Washington State Regulators Gave CHI a Monopoly. It is Time to Take it Back.

By Councilman Richard Huddy and Niran S. Al-Agba, MD

In a perfect world, Harrison Medical Center would not have been given to an out-of-state hospital conglomerate. In a reasonable world, CHI would not leave Bremerton without a hospital when it moves Harrison Medical Center to Silverdale. CHI would build a new 262-bed medical center in Silverdale, and operate an 85-bed hospital in Bremerton.

After all, with a population of 40,000, Bremerton is the largest city in the county. With a daytime population of 70,000, Bremerton is the largest employment center in Kitsap County. Bremerton also is home to the greatest concentration of skilled nursing facility patients, assisted living residents, and disabled people in the county. It makes sense that Bremerton would have a hospital, an emergency room, and a full array of medical services. CHI, however, wants only one hospital in the county.

In a rational world, Bremerton would be able to shrug its municipal shoulders, bid adieu to CHI, and welcome another hospital provider from around the Puget Sound to build a new hospital in the city. UW Medicine, Virginia Mason, Swedish Medical, and Kaiser Permanente to name but a few. Certainly, one of those outstanding organizations would be interested in serving the good people of Bremerton! Most everyone knows that Bremerton is on the ascent, and that Harrison is leaving just when they should be staying.

But, hold on… it’s not that simple. Bremerton is located in Washington, one of the 35 states with a certificate of need law. The regulators who work in the Certificate of Need (CON) program at the Washington Department of Health have given all of Kitsap County’s 336 acute care beds to CHI to operate as a monopoly. Eleven psychiatric beds remain, which CHI does not want to operate.

How did we get here? America has struggled to balance access to hospital services with utilization, quality and price for the past 50 years. In the mid-1960’s, certificate of need laws were established to limit the supply of hospital beds and equipment, prevent overutilization of services, control costs and improve quality.

New York became the first state to adopt a CON law in 1964. By 1980, with Federal encouragement, every state except for Louisiana had a CON law. The states reasoned if they could reduce unnecessary duplication of facilities, equipment, and services, costs and utilization would decrease, and quality and access would improve. It worked for a while; unfortunately, the CON laws had unintended consequences.

Over time, hospital reimbursement changed from cost-based fee-for-service to outcome-based value pricing. Hospitals shifted from a core mission of independent, non-profit service to corporate, for-profit competition. In an April 2017 white paper, Gaynor, Mostashari and Ginsburg observe, “there has been a great deal of consolidation in hospital, physician and insurance markets... hospital markets are significantly more concentrated… insurance markets are also often dominated by a small number of large insurers… and many physician practices are being acquired by hospitals.” Horizontal and vertical mergers and acquisitions have reduced competition, stifled innovation, and resulted in higher prices and lower quality.

For the last fifteen years, the Federal Trade Commission and the Department of Justice Antitrust Division have taken an active position against the continuation of CON Programs. In a joint report entitled, “Improving Healthcare: A Dose of Competition,” they stated, “The Agencies believe that, on balance, CON programs are not successful in containing healthcare costs, and that they pose serious anticompetitive risks that usually outweigh their purported economic benefits. Market incumbents can too easily use CON procedures to forestall competitors from entering the incumbent’s market… Indeed, there is considerable evidence that CON programs can actually increase prices by fostering anticompetitive barriers to entry.”

The Kaiser Family Foundation reported health care costs are 11 percent higher in states with CON laws compared to states without these restrictive statutes.   The evidence is clear CON laws not only increase costs, but also restrict access for the underserved, especially in rural areas.  Hospital bed access is expressed in the number of beds/1,000 population; on average, there are 3.62 beds/1,000 people in the United States.  Recent studies by Strattman and Russ found states with CON laws have 1.31 fewer beds/1,000 overall.  Kaiser Foundation found Washington and Oregon have the lowest bed ratios in the nation, at 1.7 beds/1,000, with Kitsap County having a woefully inadequate ration of 1.30 beds/1,000.  In short, the evidence supports the fact that CON regulations worsen access for rural residents. 

