HEALTHCARE LAW
The Economics of
New Hampshire Health Care:
A Crisis for Everyone
April 2003
By Christopher C. Gallagher*
for Health Planning Today (PDF 150 Kb)
Last November, masked by national elections and Iraq, two health care announcements of great importance to New Hampshire's quality of life and its economic future were barely noticed by New Hampshire media. United Health Foundation, based in Minnesota, declared New Hampshire to be our nation's healthiest state. Shortly thereafter, the National Academy of Sciences announced its startling findings that the country's health care system is universally in crisis now, urging the Bush Administration to begin testing potential solutions in the laboratories of our states, "including universal coverage and no fault payment for medical malpractice" (New York Times, 11/20/02). The "train wreck" we keep hearing about has already happened.
Citing continued annual double digit increases in the cost of private health insurance, the fact that 1 in 7 Americans is uninsured, and severe state and federal fiscal problems, all of which adversely affect our health care system, the NAS report called for the immediate implementation at the state level of experimental pilot programs to test for possible solutions. Given the sound state of our state's health care system, whether New Hampshire should apply for such a program may be open to question. But as New Hampshire confronts its own fiscal problems, it must be remembered that the financial health of our hospitals is as important to our state's economy as it is to our own personal health. More important, New Hampshire's health system itself depends heavily upon the financial health of our state's 26 hospitals. And for their continued strength and viability, they depend upon the state's financial and legislative support.
By bundling facilities, skills and services, community hospitals are able to respond immediately and effectively to any one of more than 500 ailments that could befall any one of us. These same hospitals anchor our public health programs, are ready to respond to terrorist attacks, and are the staging area for community wellness and safety net services. Increasingly, they are becoming the sole provider to our state's growing uninsured population. Unfortunately, they provide these services principally through their emergency rooms, which provide such services at a significant operating loss.
The Challenge before Us
New Hampshire's hospitals' operating margins are continually compressed by reduced reimbursement from the federal government and private insurers, low return on invested endowment, and rising costs for staff, drugs, and keeping current with developing technologies. These problems alone are enough to push hospitals to the edge of their financial stability. The uninsured population is growing. Recent studies show that, for many, it is a perfectly rational economic judgment to choose to be uninsured. Premiums keep rising, people are better informed about wellness and, of course, the emergency room is always there when needed. (See "Analyzing the Relationship Between Health Insurance, Health Costs, and Health Care Utilization," Economic Perspectives, Federal Reserve Bank of Chicago, 3Q/2002.) Inevitably, this swelling of the ranks of the uninsured will continue, and this in turn will raise the costs of health care and thus insurance premiums. The death spiral dynamic that follows is well-understood. Less known, however, is that the cost of health care for employees is becoming one of the single most significant factors in the overall cost of business operation. For those who must operate on a national basis, the cost of those premiums now influences their choice for locating manufacturing plants and service centers. In short, the health of New Hampshire's hospitals in this worsening crisis will directly affect the health of New Hampshire's economy.
Physician providers have also been oppressed by a tightening reimbursement system and increasing operating costs. Some see their financial salvation in the establishment of separate, for-profit, treatment centers, often referred to as ambulatory surgical centers (ASCs), that are designed to perform lower risk, higher margin procedures at separate sites they own. In the zero sum game of health care, however, this understandable activity by doctors also harms the local community hospital that would have been the site for the same profitable procedure. In recent years, the legislative battles over these issues between the ASCs and the community hospitals have been limited to the opposing parties. More recently, however, and with the recognition that much more than the limited operations of ASCs is at stake, the Legislature established a Task Force to study our state's Certificate of Need (CON) process, which is designed to provide public oversight to the establishment of institutional health care facilities to provide medical services. Is there a public interest in maintaining our CON process? The answer is yes.
