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Published online by Cambridge University Press: 24 February 2021
The American health care delivery system currently suffers from a variety of problems; among the most intractable of these is a maldistribution of health care services. This Note focuses on two aspects of this problem: unnecessary hospital beds, and medically underserved populations. The Note also discusses the related issues of hospital cost inflation and inefficient use of limited resources. It then examines the current statutory remedies for these problems, and subjects their effectiveness to a two-tiered test. The Note concludes that the existing mechanisms, while partially effective, ultimately result in a fragmented, uncoordinated, and unsuccessful health care regulatory system. Moreover, the Note suggests not only that the existing statutes fail to solve the problems they were enacted to correct, but that they actually add to health care inflation and complicate health planning by subjecting the entire health care industry to uncertainty. This Note proposes a comprehensive regulatory approach that will resolve health care imbalances in a manner that avoids the shortcomings inherent in the present system.
1 42 U.S.C.A. §§ 300k-u (West Supp. 1979), as amended by Health Planning and Resource Development Amendments of 1979, Pub. L. No. 96-79 [hereinafter cited as Pub. L. No. 96-79].
2 Id. at§300k(a).
3 Id. at § 300k(a)(3)(A-C).
4 Id. at § 300k-3 (National Council on Health Planning), as amended by Pub. L. No. 96-79, supra note 1; 42 U.S.C.A. § 3001-1 (Health Systems Agencies), as amended by Pub. L. No. 96-79, supra note 1; 42 U.S.C.A. § 300m (State Health Planning Agencies), as amended by Pub. L. No. 96-79, supra note 1.
5 See notes 68-69 infra.
6 The two-tiered test examines first, the uniformity with which the mechanism works, and second, the mechanism's ability to consider access to health care services in affected areas.
7 42 U.S.C.A. §291 (West 1970).
8 The Hill-Burton Act's declaration of purpose includes the goal of assisting the states to construct and modernize public hospitals and “to stimulate the development of new or improved types of physical facilities. . . .” Id. at § 291(a)—(b); see also Health Cost Con tainment, Hearings on S. 570 Before the Subcommittee on Health of the Senate Committee on Finance, 96th Cong., 1st Sess. 166 (1979) (statement of Joseph A. Califano, Jr.) [herein after cited as Hearings on S.570].
9 125 Conc. Rec. E846 (daily ed. Mar. 5, 1979) (submitted by Rep. Broyhill). Former Secretary of Health Education and Welfare, Joseph A. Califano, Jr., testified to the exist ence of 130,000 unnecessary beds. Hearings on S. 570, supra note 8, at 166. A review of the estimated growth of unnecessary beds highlights the problem. A 1974 report by the Committee on Interstate and Foreign Commerce concluded that the supply of hospital beds had exceeded demand, that 20,000 unneeded beds were expected in 1974, and that an excess of 70,00ff beds was projected for 1975. H.R. REP. NO. 1382, 93d Cong., 1st Sess. 7844, reprinted in [1974] U.S. Code Cong. & Ad. News 7966.
10 In recognizing this problem, Congress made "[t]he provision of primary care services for medically underserved populations, especially those which are located in rural or economically depressed areas" a national health priority. 42 U.S.C.A. § 300k-2(a)(l) (West Supp. 1975). The 1979 amendments to and extension of the 1974 Act also recognized "the unique circumstances and needs of medically underserved populations in isolated rural communities." 42 U.S.C.A. § 300k-l(b)(l) (West Supp. 1980), as amended by Pub. L. No. 96-79, supra note 1.