Due to these negative consequences, 14 states discontinued their CON programs, New Hampshire being the most recent one to repeal, effective in 2016.  As part of Senate bill 5883, our Washington State Legislature is currently evaluating the effectiveness of the Certificate of Need Program at the Department of Health. 

In Washington State, CON regulations encourage appraisal of the needs for a particular geographic region, usually a county, and as a part of that evaluation, regulators solicit input on behalf of the public or “affected” persons.  It is vital the public understands the complex CON process clearly, so we may actively participate.  In Kitsap County, the CON regulations currently support a monopolistic system by default; a single entity “owns” every authorized hospital bed.  Each of us living within Kitsap County are “affected” by this critical decision, but not all seem to comprehend the long-term consequences of relocating 100% of available hospital beds to Silverdale. 

In response to requests by the City of Bremerton and two other affected parties, the Washington State Department of Health granted a reconsideration of its CON decision to relocate all hospital beds from Bremerton to Silverdale. A public hearing will be held at 10:30 am on Friday, September 8, 2017, in the meeting room at the Bremerton School District Office located at 134 Marion Avenue N in Bremerton. The City of Bremerton seeks rejection of Phase 2 of Harrison’s relocation in order to build and operate a new Bremerton Community Hospital that will provide a choice to all Kitsap County residents who need hospital care and all doctors, nurses, technicians and other workers seeking employment. Please attend the public hearing.

A Hospital With No Beds Cannot Stand.

  

America has struggled to balance access to hospital services with escalating prices for those amenities over the past 50 years.  While there are many factors contributing to this challenge, the state certificate of need (CON) laws—those requiring state approval for hospital expansions and new construction—are examples of regulations that were designed to help but have had unanticipated negative side effects. 

In 1964, New York became the first to grant a state this power with a CON law. By 1978, with Federal encouragement, 36 states had enacted CON laws. The states reasoned if they could reduce unnecessary duplication of facilities, equipment, and services, costs would decrease and access would improve. Over time hospitals have shifted from a core mission of cooperation to one of competition, and it has become clear CON laws are in fact, discouraging competition, propping up prices, and aiding the creation of monopolies.  The Kaiser Family Foundation reported health care costs are 11 percent higher in states with CON laws compared to states without these restrictive statutes.   

The evidence is now clear CON laws not only increase costs, but also restrict access for the underserved, especially in rural areas.  Hospital bed access is expressed in the number of beds/1,000 population; on average, there are 3.62 beds/1,000 people in the United States.  Recent studies by Strattman and Russ found states with CON laws have 1.31 fewer beds/1,000 overall.  Kaiser Foundation found Washington and Oregon have the lowest bed ratios in the nation, at 1.7 beds/1,000, with Kitsap County having a woefully inadequate ration of 1.30 beds/1,000.  In short, the evidence supports the fact that CON regulations worsen access for rural residents. 

Due to these negative consequences, 14 states discontinued their CON programs, New Hampshire being the most recent one to repeal, effective in 2016.  As part of Senate bill 5883, the Washington State Legislature is evaluating the effectiveness of the Certificate of Need Program at the Department of Health. 

In Washington State, CON regulations encourage appraisal of the needs for a particular geographic region, usually a county, and as a part of that evaluation, regulators solicit input on behalf of the public or “affected” persons.  It is vital the public understands the complex CON process clearly, so we may actively participate.  In Kitsap County, the CON regulations currently support a monopolistic system by default; a single entity “owns” every authorized hospital bed.  Each of us living within Kitsap County are “affected” by this critical decision, but not all seem to comprehend the long-term consequences of relocating 100% of available hospital beds to Silverdale. 

Recently, letters to the editor have suggested “bringing in another corporation to build a hospital in Bremerton” as a viable solution. While I endorse this sentiment wholeheartedly, our state CON laws will prohibit this as a feasible choice. CHI Franciscan controls all of the beds available for Kitsap County, except for 11 psychiatric hospital beds in which they have no interest.  No hospital corporation will step forward, tear down an aging facility, and build a new one for the miniscule potential 11 hospital beds would serve. 

