By Jenny Neyman
Redoubt Reporter
When someone is facing an emergency or life-threatening medical situation, the first thought is about getting better, not about how much treatment will cost or who’s going to pay for it.
The idea of denying someone needed medical care because they can’t afford it is one that immediately raises the hackles of human morality. Turn away an expectant mother in labor? Refuse nitroglycerin to a heart-attack sufferer? Deny chemotherapy from someone with a treatable form of cancer?
Unthinkable, to patients in those situations, their loved ones, the medical professionals who devote their life’s work to providing that care, and residents of a community who want to take it for granted that the only obstacle to life-saving care is the trip to their local hospital.
“I have the honor to touch new life for the first time, and I hold people’s hands sometimes when they’re dying, sometimes in tough times. And it’s never about business. Money is not a factor,” said Dr. Katy Sheridan, a private-practice family doctor in Soldotna.
Whether or not people stop to think about it in an emergency situation, the inescapable fact is that medical care costs money. And in this day and age of the health care industry in the United States and Alaska — it costs a lot of money. The average spending on health per capita is about $7,500 in the U.S. according to the 2010 Commonwealth Fund International Health Policy Survey.
If refusing services isn’t an option and if some patients aren’t able to pay for those services, then someone has to foot the bill. How that happens, without negatively affecting the costs and quality of health care available to the entire community, is one of the questions driving conversations about the future structure, management and finances of Central Peninsula Hospital.
“At the end of the day, hospitals need to make a profit to sustain themselves, and I think that we’re in trouble here. The federal government is going to quit paying for our health care,” said Charlie Pierce, a member of the Kenai Peninsula Borough Assembly and alternate of the Kenai Peninsula Borough Health Care Task Force, which was created by the assembly to consider how to ensure the hospital is able to meet potential changes on the horizon in the health care industry. Pierce was citing the ballooning national debt and disproportionately high, compared to the Lower 48, reimbursement rates Alaska hospitals enjoy in treating Medicaid and Medicare patients.
One potential change to health care in Alaska that could have a significant effect on Central Peninsula Hospital relates to charity care — paying for services for those who can’t afford it themselves. In Alaska, that is in part managed by the Certificate of Need program.
Prescription to limit costs
The federal Health Planning Resources Development Act of 1974 was meant as a way to restrain health care facility costs by creating a mechanism to coordinate and plan for new services and construction. Under the federal act, states were required to have health planning agencies that would assess health care needs and priorities, and got federal funding for doing so. A health care provider, whether a corporation, nonprofit, partnership or public entity, wanting to increase capacity by expanding or constructing a new facility or offering a new medical service — such as an imaging center, oncology or emergency-care clinic — had to apply for approval and demonstrate that a need for the service existed in the community to be allowed to go ahead with the project.
The idea is that excess capacity results in health care price inflation. In the health care realm, facilities carry a certain amount of fixed costs that are difficult to pare down. A hospital with 30 beds, an emergency room, an imaging department, surgery center and maternity ward costs more to run than a 10-bed facility with just an emergency room. If an average of only eight beds are filled in the larger facility, it still requires a certain amount of money to maintain the imaging equipment, keep certified surgeons, obstetrics and other discipline-specific providers on staff, and to keep the lights on, floors cleaned and facility running. So, the theory goes, the larger hospital would charge those eight patients more to recoup its higher fixed costs than the small facility, which is more appropriately sized to the needs of the community.
The federal mandate and its federal funding were repealed in 1987, prompting many states to discontinue their Certificate of Need programs. Other states, including Alaska, continued at least some form of Certificate of Need, with some focusing on specific areas, such as just regulating outpatient and long-term care facilities. Alaska’s Certificate of Need program is still broad in the types of facilities and services it regulates.
Sometimes this requirement can be a stumbling block to growth. The borough-owned South Peninsula Hospital in Homer faced significant hurdles in its planned $31 million expansion project in 2007 and 2008 due to Certificate of Need issues.
On the other side of that coin, hospitals in Alaska see Certificate of Need as a blessing because it can limit competition with them. If Central Peninsula Hospital already operated a clinic to treat epilepsy, for example, and it was determined to have enough capacity to meet the needs of the area, a business wanting to open a similar clinic likely wouldn’t be allowed to do so. That means more patients for the hospital clinic (generally speaking, unless they chose to fly to Seattle or elsewhere for treatment).