The Relationship between Quality and Cost Savings
It was established early on that a precise tracing of the impact of New Hampshire's CON process on quality, cost and access is not possible because of the roiling effect of constant disruptions in the health care system. The Task Force has nevertheless learned in other ways that the CON process plays a key role in the distribution of health care services, in their overall cost, and thus in the economic strength of our state.
New Hampshire's own nationally acclaimed expert on medical economics, John Wennberg of Dartmouth, offered critical testimony on the connection between the availability of health care providers and utilization. His nationally renowned Dartmouth Atlas studies have proven that because of the influence of physicians in the physician/patient relationship, and physicians' natural inclinations to provide care, any availability of treatment inevitably will be met by patient care. In short, with health care, supply drives demand. This leads to "unwarranted care," which leads in turn to higher costs for everyone in the health care system.
While the Task Force was in operation, another important study appeared in the Journal of the American Medical Association. It found that the quality of past outcomes was directly connected with the existence and operation of the certificate of need process ("Mortality in Medicare Beneficiaries Following Coronary Artery Bypass Graft Surgery in States With and Without Certificate of Need Regulation," JAMA, October 16, 2002-Volume 288, No. 15, pages 1859-1866). This important study has been accepted as credible by those whose concerns are most focused on the costs of health care as it is affected by its quality. Now in its third printing, the Institute of Medicine report on the quality of health care in America, entitled Crossing the Quality Chasm (National Academy Press, 2001), has established that the quality of in-hospital care affects lives as well as outcomes. This important critique has led not only to increased focus on quality in our nation's hospitals, but an increased focus on quality among our nation's businesses and health care payors. The Leapfrog Group for Patient Safety, a nationally recognized effort to save costs by focusing on quality, is being watched closely by some and copied by others, as our nation's economic interests try to rein in the ascending costs of health care. The significance of the piece in the October issue of JAMA is that it proved that effective operation of certificate of need positively affects quality, and this in turn has brought CON into the favor of those to whom cost savings is a critical part of their economic capacity to compete in a globalized economy. CON improves quality.
A third startling revelation has all but closed the economic case in favor of CON. Confronted by legislation designed to weaken or repeal CON in various states, including Michigan, DaimlerChrysler decided to take a closer look. After all, the most expensive part of any automobile is its health care cost component. DaimlerChrysler, followed by General Motors and Ford, all found that health costs are less in states with well-run certificate of need programs. Their economic decisions regarding plant location and supplier costs now consider CON as a positive factor. They are among the country's largest and most influential manufacturers. Others will follow their lead. In short, New Hampshire's continued economic strength will rely more and more on the continued viability of its health care and cost savings produced by its certificate of need mechanism, the Health Services Planning and Review Board.
Whatever their planning purpose when first established, certificate of need programs are now deemed critical to any state's health care system and its economic success. This highly credible and compelling evidence has not been refuted anywhere in the country. It has been unchallenged in the Task Force proceedings. State economic policymakers should take note.
Importantly, it should be understood that the CON process is not designed to free hospitals from competition. Present economic conditions, improved transportation, and aggressive efforts to survive have made hospitals as competitive with each other as any enterprise in New Hampshire. No one suggests that hospitals should be freed from such competition. What has been shown by these studies and by the success of New Hampshire's health care system is that public oversight of the process of locating and establishing health care facilities is important to our state's health environment and its economic environment. States compete as well. Our CON and our standing nationwide give us an edge. This is no time to repeal or otherwise weaken New Hampshire's winning formula, especially in light of this new and important economic evidence.
At this point, it is not clear whether or not New Hampshire will take advantage of the Administration's interest in beginning test programs at the state level. If our system is working well, we may wish to leave it alone. But it is clear that, as matters inevitably become worse, our preferred nationwide status will become increasingly important. CON is not a magic bullet; it is simply one of the systems supporting our state's enviable health care environment. At this critical time, we should be supporting our hospital system by strengthening New Hampshire's CON not by tearing it down.
*Christopher C. Gallagher is admitted in New Hampshire.
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