CON in Michigan – Costs or Competition?

1. CON in Michigan – Costs or Competition? Source: WALSH, TOM: Hospital fight is heading to west Oakland County, Detroit Free Press, May 23, 2003, http://www.freep.com/money/business/walsh23_20030523.htm, accessed August 25, 2005. Hopkins, Carol, Appeals court allows hospitals to expand, Oakland Press, March 24, 2005, http://www.theoaklandpress.com/stories/032405/loc_20050324011.shtml, accessed August 25, 2005.

2. Beds in the Wrong Places • Like many metropolitan areas, metropolitan Detroit’s hospital beds are in the wrong places.  Large numbers of empty beds are located in the city of Detroit, whose population has fallen by half, to about 900,000, in the last forty years.  At the same time, many of Detroit’s suburban areas, with a combined population of over 3 million, argue that they do not have enough beds.  • Henry Ford and St. John Hospitals, two of the Detroit’s very large hospitals, also have suburban facilities.  Each claimed to provide about $100 million a year in uncompensated care, mostly in Detroit. The hospitals insisted that to remain viable, they must improve their “payer mix” by shifting hospital beds to places with more wealthy and well-insured people.

3. Oakland County • Oakland County, one of the wealthiest counties in the United States, lies just north and west of Detroit.  Population shifts in the county have left western areas arguably underserved with hospital beds.  Providence Hospital (a subsidiary of St. John Health) sought to transfer 200 licensed beds from locations in eastern Oakland County, close to Detroit, about 20 miles further west in the same county.  Henry Ford sought to transfer 300 beds from Detroit, about 25 miles away, into the southwest part of Oakland County . • Michigan’s Certificate of Need CON Program has the following regulatory power over hospital beds: • Three facility types must receive a certificate of need on the basis of bed need: acute care hospitals, psychiatric hospitals, including specialized programs for child/adolescents; and, long-term care facilities. Any entity that seeks to increase the number of licensed beds, physically relocate beds from one licensed site to another …replace beds, or acquire a hospital, psychiatric hospital or long-term care facility must receive a CON to do so.

4. Opponents • Expansion opponents argued that the additions would drive up costs and wait times in the county. Some also said that moving beds out of Detroit would worsen the city's dire health care crisis. Expansion supporters believed the opponents feared they would lose patients -- and income -- to the new hospitals. • In March 2005, The Michigan Court of Appeals ruled in favor of allowing the two area hospital groups to move ahead. The three-judge court unanimously affirmed a lower court's decision that the plaintiffs - Trinity Health and William Beaumont Hospitals - did not have legal standing to prevent the hospitals from adding beds.

5. The Economics D • With entry, demand shifts to left, and becomes more elastic. • Prices MUST fall. MR MC P0 $ AC P1 Q