By Margaret Bauman
Alaska Journal of Commerce

Proposed legislation to repeal the state's certificate of need program for equipment in major health care facilities is being eyed cautiously by many facility representatives who feel the program is key to the financial stability of community hospitals.

“(The Alaska State Hospital and Nursing Home Association) recognizes the need to meet the challenges and issues facing the health of our communities, which is exactly why this program is so important,” said Rod Betit, president and chief executive officer of ASHNHA. “An overabundance of medical infrastructure would deny our community hospitals the revenue to provide needed care to everyone who needs it.”

But some, including Jeff Kinion, chief executive officer of Alaska Open Imaging Center, say these certificates smother the competitive market.

“I think competition is one of the things that makes our country strong and great,” said Kinion, whose firm tried unsuccessfully to partner with a physician in opening a radiology clinic in Fairbanks. The clinic was shut down and reopened with a CON only when it became the sole property of the physician, he said.

The CON program is a regulatory process that requires health care providers to acquire state approval before offering certain expensive new or expanded services. In recent years some entrepreneurs, including a physicians group in partnership with a hospital, have established private specialty clinics that compete with hospitals. While the hospitals must provide urgent care regardless of ability to pay, the private clinics are not similarly obligated.

Gov. Sarah Palin's Alaska Health Care Transparency Act, introduced in the House and Senate Jan. 19, would end the CON program, and also enact a number of changes recommended by a state health care task force the governor appointed earlier this year. The bill would also establish a state health care information office to give consumers information on quality and costs of medical service.

Palin said she and Karleen Jackson, commissioner of state Department of Health and Social Services, had concluded that the CON program limits competition and is no longer effective.

Betit said March 6 that Palin was ill advised on the importance of a strong certificate of need program in assuring coverage for all Alaskans with urgent health care needs.

The amount of care Alaska's hospitals had to write off in 2007 increased by 55 percent in 2006, compared to 14.1 percent nationally, Betit said.

“Clearly repeal of CON cannot be done prior to addressing how this care will be paid for or it will cause even higher price increases for all Alaskans, as hospitals must provide urgent care to all who need it regardless of ability to pay.”

Both Kinion and Bruce Jayne, administrator of Alaska Surgery Center in Anchorage, said their facilities also write off the cost of treatment for a number of patients who cannot pay for services. Jayne said his facility supports the CON program, although the program had issues that needed to be addressed.

Kinion said that Alaska Open Imaging Center, with facilities in Anchorage, Wasilla and Soldotna, does substantially more free charity care per dollar earned than the hospitals. “We have lots of patients that come to us who can't pay, but we still treat them,” he said.

Alaska Surgery Center likewise does a fair amount of charitable work that is written off, Jayne said.

Both said it hurts when their firms are accused of cherry picking for patients who can pay their bills, but they differ in opinion on the need for the CON.

Kinion argues that the CON restrains competition and bars entry for medical specialists in fields that require large investments in facilities or equipment, leaving them the sole option of working at a hospital.

“We are in the health care business and understand it's about more than making profit,” he said. “We try to give back to the community as much as we can.”

Jayne argued that if the program is managed right, it works.

He said it helps the medical community deal with the economic issues regarding a small pot of eligible, qualified employees, the discounts available only for volume purchases of supplies, and the high fixed costs of operating facilities.

“We are all fighting for the same employees and contracts,” he said. “We are already in competition with the hospitals. If a CON is not approved, there is not a need.”

Betit said establishing a health care commission under the legislation is a key first step toward addressing the question of how to pay for urgent health care needs without even higher price increases at hospitals.

“CON should not be repealed prior to these discussions taking place,” he said, noting what happened in other states. “In Ohio when CON was repealed, 26 new hospitals were built, 82 new multi-million dollar MRI and CT scan centers were opened, and open heart surgeries jumped by 38 percent due to a proliferation of surgery suites.”

Betit also cited a 2001 study by Chrysler, Ford and General Motors companies that examined health costs in eight states over several years and found that costs were 11 to 39 percent lower in states with CON requirements than those without it.

Paul Morris, chief financial officer for Alaska Regional Hospital in Anchorage, said the hospital supports patient choice, competition and pricing transparency.

“In addressing these issues, the market dynamics of health care should be understood before legislation is passed eliminating the CON, thereby harming the consumer by driving up health care costs,” he said.

Morris noted that insurance policies are a major determinant as to where a patient receives care and how much it will cost.

“The CON process maintains a balance in the system, controlling costs by protecting against over saturation of available health care services,” he said. “In a free market, more supply can drive more demand. Health care does not operate in a free market; instead, it provides services to a finite population who expects to receive services when needed. Attempting to treat this industry as an open market will only drive up costs as seen in other states.”

Fairbanks Memorial Hospital, Mat-Su Regional Hospital and Providence Alaska Medical Center also have concerns about repealing the CON program.

“Right now the CON process essentially prevents a duplication of services,” said Rob Gould, chief financial officer for Fairbanks Memorial. “If the CON goes away, I believe the price of health care in many communities is going to increase.”

Gould said the only services competitors are interested in are those that are the most lucrative for a facility, which in a hospital are surgery, radiology, pharmacy and the lab. When a facility competes with a hospital in a single-hospital community, business drops at the hospital, which still has the expense of staffing 24-hours a day, seven days a week, he said.

“Health care is not a conventional market,” said Elizabeth Ripley of Mat-Su Regional Hospital. “There is a finite health care need in each community. We have to take everyone who comes through our doors regardless of ability to pay. These little specialty boutiques that come into the market don't have to - they can take only paying folks.”

Joel Gilbertson, Providence spokesman and the former commissioner of the state Health and Social Services Department, supports a concept in Palin's bill for increased information for the public concerning the cost and quality of care.

“CON adds significant value by promoting community and public involvement in health care investment decisions,” Gilbertson said. “Health care is an extraordinarily complex and highly regulated industry, and addressing CON in isolation could have negative impacts on the entire system. That is why we do support the creation of a health care commission, to increase attention and dialogue around health care reform and make recommendations on sustainable improvements to the health care system.”

Margaret Bauman can be reached at margie.bauman@alaskajournal.com.