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.