What efforts have been undertaken to The federal government and the states have undertaken several efforts to deal with the supply of hospital beds. In the federal sector, the National Health Planning and Resources Development Act of 1974 (Public Law 93-641) was enacted to improve access to and distribution of hospital beds and to restrict the investment in unnecessary facilities. This program has been administered through a network of state and local health planning agencies. Among other things, the legislation required prior approval by planning agencies for capital expenditures exceeding certain amounts through granting a certificate-of-need (CON).69 There is now a substantial amount of health economics literature which discusses the impact of the health planning process in general, and CON laws in particular, on hospital costs. This body of evidence shows that CON laws have had little, if any, significant effect on nearly all measures of hospital market performance, especially hospital costs. 72 73 ospital 70 One of the earliest analyses of the effectiveness of CON laws published in 1979, found that at best CON review had a very modest restraining effect on cost inflation (a reduction of 2 percentage points over a four year period during which average increases in (real) cost per capita rose 40.7 percent in states without controls) and at worst, had produced a small increase in costs per patient day. 74 More recent studies reached similar conclusions. Specifically, two studies published in 1981 found that CON laws had no significant effect on the growth rate of total health care expenditures.75, 76 One comprehensive statistical analysis of CON programs also found that CON laws have not been effective 77 in reducing health care costs. In its 1982 report on health planning, CBO reviewed the econometric literature on CON review and concluded that the "available evidence does not support the hypothesis that CON review has limited growth in hospital costs, total investment, the number of hospital beds, or hospital use...". CBO stated, however, that these results must be interpreted with caution for three reasons. First, because most of the studies use data from time periods reflecting investment decisions made prior to 1976, they do not directly evaluate federal CON review. Second, since effects are averaged over all CON states, potential successes in some states may have been diluted by the absence of effects in other states. Finally, all of the studies had technical 78 limitations relating to the data and methodologies employed. Other studies on the effectiveness of federal health planning have shown that the concept has merit but the goals of improving access to health care and constraining costs have not been fully achieved, for a variety of reasons, including --lack of good data necessary to plan, --inadequate staff and funds to conduct health planning, --duplication of functions by state and local planning --limited authority of health planning agencies, --weaknesses in authorizing legislation,80 79 --conflicting goals confronted by planning agencies in --difficulties in determining the cost-effectiveness of 82 The Administration has attempted to abolish the federal health planning requirements as a part of its efforts to promote competition in the health care industry. Although the Administration's efforts were not totally successful, many of the health planning requirements were relaxed and the program's future remains in doubt. 83, 84 Besides health planning, the Congress enacted section 2101 of the Omnibus Budget Reconciliation Act of 1981 (Public Law 97-35) to help promote the closing or conversion of underutilized hospital facilities. The act authorized HHS to make payments under Medicare and Medicaid to a maximum of 50 hospitals for capital and increased operating costs incurred in shutting down or converting excess bed capacity to other uses. Details for implementing this provision, however, were not prescribed in the act, and HCFA proposed implementing this provision as a demonstration project to test the effects of a broad range of reimbursement changes. However, HCFA never implemented this provision and, in 1983, HHS recommended it be repealed.85 Section 2353 of the Deficit Reduction Act of 1984 (Public Law 98-369) defers implementation of this provision pending a report to the Congress by HHS on how to conform the closure or conversion program to Medicare's new prospective payment system for inpatient hospital services.85 To date, HHS has not issued a report. Regarding the issuance of tax-exempt bonds for hospital construction in 1985, CBO examined the option of eliminating such bonds. 81 CBO estimated that these bonds could cost the federal treasury about $2.4 billion in foregone revenue in fiscal year 1986, rising to $4.1 billion in 1990.88 CBO noted that eliminating tax-exempt bonds for hospital projects would be more consistent with recent congressional actions to curtail appropriations for hospital construction. Programs such as Hill-Burton have been cut back sharply because the Congress believed that federal programs had, in part, led to inflation in the health care sector. However, CBO also recognized that eliminating such bonds may leave few sources of funds available for hospitals with a genuine need to construct facilities.89 Another option explored by CBO would be to limit taxexemption to bonds that are general obligations rather than revenue bonds.