained. “If you had another imaging center come into an area, that would eliminate a profit center for the hospital, while the hospital is still required under law to do all the charity care. That’s the whole basis for maintaining the CON — and there was quite a bit of testimony in the previous bills coming from South Peninsula.”
The counter argument is that sole-source private practices could charge patients less for the same services. However, somehow, hospitals would have to be subsidized since they must, by law, provide “charity care.”

Casting a vote for private enterprise, Governor Sarah Palin is in favor of repealing the CON program. Her rationale for this is reportedly due to it creating, “a lack of competition among healthcare providers that are trying to provide reasonable choices among healthcare providers,” the governor’s Deputy Press Secretary Sharon Leighow said. She spoke in regard to the stipulations on the Healthcare Transparency Act.
“Keep in mind that by eliminating the CON, that would end several pending lawsuits, which is a good thing,” Leighow said. “Currently, there are nine lawsuits involving CON, and ending those lawsuits would mean that those general fund dollars could be re-directed into other useful healthcare programs.”

The governor’s health bill, SB 245, was read across the Legislature on Saturday. It was then assigned to health and finance committees in both houses.

PROTECTING SMALL HOSPITALS
Derotha Ferraro, public relations director for South Peninsula Hospital, said the CON program offers protection for small-town hospitals.
Ferraro said that since the concept of the CON started out as a program to monitor the development of new healthcare services — to build only when that need is demonstrated, it’s essentially an economic outline of proof as to why a community can justify the development. When those improvements come about, the hospitals are still expected to comply with standards that do not necessarily correlate with private enterprise. That then gives private enterprise some opportunities that do not exist for community hospitals, said Ferraro.
Upfront, dissolving the CON program looks like a good deal to many communities. After all, a private company offering the same services as a hospital at a cheaper price looks fairly favorable. In the long run, however, Ferraro said the hospital would have to reduce its services because of the loss of revenue. Or, they may simply be forced to no longer offer some services.
According to Ferraro, without the CON, there would be unlimited private competition. This could then force SPH to cut back its services altogether.
“The impact on small community hospitals would be pretty tragic in the long run,” Ferraro said. “The last thing you want is a community hospital without imaging and no lab. Those are two of the most common things that go into private practices.”
And while hospitals are open 24-hours per day to provide care and are required to give charity assistance, private clinics can choose their patients and their hours.
“You don’t want your hospitals without those when they’re open on a 24-hour basis,” Ferraro said. “It is a scary alternative. From the community perspective, it would appear very exciting in the short run, because people would be thinking about how much money they would be saving with competition lowering prices. In the long run, it would lower prices to the point where the hospital would have to abandon those services.”
Ferraro said the hospital could not justify having the equipment and the professionals it has, while only serving such a small percentage of the market.

COMMON AREAS OF PROFIT
Two of the main profit departments at SPH are the lab and the imaging center. If a hospital in the state of Alaska is building a capital project at a cost of more than $1.1 million, it must file a CON for justification — which SPH is doing now for its additions.
Seaton said the Certificate of Need, as it is, serves its purpose. While there have been proposals to eliminate the program in the Legislature throughout the past decade, Seaton said that generally, he’s found that the CON serves a purpose in smaller communities.
Where it would damage South Peninsula Hospital the most would be through its common areas of profit like MRIs and specialized surgeries.
“So how do we handle the problem of the smaller facilities?” Seaton asked. “Here’s the problem. There are two kinds of profit centers — there’s the outpatient surgical clinic, and there’s the imaging centers. The thing we want to prevent is having a hospital that is serving an area become so financially stressed, it has to go out of business.”
Hospitals are faced with the expectation to provide emergency care to those who cannot pay for it … so the alternative when it faces the Legislature would be to add an exemption amendment that would preserve the CON program for critical access hospitals.
“This is more a big population center issue than it is for rural Alaska,” Seaton said.
Rep. Bob Lynn (R-Anchorage) said the governor’s CON repeal provides just competition in urban markets.
“I was pleased that Governor Palin made special mention in her State of the State address of eliminating the so-called ‘Certificate of Need,’’’ Lynn said. “I am also pleased the governor has put her words into action by sponsoring a bill that does just that. As far as I’m concerned, a better name for the CON is a ‘Certificate of Monopoly.’
Lynn said he has been an advocate of eliminating the “Certificate of Monopoly” for several years.
“I’m an issue person,” he said. “Let’s pass legislation to get the job done. That’s what’s important.”
Ferraro maintains that without the protection the CON provides, small-town hospitals could be at risk of being swallowed by enterprise.
The CON most recently came up in local discussions amid SPH additions and permitting. The hospital’s current application for new additions was denied, as the CON was left behind in the permitting process. Health and Social Services Commissioner, Karleen Jackson’s office, is looking at the current application.
On a related note, Ferraro commented on the hospital’s financial health, calling it “average and improving.”
“We can always do better, but we’re doing better this year at this time than we were last year,” she explained. “And we expect to only improve these numbers as we work toward the goals of the new sublease and operating agreement, which is very tied to financial performance. I think that we will only continue to sharpen our pencils and tighten our belts and continue to improve our financial performance.”