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health / Stones & Bones / volume 9 number 9, September 2007 DOSE OF REALITY Much in the news of late is the controversy surrounding Alaska’s Certificate of Need (CON) law (AS Chapter 18.07). It requires state approval of proposed conversions of facilities to nursing homes, and approval of certain new medical facilities such as cardiac or cancer care units, and surgical or imaging facilities costing one million dollars or more. The current CON controversy needs to be viewed in the context of a much larger and more fundamental one, namely our society’s view of the proper role of health care. The central issue here is whether health care should be a human right or a privilege. Whereas other modern nations have come down on the side of viewing health care as a human right that society has an obligation to provide by instituting national universal health care systems, Americans remain ambivalent on this issue. We seem to have acknowledged that health care is a right for some segments of the population, but is only a privilege for others. Thus we have instituted universal health care for the elderly by establishing the federal Medicare program, and, to serve the very poor and some children we have state Medicaid and child care programs in force. However, for the bulk of the population we largely view health care as a privilege. If that large segment is to get health care it must buy it directly or through the purchase of commercial health insurance in one form or another. This approach isn’t entirely consistent, however, because we do require that hospitals receiving government support provide emergency room care to everyone, regardless of ability to pay. Because Alaska state government pays for Medicaid on the basis of the costs incurred by hospitals and other health care providers, it has a vested interest in those costs. That is the reason for the Certificate of Need program. Its purpose is to avoid the cost of unnecessary health care facilities by requiring applicants to prove that there is a need for the new facilities they are proposing. The rationale is that if need cannot be proven, then the new facilities create expensive duplication that ultimately drive up costs for everyone. Unfortunately, the requirement that hospitals provide emergency room and other care that receives less than full compensation opens up an opportunity for those wishing to profit from the operation of certain medical facilities. That opportunity arises because hospitals must establish rate structures which overcompensate them in some areas in order to make up for losses elsewhere. The overall goal for a community-owned nonprofit hospital like Fairbanks Memorial Hospital is to break even, and if the hospital operates for profit, such as Alaska Regional Hospital in Anchorage, the goal is to do better—the shareholders need to get their cut too. Services where a hospital’s cost-shifting rate structure provides more income than cost are those related to surgery and imaging, and to a certain extent, pharmaceuticals and supplies. So it is in these areas that opportunity exists for a for-profit organization to make money by entering the field and specializing only in those areas. That is, they can profitably pick the low-hanging fruit while avoiding the need to provide medical services that lose money. If there is not an actual need in a community for more of the profitable facilities, then their establishment removes valuable sources of revenue from full-service hospitals. To make up for that loss, the hospitals must raise the rates charged for the other services they provide. The result is that the public pays more overall than it would have to were there no duplication of facilities. Actually, the cost to the using public is made even higher by the entry of for-profit specialty enterprises because of our tax law. A nonprofit like the Fairbanks Memorial Hospital must pay the full cost of whatever equipment and facilities it employs, while a for-profit is able to deduct those costs from taxable income. For this reason, a for-profit imaging facility might be able to undercut the prices a nonprofit hospital charges for imaging and still make a profit—but the overall cost to the using public is high because it not only pays to use the imaging equipment, it also pays for the purchase of it through the lost income related to the tax write-off. This is a case where unregulated competition increases cost rather than decreasing it. It is an odd situation brought about by the national view that medical care is a right for some Americans and a privilege for others, and that unregulated for-profit enterprises should play a major role in the delivery of health care. The overall result is a highly fragmented, marginally effective, and overly costly health care system. If we were to adopt the view that health care is a human right for everyone, the need for cost-shifting between medical service areas would disappear. That disappearance would eliminate the profit opportunities Certificate of Need laws are intended to control, as well. However, until we reach that level of societal sophistication required to view health care as a universal human right, the existence of Certificate of Need legislation helps in a small way to control medical costs, and so Alaska should keep its existing law. | ||
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