Patients mean money. That can be a good equation or a bad one, depending on the medical services the patient receives, the rates they’re charged and their ability to pay for them.
Central Peninsula Hospital treats anyone who comes to the emergency room, regardless of whether they have adequate health insurance coverage or the ability to pay out of pocket. Central Peninsula Hospital does get reimbursements from Medicare and Medicaid for patients qualifying for those programs, but beyond that, if patients can’t pay, the costs of those services are chalked up as charity care and taken as a financial loss to the hospital.
Central Peninsula Hospital is able to take a loss on providing charity care because it makes a profit in other areas. Profiting off of health care is another of those concepts that tend to make hackles rise, especially in the realm of public facilities. But in the current system, a hospital has to make money in some areas in order to lose it in others.
“Our hospital provides a lot of charity care. I mean, if you don’t have money, they really don’t go after you, they give you charity care,” said Dr. Nels Anderson, a family practice and obstetrics physician in Soldotna affiliated with the hospital. “The way that is paid for is by profits we make on radiology, outpatient surgery, things like that.”
Certain nonemergency services, like imaging and outpatient surgery, tend to be moneymakers for the hospital. Over the past five years they’ve helped boost revenue at Central Peninsula Hospital to the point where the hospital pays its own bills, with Central Peninsula Hospital Service Area residents no longer having to contribute tax dollars to the operation of the facility.
If the Certificate of Need program ended, other health care providers could set up clinics in the community that duplicate services already offered by Central Peninsula Hospital. Those providers wouldn’t be obligated to provide the money-losing services Central Peninsula Hospital does, or to see patients that don’t have adequate insurance or the ability to pay. Since they wouldn’t need to compensate for financial losses in charity care, they could potentially charge less for their services and lure patients away from the hospital.
“If Certificate of Need were to go away, they could come in and compete with the hospital for services that are really the gravy,” said Gary Knopp, assembly president and chair of the Health Care Task Force. “If competition were to come in, they would take care of the services that are profitable, but they don’t have to see people that are not able to pay, where the hospital does. That’s the difference — they’re selective about who they see and who they do not.”
Bob Letson, chief executive officer of South Peninsula Hospital in Homer, made the case in a Health Care Task Force meeting that Certificate of Need is vitally important to the financial health of Alaska hospitals, particularly in smaller communities.
“In a small community if you want to see a hospital go out of business or go to the point where it can no longer function and treat charity, then do away with Certificate of Need and that will certainly do it. This is a very serious issue. One or two profitable companies coming in and taking away the best areas of the hospital that can pay for all the things that don’t make money could spell disaster overnight for the hospital and all the taxpayers,” he said. “… Instead of a community (hospital) perhaps needing $1 million or $2 million of assistance, with all those profit areas gone the taxpayer would then be faced with $5 million or $6 million.
“Everybody says a hospital needs to be nonprofit, they don’t need to make money. Believe me, you want your hospital to be above break-even and to make some money to be able to weather a storm, to be able to buy equipment. Because if it’s losing money, then that’s another burden,” Letson said.
In 2008, then-Gov. Sarah Palin led a move to eliminate the state’s Certificate of Need program. The argument against Certificate of Need is one of deregulation and free-market enterprise, that allowing competition will create better services and lower costs for consumers because they’ll have more providers from which to choose.
The 2008 push failed to revoke Alaska’s Certificate of Need program, but task force members foresee the issue coming up again in Alaska in conjunction with national health care reform. Rick Ross, task force member and member of the Central Peninsula General Hospital, Inc., Board of Directors, which oversees management of the hospital, said he believes Certificate of Need provides for inefficiencies in operations which do not result in cost controls or providing the best services, and expects that the program will be repealed in the near future.
When and if that happens, Central Peninsula Hospital as it is structured now could find it difficult to compete. If its moneymaking areas start losing patients and stop generating as much revenue, it could be taxpayers left to make up the difference.
“My personal feeling is, in a big city, Certificate of Need going away is not the end of the world. It may foster competition. But in a small community where you have taxpayers and the public at risk and a lot of people who need care that can’t pay for it, you just can’t allow that to happen,” Letson said.