The CON process can take a minimum of one to two years and cost between $50,000 and $5 million depending on time-to-approval and the appeals process.  Once both phases are completed in Silverdale, ANY city or corporation wishing to build or remodel the Bremerton campus will be required to complete the CON process.  It is highly unlikely a new organization will focus on the Olympic Peninsula for some time due to these massive investment requirements.

The Washington State Department of Health granted reconsideration of the decision to relocate EVERY single hospital bed to the Silverdale area. Reversing this decision would not oppose the Phase 1 hospital expansion in Silverdale, which is already under way.  Encouraging the State to reevaluate this decision is trying to ensure adequate health care choices remain in two locations. If the City retains 85 hospital beds, the possibility of tearing down, rebuilding, or relocating the Harrison Campus becomes a reality.   

The moment to change our destiny is now.  It is imperative local lawmakers, City representatives, and the entire community engage in this multifaceted process and  stand up, together, for choice, competition, better access, and lower health care costs for every man, woman, and child residing in Kitsap County.  In my humble opinion, supporting this reconsideration endeavor is categorically in the best interest of this community.  Please attend the public hearing scheduled for Friday September 8^th at the Bremerton School District Conference Room on Marion Street and share your thoughts.  This is our chance to be on the right side of history. 

Phoebe-Putney Hospital vs. Lee County, Georgia: A Tale of Consolidation and a Little County That Could.

…“I think I can.  I think I can.  I know I can,” The Little Engine that Could.   

As hospital consolidations sweep the nation, the monopolies being created are like insurmountable peaks over which rural communities must climb on their quest to find affordable healthcare.  Lee County, in Southern Georgia, is a little place with big dreams; they are resolutely determined to build a 60-bed community hospital and provide local residents with real choices.  For years, two competing hospitals served the population of 200,000 spread over six counties:  Phoebe-Putney and Palmyra Park. Phoebe-Putney Memorial Hospital put an end to that by securing a 939-bed hospital monopoly and an ample market share.

Their efforts began in 2003, when Phoebe-Putney Memorial Hospital in Albany, Georgia successfully opposed a bid for a Certificate of Need (CON) to open an outpatient surgery center.  Frustrated from a free-market perspective, accountant Charles Rehberg and a local surgeon, John Bagnato, began sending anonymous faxes to local business and political leaders, criticizing the financial activities of the local hospital.   These faxes quickly gained notoriety, becoming known as “Phoebe Factoids.”  Concerned about negative publicity, Phoebe Putney executives hired FBI agents to intimidate these men. 

Undeterred, these two renegades discovered Phoebe-Putney Hospital was charging uninsured patients far more for services than insured patients.   This brought widespread attention to the plight facing millions of uninsured Americans.  Many began to question what obligation a nonprofit hospital has to provide charity care for those in need.  Phoebe-Putney was caught using aggressive collection tactics, such as wage garnishment and the placing of liens on homes of patients unable to keep up with payments.  Their experience inspired a documentary called “Do No Harm.”

In-depth research uncovered millions hidden in offshore bank accounts disguised under the auspices of a non-profit— not only at Phoebe, but also at other non-profit hospitals across the country.  As whistleblowers, Rehberg and Bagnato were subsequently targeted by Phoebe and indicted on fraudulent charges of telephone harassment, aggravated assault and burglary; charges without merit which were dismissed in 2006.  

After successfully blocking the surgery center CON, Phoebe-Putney set its sights elsewhere looking to acquire the only other hospital facility in the surrounding six-county area:  Palmyra Park.  In 2011, the Federal Trade Commission (FTC) attempted to block this proposal on the grounds that the combined entity would control in excess of 85% of the market share.  Phoebes’ CEO insisted hospital consolidation was necessary to deliver cost-effective, high-quality medical care, calling the merger “the right thing for citizens.’’   The FTC argued the deal was anti-competitive (which it was) and health costs would increase significantly (which they did.)  The FTC secured a preliminary injunction but Phoebe prevailed, arguing Georgia CON laws prohibited the sale of Palmyra Park to an independent entity.  