11 See McNeil & Williams, Wide Range of Causes Found For Hospital Closures, 52 Hospitals 76, 77 (1978).
12 A study examining the status of hospitals in eighteen central cities during the period 1937 to 1977 revealed that nearly thirty percent of the hospitals closed or relocated during that period. Wilkins, Loss of Hospitals in Central Cities Said to Cause Array of Problems, N.Y. Times, Sept. 11, 1979, at Dll, col. 1. A 1979 study conducted by Sheila Rule confirmed the earlier results. Ms. Rule's seven city survey found that inner city hospitals were being closed, consolidated or moved to the suburbs. The end result, she argued, is that inner city residents are facing a" crisis in terms of access to health care. Rule, Inner Cities' Hospitals Vanishing in Wake of Sharply Rising Costs, N.Y. Times, Sept. 2, 1979, § 1, at 1, col. 7. According to Herbert Semmel, Director of the Center for Law and Social Policy, the problem is part of urban flight. Mr. Semmel observes: "[m]iddle class people have moved to the suburbs and they're taking their hospitals with them." Wilkins, supra, at D11, col. 1.
13 See Rule, supra note 12, at 23, col. 1. An example of the consequences of inner city hospital closure can be found in the closing of the Philadelphia General Hospital.
Most of the parties affected allege that they were caught flat-footed by the an nouncement and that a few months time was totally insufficient for adequate preparation. Carl Moore, Jr. of South Philadelphia Health Action . . . suggests that when the numbers are counted, as many as 300,000 people may be found to have dropped out of the city's health care system.
Friedman, , The End of the Line: When a Hospital Closes, 52 Hospitals 69, 74 (1978)Google Scholar.
14 See note 10 supra.
15 But see Feldstein, , The Welfare of Excess Health Insurance, 81 J. Pol. Econ. 251, 255 (1973)CrossRefGoogle Scholar; Roemer, , Bed Supply and Hospital Utilization: A National Experiment, 1961 Hospitals 35 (1961)Google Scholar.
16 "Excess bed capacity and use contribute to the high cost of hospital care with little or no benefits." 43 Fed. Reg. 13,042, Subpart C §§ 121-201(5)(b) (1978). See also 125 Cong. Rec. E846 (daily ed. Mar. 5, 1979) (remarks of Rep. Broyhill); Knowles, , The Hospital, 53 Sci. Am. 128,131 (1973)CrossRefGoogle Scholar.
17 Hearings on S. 570, supra note 8, at 166 (statement of Joseph A. Califano, Jr.).
18 125 Cong: Rec. S7417 (daily ed. June 12, 1979) (remarks of Sen. Schweiker). Senator Kennedy stated that hospital costs have increased fifteen fold between 1950 and 1977. 124 CONG. REC. S2214 (daily ed. Mar. 7, 1979) (remarks of Sen. Kennedy).
19 Hearings on S. 570, supra note 8, at 195 (statement of Joseph A. Califano, Jr.).
20 V. Fuchs, Who Shall LiveΠ5 (1974).
21 Victor Fuchs observed that
resources have alternative uses. Society's human, natural and man-made resources can, in most cases, be used to satisfy different kinds of wants. [I]f we want more hospitals [or maintain unnecessary ones] we can [do so] only at the expense of more housing or more factories, or something else that could use the same land, capital and labor.
Id. at 3.
22 42 U.S.C.A. §§ 300k-u (West Supp. 1979), as amended by Pub. L. No. 96-79, supra note 1.
23 Id. at § 300k(b).
24 The national health priorities appear at 42 U.S.C.A. § 300k-2 (West Supp. 1979), as amended by Pub. L. No. 96-79, supra note 1.
25 42 U.S.C.A. § 300k-3(a) (West Supp: 1979), as amended by Pub. L. No. 96-79, supra note 1.
26 Id. at § 300m.
27 Id. at §3001-2.
28 Id. at § 300k-3(b).
29 Id. at § 300m.
30 Id. at § 300m-2(a)(4)(B).
31 Id. at § 300m-2(a)(6).
32 Id. at §3001-2.
33 Id. at § 3001-2(f).
34 Id. at § 3001-2(g).
35 The House of Representatives approved the legislation on September 20, 1979. 125 Cong. Rec. H9233, H8236 (daily ed. Sept. 20, 1979). The Senate approved the legisla tion the following day. 125 Cong. Rec. S13.130 (daily ed. Sept: 21, 1979). The Conference Committee report appears at 125 Cong. Rec. H7312 (daily ed. Sept. 5, 1979) (Joint Explanatory Statement of the Committee of Conference) [hereinafter cited as Conference on S.544].
