Gov. Malloy’s task force may get a jump on coming price hikes

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Today is the second meeting of a task force established earlier this year by Gov. Dannel P. Malloy on Connecticut’s Certificate of Need (CoN) laws. Along with a parallel study by the Governor’s Health Care Cabinet, the task force is supposed to help formulate a 21st century body of laws to govern our complex healthcare system. The challenge to both bodies is to place at the center of every discussion the interests of patients; access, both geographic and financial, as well as outcomes.

Certificate of Need is a regulatory concept (approval of “franchises” for health services providers), drawn originally from public utility law. Connecticut has a long history of Certificate of Need legislation, going back to the creation in 1973 of the Commission on Hospitals and Health Care, under then-Gov. Thomas Meskill.

The intent of CoN law is simple: by limiting excess capital expenditure, awarding a “franchise” to successful applicants, the public may avoid unnecessary expenditure and “stranded capital” in hospital and health services.

Most in the field recognize that health services are capital-intensive; that is, heavily dependent on investment in property, plant and equipment. Peter Drucker, the management pioneer, famously observed that health services are uniquely capital intensive and labor intensive; that is, with capital not substituting for labor, but in fact requiring more expensive labor.

Has Connecticut’s CoN law succeeded in avoiding unnecessary capital (and operating) expense? Has the process stifled medical innovation? Has it kept competitors from entering markets where they might have, by undercutting the prices of established facilities, brought lower prices to all?

What do we know in 2016 that we might not have considered in 1973?

Forty-three years later, our era is one of rapid consolidation among health facilities.  Twice in recent years the legislature has updated one or another aspect of our CoN law. But with home-grown giants — as well as out-of-state chains —playing prominent roles in Connecticut healthcare, the governor called a timeout.

What problems should the CoN Taskforce address during this timeout?

First, we have learned that the anti-trust laws do not protect us from monopoly pricing.  Somewhere in the mix, CoN must work to control prices. Neither the federal justice department nor the Federal Trade Commission have taken a strong interest in the health field and, when they have, the courts have not always cooperated. At the state level, our attorney general, on the other hand, is actively scrutinizing pending CoN applications.

Second, we know that unchecked consolidation leads to price inflation. The Office of Health Care Access (OCHA), part of the Department of Health, has just published their analysis of audited financial statements of hospitals and health systems for 2015. The hospitals in one system, Yale-New Haven Health (YNHHS), account for half of the operating profit of all 28 acute care hospitals in the state. The hospitals in that system — Yale-New Haven (and St. Raphael’s, which it has absorbed), Bridgeport and Greenwich Hospitals — had a combined $200 million in operating profit in 2015.

No single “non-profit” hospital system should be allowed to gather obscene profits, especially as the state budget—including Medicaid—spins out of control. CoN must have a stronger role in controlling monopolization, and in avoiding monopoly prices.

Third, we know that CoN as currently implemented in Connecticut has not preserved access to healthcare. The leading example right now is the deconstruction of Windham Hospital, formerly a flourishing independent facility serving patients in 450 square miles of eastern Connecticut, now a lost child in the Hartford HealthCare (HHC) system.

Backus flourishes, Windham lanquishes

These “systems” don’t work the way you think they might — they don’t work to share expertise, to preserve access, to offset money-losing services with winners. One “member” of the HHC family, Backus Hospital, made $40 million last year, while Windham, serving a very similar population, was allowed to lose $5.5 million. These losses threaten the continued availability of services in the greater Willimantic area.

If HHC is allowed to continue cutting services at Windham, area residents will be driving many additional miles to access health services, visit loved ones or follow up appointments. Meanwhile, the hospitals in the HHC system earned $111 million in 2015 in operating profit.

Finally, public policy historically has attempted to protect the integrity of professionals —and especially to ensure that, when a doctor advises a patient, the doctor is following best professional judgment. Review of the audited financial statements of Yale-New Haven, Hartford HealthCare and Lawrence + Memorial Healthcare (LMH) — three systems currently involved in complex and important CoNs — show the extraordinary subsidization of medical practice by hospitals. This presents both a potential compromise to physician integrity and a source of high hospital prices.

For the year ending 2015, the YNHH system put $54 million into subsidy of physician offices whose practices had been bought by the hospital. For the same period, HHC put  $48 million into its physician practices, and LMH contributed $23 million to its physician practices.

The sale of physicians’ practices to hospitals — creating an overwhelming bureaucratization of medical practice — has been accelerated by the “Affordable” Care Act (ACA). We also know why hospitals have gone down this path: to enable the hospitals to “double bill;” that is, to add a “facility fee” to every service offered by a captive physician. Further down the road, physicians should be wary of the “one hospital management fantasy;” namely, the reduction of medical judgment to that of a medical salaryman who is financially protected, limited, and not quite as independent as the public would have them.

Today, Connecticut is searching for answers with the governor an active leader in this effort, and Lt. Gov. Nancy Wyman as the able pilot of both the governor’s Health Care Cabinet and the CoN task force.

In what direction will these groups move? Are there precedents from other states? Will Connecticut become a leader in a new generation of regulation of health services, perhaps in time to avoid the next wave of medical inflation?

Dr. Fred Hyde of Ridgefield is Clinical Professor of Health Policy and Management, teaching in the Schools of Public Health and Business at Columbia University, New York. He is a member of Gov. Malloy’s Certificate of Need Taskforce.

What do you think?

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