Ultimately, the FTC was obligated to settle with Phoebe, making the dream of a hospital monopoly a reality.  However, the settlement had three stipulations:  1) Public acknowledgement the acquisition would substantially lessen competition within the six-county market; 2) Phoebe was required to provide the FTC with prior notice of transactions acquiring any part of a general acute-care hospital, or controlling interest in other facilities; and 3) Phoebe was precluded from opposing CON applications from other entities for five years.

Barring Phoebe from challenging CON applications was an innovative solution to a monopolized region; however, Phoebe already handily dominated the market.  The Certificate of Need process is expensive and time-consuming; therefore, legal experts anticipated this limitation alone would be ineffective in enticing new competitors to enter the region.  Yet, predictions can sometimes be incorrect.

Enter “The Little County That Could,” a.k.a Lee County, Georgia, with its population of 29,000 and land mass of 362 square miles.  The community and their steely resolve have yielded unexpectedly positive results.  Lee County officials filed a Certificate of Need application for a 60-bed hospital earlier this year.  The Lee County Development Authority will own the hospital structure and a separate entity will lease the facility.  Services offered will include acute and emergency care, including an ICU, medical/surgical unit, inpatient and outpatient beds, and full radiology capabilities, such as CT and MRI.  The hospital will create more than 350 "good-paying jobs" and provide access to health care for all, regardless of their ability to pay. 

While Phoebe Putney agreed not to challenge a CON application until 2020, the settlement does not preclude engaging in “sneaky” public relations tactics.  Phoebe commissioned a study to calculate the effect the Lee County Medical Center would have on the financial outlook for Phoebe-Putney.  DHG Healthcare projected Phoebe will lose more than $250 million in revenue over five years.  The firm found by the third year of operation, annual losses will be $30.1 million for inpatient care, $23.7 million in outpatient care, and $6.4 million for emergency care at Phoebe.

Lee County is on their way to achieving something extraordinary; challenging the dominance of a hospital monopoly.  On July 21, 2017, the CON application for Lee County was deemed complete by the Georgia Department of Community Health.   A decision is anticipated by Nov. 15.  If granted, the county plans to break ground on the new structure in early 2018. The CEO of Lee County Medical Center, Mr. G. Edward Alexander, stated “Our goal is to ensure that decisions for the hospital are made locally by people who live and work in Lee County.”  

Lee County, I salute you.  Medically underserved communities everywhere are supporting your efforts to transform the healthcare landscape for the better.  May your success inspire a revolution, proving that healthcare can be repaired by patients, physicians, and communities – working together.     

Healthcare Plan: Reboot and Rebuild

I told you so.  I also told the POTUS in my open letter, but he did not read it.  Who could honestly believe the nation would support dumping coverage for 22 million people?  According to an op-ed in the New York Times: “They [Republicans and President Trump] had only one big weakness, in fact: They weren’t dealing in reality.”  When faced with reality, it is interesting what a few good Senators with a conscience will refuse to do.    

Success is never attained by taking shortcuts.  We do not need reform of health care; we need to renovate the entire system.  Special interests do not belong in the picture.  They are superfluous to achieving innovative solutions that place profits on the back burner.  Healthcare reform is like learning to discipline a tantrum-throwing 3-year-old; it will not conform to rhyme or reason.   Congress is making this too difficult.  They need to roll up their sleeves, go back to the drawing board, and start again.  My suggestions:

Step 1:  Every member of Congress should participate in a mock hospital admission as a patient, starting with presentation to the ER, being poked and prodded, having surgery if necessary, and staying overnight to recuperate.  After your experience, you should be provided a “bill” on your way out the door and pay the balance by cash or check. 

Step 2:  Go see your own primary care physician for two reasons.  The first is to have an annual exam and to connect with your constituents in the waiting room, solicit their comments, thoughts, or suggestions, and converse with office staff to understand their perspective.  The second reason is to elicit feedback directly from your primary care physician.  Listen for groundbreaking solutions to the perplexing boondoggle of caring for greater numbers at a lower cost.

Extra credit:  Follow a primary care physician in a Health Professional Shortage Area (HPSA) for three days.  Listen, engage, clarify, empathize, and most importantly absorb how monumental this undertaking of reforming health care will be. 