36 Five additional priorities were added as a result of the 1979 amendments. These are: (1) identifying and eliminating duplicative or unnecessary services or facilities; (2) encouraging more equity and efficiency in the provision of health services while simul taneously controlling costs; (3) improving mental health services; (4) J encouraging out patient mental health services; and (5) delivering health services in a manner that rec ognizes the emotional and psychological components of health. Conference on S. 544, supra note 35, at H7311.
37 The 1979 amendments provide that "[t]he membership of the [HSA] governing body and the executive committee . . . [shall be] broadly representative of the health service area and shall include individuals representing the principal social, economic, lin guistic, handicapped, and racial populations and geographic areas . . . ." 42 U.S.C.A. § 3001-l(b)(3)(C)(i) (West Supp. 1980).
38 Id. at § 300m-6.
39 Conference on S. 544, supra note 35, at H7320.
40 Id. at §300q.
41 Id. at § 300r.
42 See 42 U.S.C.A. § 300k(a)(3) (West Supp. 1979).
43 The adverse effects of excessive regulation were illustrated by Senator Stevens when he stated:
A 1976 survey conducted in New York State found those hospitals to be burdened by no fewer than 164 regulatory agencies, including 40 different agencies at the Federal level. Three years ago, the cost of these 164 regulatory agencies on New York State hospitals equalled one-quarter of the total hospital budgets in that state.
125 Cong. Rec. S3852 (daily ed. Apr. 4, 1979) (remarks of Sen. Stevens); See Hearings on S, 570, supra note 8, at 196 (statement of Joseph A. Califano, Jr.).
44 In the findings of the National Health Planning and Resources Development Act of 1974, Congress specifically indicted the efficacy of the approaches which emphasize the involvement of many agencies and regulations. "The many and increasing responses to these problems by the public sector (Federal, State and local) and the private sector have not resulted in a comprehensive, rational approach to the present [problems]." 42 U.S.C.A. § 300k(a)(3) (West Supp. 1979).
45 McConnell notes that:
[B]usiness investment is based upon expected profits. If business is currently good, businessmen will tend to be optimistic about the future and will be willing to invest at a high level. Poor current business conditions will be conducive to dismal expectations with respect to future profit rates and therefore a low level of in vestment.
C. Mcconnell, Economics 236 (6th ed. 1975) (emphasis in original). Long observes: "[I]t is going to be of crucial importance that the industry's investment decision-making give careful thought to the question of future risk—the expected variability in future cash flows." Long, Investment Decision Making in the Health Care Industry: The Future, 14 Health Services Research 183, 197 (1979).
46 This Note argues that, under the present regulatory system, closures have been effected, leaving local residents without needed health care services. See notes 10, 12-13, supra and accompanying text.
47 Blumstein & Sloan, Health Planning Regulation Through CON: An Overview, 1978 Utah L. Rev. 3.
48 Expenditures of $150,000 or more must be approved under the CON provisions. 42 U.S.C.A. § 300n(6) (West Supp. 1980). Donations, leases and transfers of major medical equipment must also be approved if their value exceeds $150,000. Id.
49 Hearings on S. 570, supra note 8, at 267 (American Health Planning Association, Second Report of 1978 on Health Planning Agencies).
50 Id.
51 The Health Planning Act states that the state "certificate of need program . . . applies to the .. . offering within the state of new institutional health services and the acquisition of major medical equipment . . . ." 42 U.S.C.A. § 300m-2(a)(4)(B) (West Supp. 1980), as amended by Pub. L. No. 96:79, supra note 1.
