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When You Need a

August 5, 2010

Hospital, Will It
Be There?
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The Problem
How many hospitals does the Land of Lincoln Department and Federal Trade Commission
Spotlight on Spending

need, and who gets to decide? In Illinois, the VXSSRUWHGWKHUHSHDORI VWDWH&21ODZVVWDWLQJ


process is far more complicated than you might WKHSURJUDPV´XQGHUFXWFRQVXPHUFKRLFHVWLÁH
think—and, unfortunately, it also restricts ac- innovation, and weaken markets’ ability to con-
cess to health care for citizens across the state. WDLQKHDOWKFDUHFRVWVµ5

In 1974, a federal law gave states incentives to


FUHDWH&HUWLÀFDWHRI 1HHG &21 SURJUDPV Illinois Health
which regulate the creation of new hospitals Facilities Planning
Fiscal
and healthcare facilities.1 In response to the in- Fund Revenues
Year
from Licenses, Fees
centives, Illinois, along with many other states, or Registrations
FUHDWHG&21SURJUDPV
2000 $ 1,830,657.32
Today, the Illinois Health Facilities and Services
5HYLHZ%RDUG IRUPHUO\WKH,OOLQRLV+HDOWK 2001 $ 2,001,523.05
)DFLOLWLHV3ODQQLQJ%RDUG LVVXHVFHUWLÀFDWHVRI  2002 $ 1,017,684.92
QHHG´IRUFRQVWUXFWLRQRUPRGLÀFDWLRQSURM- 2003 $ 1,631,943.38
ects proposed by or on behalf of healthcare
facilities, and for approving transactions for 2004 $ 1,775,354.36
WKHDFTXLVLWLRQRI PDMRUPHGLFDOHTXLSPHQWµ2 2005 $ 2,073,085.45
Among other requirements, entities seeking a 2006 $ 2,318,002.45
FHUWLÀFDWHRI QHHG´PXVWMXVWLI\WKDWDSURSRVHG
2007 $ 3,029,720.10
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2008 $ 3,286,743.30
According to the Illinois Department of Pub- 2009 $ 2,548,271.37
OLF+HDOWKWKH&HUWLÀFDWHRI 1HHGSURJUDPLV 2010 $ 2,114,119.61
meant “to restrain rising health care costs by
2011* $ 91,375.60
SUHYHQWLQJXQQHFHVVDU\FRQVWUXFWLRQRUPRGLÀ-
FDWLRQRI KHDOWKFDUHIDFLOLWLHVµ4 But this way of * Year to Date Revenues
thinking is outdated. The federal law has since 7SYVGI-PPMRSMW3J½GISJXLI'SQTXVSPPIV
been repealed, and in 2008, the U.S. Justice

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Page 2 of 3

The Department of Justice and the Federal DSURMHFWWKDWQHHGHGDSSURYDOE\WKH,OOLQRLV


7UDGH&RPPLVVLRQZDUQWKDWZLWK&21 Health Facilities Planning Board was warned
laws, “market incumbents can too easily use WKDWDSSURYDORI KHUSURMHFWUHVWHGRQKLULQJ
&21SURFHGXUHVWRIRUHVWDOOFRPSHWLWRUV DVSHFLÀFFRQWUDFWRUDQGÀQDQFHFRPSDQ\
IURPHQWHULQJDQLQFXPEHQW·VPDUNHWµ6 with political ties.7KHKRVSLWDO&(2ZRUHD
1RUWKZHVWHUQ8QLYHUVLW\KHDOWKHFRQRPLVW wiretap for months for the FBI, resulting in
David Dranove illustrates how unfair this federal convictions of Illinois Health Facilities
process can be, pointing out that it is like Planning Board member Stuart Levine and
allowing American automakers to “block entry others.1516
by Japanese and Korean competitors, claiming
that they had more than enough capacity to The Solution
PHHWRXUDXWRPRWLYHQHHGVµ7 The General Assembly should repeal the cur-
UHQW&HUWLÀFDWHRI 1HHGSURJUDPDQGDOORZ
$OWKRXJKWKHVH&21SURJUDPVDUHPHDQW health facility construction to be driven by con-
to reduce health care costs, due to their anti-
7KH*HQHUDO competitive nature, they have the opposite sumer demand rather than a state agency. In-
effect. Wharton School economist Mark Pauly stead of creating barriers to entry and encour-
$VVHPEO\ found that “the consequence of restricted aging anti-competitive behavior in the health
VKRXOGUHSHDO VXSSO\ZDVKLJKHUSULFHVµLQVWDWHVZLWK&21
laws as compared to those without them.8
care market, the state should let health care
SURYLGHUVKDYHJUHDWHUÁH[LELOLW\WRUHVSRQGWR
WKHFXUUHQW The American Medical Association “has long the needs of the community.
opposed certificate-of-need restrictions,
&HUWLÀFDWH and the Illinois State Medical Society has Why This Works
DGYRFDWHGUHSHDOLQJWKHVWDWHODZµVLQFH
RI 1HHG ´OLWWOHHYLGHQFHH[LVWVWRVXJJHVW&21
As costs of healthcare rise, Illinois needs to
re-evaluate the state’s healthcare system to
SURJUDPDQG regulations effectively rein in health care
FRVWVRUSURPRWHDFFHVVWRFDUHµ9
ensure the system best serves citizens’ needs.
High regulatory barriers to entry create an anti-
DOORZKHDOWK competitive environment and long travel times
7KHEXUHDXFUDWLFSURFHVVHVLQWKH&21
IDFLOLW\FRQ program are often time-consuming and to hospitals—issues that can literally be a mat-
expensive, and in states that got rid of their ter of life and death. In addition, rather than
VWUXFWLRQWR hospital planning boards, per capita health NHHSLQJKHDOWKFDUHFRVWVGRZQ&HUWLÀFDWHRI 
care costs are lower on average than in states 1HHGSURJUDPVFDQDFWXDOO\KDYHWKHRSSRVLWH
EHGULYHQE\ like Illinois, which still have planning boards. effect, creating scarcity and ramping up prices
FRQVXPHU 10
For example, 2002 data from the American
Hospital Association shows that the average
for people who need health care. Removing
this bureaucratic process for approving health
GHPDQG cost of hospital services per capita in Texas, facilities will also remove opportunities for po-
which has not had a hospital planning board
UDWKHUWKDQD for more than twenty years, was 16 percent
litical corruption in the health care realm—and,
most importantly, increase health care access
less than in Illinois.11 From fiscal year 2000
VWDWHDJHQF\ through fiscal year 2010, entities applying throughout the state.
for certificates of need paid $23.6 million in
fees to the Illinois Health Facilities Planning
Fund.1213 Instead of paying for fees, this
money could have been invested by the
applicants in their facility expansions.

Because existing hospitals have great incentive


to lobby against new competition, there is also
an opportunity for corruption and “pay-to-
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WKH,OOLQRLV+HDOWK)DFLOLWLHV3ODQQLQJ%RDUG 
FDPHXQGHUÀUHLQ´ZKHQLWFDPHWROLJKW
that a member had orchestrated kickbacks for
KLPVHOI DQGIULHQGVLQH[FKDQJHIRUYRWHVµ14
7KHVFDQGDOEHJDQZKHQDKRVSLWDO&(2ZLWK
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Endnotes
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