A “Certificate of Not-Needed” Process: The Solution to Hospital Bed Surpluses?

Closure-of-The-Queen-Eliz-007Imagine that you were the “state administrator for hospitals” and were given the unenviable task of shuttering 30% of the hospital beds in your state.  How would you decide which beds to keep, and where?  Would you shutter a handful of hospitals entirely, or would you reduce capacity at every hospital across your state?  Would you be analytic about the task, or would you let market forces determine which beds stay and which ones close?

First, some background:

Molly Gamble, a reporter at Becker’s, recently reported on this year’s Aspen Ideas festival.  She describes a panel session featuring Dr. Toby Cosgrove (CEO of Clevelend Clinic) and Jonathan Bush (CEO at Athenahealth).  The discussion revolved around the worsening overcapacity of hospital beds in the US. Occupancy nationally is 65% and there most healthcare thinkers that accountable care will drive down demand even further.  Keeping open these unneeded beds has become a financial drain on the system, particularly as hospitals try to scramble up enough business to keep the sheets warm.

According to Gamble’s article, Cosgrove and Bush suggest that the weeding will first occur among poorly performing hospitals and low-quality providers. She writes:

Subpar hospitals will need to close. Bottom-tier physicians (if hospitals even know which ones those are) need to be fired, or their contracts should not be renewed.

As community hospitals close, Gamble suggests that volume will be directed to high-volume specialty shops which are experts at providing complex care.

Where would patients go if their community hospital closes? Ideally to one that is much better and specialized at the type of care they need. Dr. Cosgrove said hospitals must give up the notion that they can be all things to all people, and we must recognize that hospitals were born in a time when their functions and means of transportation were quite limited. “Now we have great transportation and very sophisticated things you can do in a hospital,” he said. “So move the patients to the place.”

Let’s have a thoughtful discussion about this problem.

There is no doubt that payment pressures (such as captivated payments and ACOs) are going to cause significant pressure on hospitals.  Changes to healthcare reimbursement will make it impossible for every community hospital to have a spine center, and a cancer center and a center for complex cardiac surgery.  Cosgrove is right that complex and non-emergency volume will increasingly flow to centers of excellence (we are already seeing Cleveland Clinic approach large employers to arrange for employees to be flown in for for complex elective care. They promise negotiated rates, high volume and a high level of quality).

With high-complexity moved to large urban centers, market forces will determine which acuity-depleated community hospitals will survive.  It seems likely that those hospitals with good payer mixes and fiscal discipline will do OK. Others will close regardless of their utility.  It’s a cost/reimbursement decision regardless of the insinuation that the market is somehow bending the value curve by closing bad hospitals and kicking out bad doctors. 

The paradox with these closures: the decision to build hospitals is often subject to analysis through a certificate of need (CON) process, while the decision to close hospitals doesn’t take into account distance to another hospital, service population, etc. No matter how many centers of excellence we have, somebody will need to handle the time sensitive emergencies locally. Certain geographic coverage is important.

In this case, I don’t believe that the market will do what we ask of it: reduce capacity in a way which preserves reasonable geographic spread. Instead of an orderly reduction in unneeded beds, I can foresee a situation where critical access and safety-net hospitals close while community hospitals in affluent suburbs remain open, subsidized through their large endowments.  Not that this is anything that Bush, from Athena, supports:

Mr. Bush …brought up another ruthless idea: Patients and families should stop donating money to hospitals. “I don’t care if they name a pavilion after you,” he said. “You’re a murderer if you donate.”

His insinuation presumably being that low-volume hospitals, doing cases that they should’t be doing, are killing patients…

I’m open to hearing ideas about how to close unneeded hospital beds in a way which makes sense.  Pulling off high-margin volume from community hospitals and then letting them duke it out does’t seem like a winning formula from a public policy perspective.  And, few hospitals can keep infrastructure like lab and food service open with dramatically reduced numbers of beds. The key will be reducing beds in areas with geographic redundancy.

One way forward:  can we imagine an orderly “certificate of not-needed” process which incentivizes appropriate geographic coverage though regulation and rate manipulation?

I’m a big fan of healthcare disruption, but hospital closures aren’t fully free-market phenomena. One way or the other, the right-sizing looks to be potentially ugly:

When the nuns or the community hospitals come to Washington to ask for a bailout — because they will, because they will close, because they must — do not let your congressman bail them out,” said Mr. Bush. “It’s going to be very painful for your congressman, because they have tons of jobs and they’re not exactly sure where those people in the hairnets and the smocks are going to go next. And they’re terrified. But they must go somewhere else, because they are hurting their patients, they are shortening their lives, they are dehumanizing and they are making the product too expensive.”


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