52 Kopit, Bonnie & Krill, Hospital Decertification: Legitimate Regulation or a Taking of Private PropertyΠ1978 Utah L. Rev. 179, 183. For example, the Massachusetts State Planning Agency agreed to approve a certificate for the Holyoke Hospital only after that hospital agreed to close its underutilized maternity services. Reider, , Mason, & Glantz, , Certificate of Need: The Massachusetts Experience, 1 Am. J. L. & Med. 13, 21 (1975)Google Scholar.
53 Kopit, Bonnie & Krill note:
[o]bjection to de facto decertification is that its use may. depend on facts totally unrelated to the need for a particular service or facility. Thus, for example, if a particular area has an overabundance of hospital beds, a hospital requesting a certificate of need for capital expenditure to meet safety standards may be turned down not because the capital expenditure is unnecessary but because there is an excess of beds. By rejecting the application the planning agency can effect a closure of unneeded beds. But this use of the certificate-of-need process is at best elliptical.
Kopit, Bonnie & Krill, supra note 52, at 184.
54 42 U.S.C.A. § 300n-l(12)(B) (West Supp. 1980). The result of this provision is that "CONs will be awarded on their own merits because the amendments prohibit agencies from bargaining with the hospitals for [concessions] unrelated to the CON application . . . ." Kuntz, PX. 96-19 Changes the CON Process, 3 Mod. Healthcare 50 (1979). S5in Park East Corp. v. Califano, 435 F. Supp. 46 (S.D.N.Y. 1977), the court held that "Congress intended federal preemption j in the field of health planning." Id. at 50. Thus, state attempts to circumvent the new law may be precluded.
56 42 U.S.C.A. § 3001-2(g)(l) (West Supp.|1979) (appropriateness review provisions for HSAs), as amended by Pub. L. No. 96-79, supra note 1; id. at § 300m-2(a)(6) (appropriate ness review provisions for state agencies).
57 Id. at § 3001-2(g)(l).
58 Id. at § 300m-2(a)(6).
59 Id.
60 "[Appropriateness review should be viewed as a positive tool for improving the local or state health care system, either by highlighting areas of excess and duplication or by identifying areas needing additional or improved services." 43 Fed. Reg. 21,275 (1978) (statement of Julius B. Richmond). A similar understanding was expressed by the drafters of the 1979 health planning amendments:
It is the conferees' expectation that over time agencies will be able to make de tailed appropriateness review findings. Such findings should provide the consumer with better information about the health services which are available so that informed choices can be made about the institutions from which services are received.
Conference on S. 544, supra note 35, at H7335. The legislative history of the 1974 Health Planning Act is more explicit. The Senate Report notes that "no sanction is required by the proposed legislation with respect to modifying or eliminating services in institutions found to be unnecessary." S. REP. NO. 1285, 93d Cong., 2d Sess. 51, reprinted in [1974] U.S. Code Cong. & Adm. News 7842, 7892. The House report states: "The legislation con tains no requirement that a sanction be used to eliminate existing institutional services which are found to be unneeded." H. R. Rep. No. 1382, 93d Cong., 2d Sess. 31, 32 (1974).
61 Downey, Healthcare Planning Gets Muscles, 3 Mod. Healthcare 32, 34 (1979).
62 Eugene J. Rubel of the Department of HEW noted:
The review of appropriateness doesn't have any sanction tied to it, but . . . when a planning agency finds something to be no longer appropriate, the financing pro grams come along swiftly and say we're not going to pay for it. [I] think you'll find Blue Cross, for example, refusing to sign contracts with institutions that have been deemed inappropriate.
Id.
63 The economic importance of third party payors was evidenced by former Depart ment of Health, Education and Welfare Secretary Joseph A. Califario, Jr., who testified that insurers pay up to ninety percent of all hospital bills. Hearings on S. 570, supra note 8, at 196 (statement of Joseph A. Califano, Jr.).
64 "[T]hese decisions [to reduce or discontinue Blue Cross payments subsequent to a finding of inappropriateness] can be fortuitous, inequitable and perhaps based on con siderations wholly independent of the health planning process. Moreover, neither the applicant nor the public can be assured of participation in this part of the process." Kopit, Bonnie & Krill, supra note 52, at 183.