Step 3: Return to Washington D.C. inspired and reboot, resolving to do it right this time. 

The nation has been having entirely the wrong conversation; that dialogue must change.  The biggest obstacle faced by lawmakers is maintaining access while reducing cost.  Providing coverage without coupling it to budgetary constraints is sheer lunacy.  However, reducing government involvement in coverage without ensuring the needy can afford health care will never garner widespread support.  Affordability has become an impossible dream and is currently our largest stumbling block. 

The U.S. spent $10,345 per person annually in 2016.  The average OECD country spends $3997 per person annually in comparison.  During the 1980’s Spain created a network of community health clinics within a 15 minute radius of every citizen, a system which was funded by the taxpayers.  In 1975, the average life expectancy from birth was equivalent in both nations, at 69 years of age.  Today, life expectancy in Spain is 83 years compared to 78.8 in the United States.  We are spending twice as much as Spain and our life expectancy is significantly lower. 

An appropriate policy goal would be to focus on developing a durable healthcare foundation, poured only after great deliberation.  Scaffolding already exists, in community clinics and Public Health departments; these facilities are cost-effective, yet grossly underfunded, underutilized, and unappreciated.  Every single man, woman, and child needs primary care services, a fact which in incompatible to the insurance model.  We must sever the connection between insurance and primary care.  Providing basic care universally is something we must accept as reality. As I have written before, investing in primary care as a solution is a no-brainer; increasing by one PCP/10,000 persons decreases mortality by 5.3%. 

Basic care will bring us all out from the shadows and into the light.  Provide immunizations, screenings, and annual exams to everyone in this country.  Those working in the community clinics will be employed by the government and salaried.  These clinics could have evening or weekend walk-in hours and handle urgent matters.  The electronic medical records system should be universal and patient-centric.  People will no longer live in fear of our government eliminating access for chronic conditions or emergencies.  Struggling families will not be one catastrophic illness away from losing their hopes and dreams. 

As we continue filling in the grid, specialty care should be added at the public health facilities or community clinics.  A specialist would cover a greater number of patients when overseeing or consulting on difficult cases with the primary care physicians.  These specialists would be employed by the government and salaried as well.  If an individual becomes severely ill or injured and requires very specialized treatment, hospitalization, or surgical management, either they have Medicaid, Medicare, or their catastrophic insurance plan kicks in to cover these needs. 

No discussion would be complete without including third party payers, who distance patients and physicians from being cognizant of cost.  For what we do in our offices, services could be far cheaper.  For example, a self-employed middle-aged patient with a $25,000 deductible sustained a 4cm laceration to the head and went to buy glue to repair it himself.  On this particular holiday weekend, the stores were already closed.  He inquired as to the cash price for repair after texting a picture. 

I had no answer, but primary care physicians love repairing lacerations and I am no exception to the rule.  He came to my office; I cleaned the wound and sutured it.  He handed me his credit card, similar to the cashier at a grocery or hardware store.  Supplies cost roughly $50; the laceration repair took 15 minutes.  I figured $150 seemed reasonable.  He paid $200 and was thrilled. 

While the lack of transparency hindered my research, I compared the cost to repair a 4 cm laceration in the emergency room.  The estimated charges were:  $1000 emergency room facility charge, physician cost $500, and the procedure bill was $200.  My hardworking patient would have coughed up $1700 at a minimum (some estimate as high as $1000 per stitch) and waited well over 15 minutes for the privilege.  

Allow the free market forces to remain a part of the infrastructure.  A great deal of the population fears a universal basic system because they are afraid of losing choice.  Direct Primary Care practices would flourish in a system with a basic care safety net for those in need.  Those who can afford choice would have options to patronize the private market, which absolutely should not be eliminated.  

Reviewing the events this week reminds me Rome was not built in a day. Repairing the tangled web of health care will take unconventional thinking and the tincture of time. Costs have spiraled out of control past the point of affordability.  The nation will only support reform once Congress overhauls our broken system prior to embarking on repealing anything.  Finally, everyone is profiting except the two most critical components: the physicians and their patients.  Renovate, reboot, and rebuild from the ground up and when you do, start by putting patients ahead of profits.