Do hospital chief executive officers extract rents from Certificate of Need laws?

Prior research suggests that Certificate of Need (CON) laws reduce competition in the hospital services industry. As a result, this study empirically investigates if not-for-profit hospital chief executive officers (CEOs) are able to extract rents from CON laws in the form of higher compensation. A sample of 256 not-for-profit hospital CEOs in states with and without CON laws and data for 2007 are used in the empirical analysis. The study considers the endogenous nature of a CON law and allows such a law to indirectly affect CEO compensation through its impact on the number of hospitals and beds. The multiple regression results indicate that special and public interests both motivate the decision of a state to maintain a CON law. CON laws are shown to reduce the number of beds at the typical hospital by 12 percent, on average, and the number of hospitals per 100,000 persons by 48 percent. These reductions ultimately lead urban hospital CEOs in states with CON laws to extract economic rents of $91,000 annually.

The development of certificate of need legislation

This article examines the development of Certificate of Need (CON) legislation in the United States. Over time, CON legislation developed into efforts to contain rising health care costs, while maintaining quality of care. In recent years, numerous states have begun to reevaluate the current impact of CON regulations, and ask whether the programs should be discontinued. State regulators as well as academic researchers must address the costs vs. benefits of such legislation. Specific measures within such regulations must be addressed in order for health policy makers, administrators, and researchers to help meet the escalating demand for health services.

Cooperative ventures in a competitive environment: the influence of regulation on management decisions

Two generalized game theory models are developed to explain observed management decisions between two large hospitals in Shelby County Tennessee within the regulatory context of competition for an advanced radiological technology pursued through the certificate-of-need process. The first model rationalizes each hospital's decision to submit competing certificate-of-need applications. The second model rationalizes the eventual joint venture agreement between the two hospitals and offers an explanation as to why the technology has yet to be acquired. The models are tested through interviews with the hospital administrators responsible for negotiating the joint venture agreement. The interviews confirm a preemptive motive behind each hospital's decision to compete and that the certificate-of-need requirement contributed to the eventual joint venture agreement.

The Columbia/HCA hospital sales: an opportunity to re-focus on community benefits

Columbia/HCA, currently the target of federal fraud investigations that have led to indictments of four top executives, announced plans in late 1997 to sell 115 hospital facilities. In a period of frenetic mergers, this sale will most affect communities in which Columbia has put multiple facilities on the auction block, yet this round of restructuring also foreshadows an increasingly consolidated--and profit-driven--industry. States of Health explores how community intervention in these sales may offer a chance to see that health needs are not further sacrificed to industry profits.

Does removing certificate-of-need regulations lead to a surge in health care spending?

This study assesses the impact of certificate-of-need (CON) regulation for hospitals on various measures of health spending per capita, hospital supply, diffusion of technology, and hospital industry organization. Using a time series cross-sectional methodology, we estimate the net impact of CON policies on costs, supply, technology diffusion, and industry organization, controlling for area characteristics, the presence of other forms of regulation, such as hospital rate-setting, and competition. Mature CON programs are associated with a modest (5 percent) long-term reduction in acute care spending per capita, but not with a significant reduction in total per capita spending. There is no evidence of a surge in acquisition of facilities or in costs following removal of CON regulations. Mature CON programs also result in a slight (2 percent) reduction in bed supply but higher costs per day and per admission, along with higher hospital profits. CON regulations generally have no detectable effect on diffusion of various hospital-based technologies. It is doubtful that CON regulations have had much effect on quality of care, positive or negative. Such regulations may have improved access, but there is little empirical evidence to document this.

Geographical resource allocation for public mental health services in Victoria

OBJECTIVE

To provide background information on the approach of area based funding models for mental health services, to describe the considerations which have come to bear in the development process of the Victorian model, to explore the impacts of different models, and to suggest courses for further development.

METHOD

The history of this approach to funding in the UK and the USA is summarised, then an account is given of the development of the Victorian model. The position is put that the validation of such models is hampered by having only sparse relevant data. Suggestions are made for improving this situation.

RESULTS

The Victorian model has come to include adjustments for socioeconomic disadvantage, the age, sex and marital status structure of the population, and a variable discounting for estimated substitutive activity of the private sector. Different methods of combining these adjustments into a working formula can be seen to have very different impacts.

CONCLUSIONS

The approach taken in development of this model can be expected to have major influence on funding within Victoria, but also more widely in Australia. The impacts of differing assumptions within these models are significant. Specifically targeted epidemiological research, and activity analysis of the private sector will be necessary to enhance the validity of models of this type.

Using global budgets in the United States

This article discusses the range of possibilities regarding how global budgets for health care spending might be used in the U.S. and the global budget designs that provide the most and least cost control. The article is a condensation of one chapter of the author's recently published special report, Getting Ready for Global Budgets.

Affordability considerations in certificate-of-need hospital capital expenditure review determinations

Beginning in 1984, public affordability became a central standard along with public need in the review of hospital proposals for capital development in Rhode Island's certificate-of-need (CON) program.

The major ambulatory surgical center and how it is developed

Of the more than 20 million surgical operations performed each year in this country, 40 to 50 per cent can be done without hospitalizing the patient, and more and more of these out-of-hospital operations are being done on patients requiring general anesthesia or a period of postoperative observation. This article reviews the advantages and disadvantages of major ambulatory surgery in general, as well as those of the different types of ambulatory surgical units. The steps in the development of a unit, including the various committees involved in its development and operation, are outlined.

Legislating hospital bed reduction: the Michigan experience

A variety of programs aimed at health care cost containment have been initiated at the state level. This article presents a case study of one state's effort to deal with health care cost issues, focusing on the formulation of adoption of legislation to reduce the number of hospital beds. The Michigan bed-reduction legislation was the creature of a coalition of powerful, organized "professional consumers" of health services who placed hospital cost containment on the political agenda and framed a solution. The provisions of the legislation were reshaped during the legislative process to grant concessions to a variety of interest groups, particularly the Michigan Hospital Association. Many additional criteria for determining excess bed capacity, some subjective, were added. Cost containment as a goal was, if not subordinated, at least made competitive with other goals--access to care, equity among types of providers, and quality of services. While the initial proposal was attractive as a seemingly simple extension of the certificate-of-need process within the existing regulatory framework, the legislation became increasingly complex in response to new issues raised by political actors who contributed to the shaping of the final version of the legislation. The formulation and adoption of Michigan's overbedding legislation appears to underscore what many other observers have noted: there are no purely technical solutions to health policy problems.

The legal perspective: leasing office space to physicians

The leasing of space in medical office buildings should be undertaken only after a careful study of the tax, certification-of-need, and reimbursement consequences. Under some circumstances, income from the leasing of space is taxable, and the goal of achieving favorable tax consequences may conflict with the goal of achieving favorable CON and reimbursement results. The question of obtaining public charity status for a freestanding medical office building also should be addressed.