65 Id.
66 Id.
67 Kopit, Bonnie & Krill, supra note 52, at 182; See Wehr, Health Planning Bill Awaits Final Congressional Action, Congressional Q. Weekly Rep. at 1919 (Sept. 8, 1979). 125 Cong. Rec. S13,130 (daily ed. Sept. 21, 1979) (remarks of Sen. Kennedy).
68 N.Y. Mental Hyc. Law § 13.15(a) (McKinney 1976); N.Y. Public Health Laws § 2806(a)(l) (McKinney 1977).
69 Wise. Stat. Ann. § 150.41 (West 1978).
70 42 U.S.C.A. § 300n-l(b)(l) (West 1979), as amended by Pub. L. No. 96-79, supra note 1; id. at § 300n-l(b)(8). See Park East Corp. v. Califano, 435 F. Supp. 46, 50 (S.D.N.Y. 1977) . .·...·'· · :
71 In New York, for example, four municipal hospitals are scheduled to close in an effort to reduce the city's projected budget deficit by $40 million. Rule, supra note 12, at 32; See also, 35 Med. Care Rev. 279 (1979).
72 Id.
73 Id.
74 N.A.A.C.P. v: Wilmington Medical Center Inc., 436 :F. Supp. 1194 (S.D.N.J. 1977) aff'd, 584 F.2d 619 (3d Cir. 1977) (plaintiffs alleged that removal of certain health services to the suburbs would discriminate against the poor, the elderly and ethnic and racial minorities). See, Wilkins, supra note 12, N.Y. Times, Sept. 12, 1979, at A26, col. 1.
75 42 U.S.C.A. § 300q (West Supp. 1980) (loan provisions).
76 Id. at§300t.
77 Id. at § 300t(d).
78 The Secretary is required to establish, by April 1, 1980, a program of grants and technical assistance to hospitals "for the discontinuation of unneeded hospital services...." Id. at§300t-ll(l)(A).
79 The Secretary is required to establish, by April 1, 1980, a program of grants and technical assistance to hospitals "for the conversion of unneeded hospital services to other health services needed by the community . . . ." Id. at § 300t-ll(l)(B).
80 Id. at § 300t-13.
81 Id. at § 300q.
82 Id. at § 300q(a)(l)(A).
83 Id. at § 300q(a)(l)(B).
84 See note 79 supra.
85 See note 63 supra.
86 The impact of hospital closures is considered at 42 U.S.C.A. § 300s-l(b)(l)Q) (West Supp. 1980) (loan provisions), and 42 U.S.C.A. § 300t-12(b)(l)(B) (West Supp. 1980) (grant provisions).
87 The development of health services in medically underserved areas is considered at 42 U.S.C.A. § 300s(l)(A-C) (loan and grant provisions).
88 125 Cong. Rec. H7312 (daily ed. Sept. 5, 1979) (Joint Explanatory Statement of the Committee of Conference). Concern for such special populations led to the inclusion of the following language in Pub. L. No. 96-79: "[standards [promulgated under the amend ments to and extension of the 1974 Health Planning Act] shall reflect the unique circum stances and needs of medically underserved populations." 42 U.S.C.A. § 300k-l(b)(l) (West Supp. 1980).
89 See note 6 supra.
90 Id.
91 See notes 43-45 supra.
92 See notes 52-53 supra.
93 See note 62 supra.
94 See notes 44-45 supra.
95 This approach is consistent with that of Pub. L. No. 96-79. See note 54 supra.
96 42 U.S.C.A. § 300q (West Supp. 1980) (loan provisions); id. at § 300t (grant provisions).
97 See notes 11-13 supra.
98 42 U.S.C.A. § 300s-l(b)(l)(B) (West Supp. 1980).
99 Id. at § 300(b)(l)(J).
100 See notes 39-46 and accompanying text.
101 See note 43 supra.
102 See notes 43-44 supra.