* CBO noted that because state and local governments generally bear no financial responsibility for revenue bond issues, they have no incentive to limit them. If hospital bonds were general obligation issues, state and local governments would be expected to scrutinize projects more carefully and grant funding for fewer projects. Thus, tax-exempt financing might be more carefully targeted to projects with the greatest apparent public benefit.90 In addition to these federal efforts, some states, on their own, have developed hospital bed reduction strategies based on projections of future need. To date, Michigan has adopted the most ambitious of these programs. 91 Michigan's bed reduction program. In 1977, the Michigan Health Care Cost Containment Coalition, which was composed of representatives from major automobile companies, the legislature, Blue Cross and Blue Shield, and other organizations was formed to reduce excess hospital capacity. In 1978, this group's efforts resulted in legislation mandating the development of a methodology to identify and reduce the state's excess hospital bed capacity.92 In 1981, state legislation established the Hospital Capacity Reduction Corporation to assist hospitals in financing reduction of inpatient beds. corporation attempts to bring together individual health *General obligation bonds are backed by the full faith and credit of the issuing government, whereas revenue bonds are backed only by the revenues of the health care institution. The facilities and third-party payers to formulate financial plans for bed reduction.93 As of December 1983, over 900 beds had been eliminated through the Michigan bed reduction program. State officials hope that, by the end of 1984, this effort will have reduced excess capacity by about 3,500 hospital beds. 94 Beginning in 1979, HCFA has awarded grants to Michigan to support its bed reduction program. The maximum total amount allowed for grants initiated in fiscal year 1984, was $17 million.96 Other state activities. 95 Besides these efforts, some states have placed moratoria on the construction of certain health facilities. Since most of these efforts have been directed toward nursing home construction, the discussion of moratoria appears on page 94.97 In regard to health planning, several states have indicated they would probably not continue such programs in the absence of a federal mandate. 98 Instead, some states would control facility spending by promoting increased competition in the health care sector. Utah has actively promoted this competitive approach, which is aimed at increasing provider and insurer incentives to establish cost-saving health care plans. In 1978, it adopted the goal of price competition in its CON legislation, called the Pro-Competitive Certificate-of-Need Act. The legislation directed agencies to consider explicitly the relationship of the proposed project to the existing health care system in the area in which the project is proposed, including the effect of the proposed facility or service on the maintenance of competitive conditions in the local market.99 In its 1982 report on state strategies for containing health care costs, the Institute for Health Planning (IHP)* noted that several other states were considering new approaches to cost containment that employ competitive strategies.100 Nursing homes Nursing home care is the most expensive of the long-term 101 health care services. Nursing homes generally provide long-term care for convalescing patients and continuing care for the elderly. The level and type of care varies on the basis of the type of services each facility is authorized to provide. *IHP is a nonprofit organization offering technical assistance in the form of training, group consultation, reference services, and materials development to health planning agencies. Under federal contract with HHS, IHP served planning agencies in 23 states as of 1982. Some facilities provide skilled nursing care, while others, generally known as intermediate care facilities, provide care at a more custodial level. Some of these latter facilities also provide care for mentally retarded persons. 102 Patients enter nursing homes generally through two different routes. Those discharged from short-term general hospitals may be transferred directly to nursing homes for convalescence or for continued long-term care. On the other hand, patients may be admitted to nursing homes directly from their own homes in the event that short-term hospital care is not indicated and the patient's need is for long-term care. course, a nursing home patient may be moved to a hospital if an acute medical problem arises during the course of the stay at the nursing home. of Several pieces of legislation enacted during the 1950's provided capital for expansion of the nursing home industry, including the Hill-Burton program which authorized $10 million a year in grants to construct nursing homes. The Small Business Administration and the Federal Housing Administration also had loan programs that stimulated the growth of nursing homes.103 Most nursing homes currently in operation were built over the last 25 years with the major growth taking place in the 1960's and 1970's.104 The growth of nursing homes and available beds between 1961 and 1982 is shown in table 6. Table 6 Growth of Nursing Homes by Year, Beds, and Size Source: Data from Department of Health and Human Services, |