City and Lakeland Regional Health officials are bracing for the unknown financial impact of the Florida Legislature’s expected repeal of the Certificate of Need process.
That process, established more than 45 years ago, has protected the market for Lakeland Regional Health Medical Center, ensuring it is the only general hospital in the community.
On Monday, by a 23-17 vote, the Florida Senate passed a bill that would open hospital markets by eliminating the requirement that hospitals justify why new facilities, additional beds and certain services and equipment are needed.
Under the bill, hospitals would have to notify the state’s licensing arm, the Agency for Health Care Administration, about plans to build a new facility or expand but would no longer have to get state approval to proceed. The facilities will still require licenses.
The bill now goes to conference for the differences between the Senate and broader House versions to be ironed out. It is expected the final bill essentially will mirror the Senate version that removes the Certificate of Need (or CON) process for hospitals while abandoning the House’s attempt to also eliminate CONs for nursing homes and hospices.
Local officials fear other hospital systems could move into Lakeland Regional’s traditional territory and cherry pick, providing services with high reimbursement rates from insurers, such as orthopedic services, and ignore expensive programs with low reimbursement, such as emergency mental health care. That would cut into Lakeland Regional Health’s already thin profit margin, impacting how much is available to reinvest in community health care facilities, equipment and services and impede the hospital’s ability to make its quarterly lease payments to the city of Lakeland.
The lease payments, which this year total $14,378,675, go into the city’s general fund to pay for capital improvements, such as routine replacement of fire trucks, playground equipment and upkeep at the police station, building and improving Joker Marchant Stadium and city cemeteries and paying off the debt for the new Fire Station 7, said City Finance Director Michael Brossart.
“It is too early to know what the impact is to the hospital and to the city,” Brossart said.
The CON concept traces back to 1973 and a federal attempt to control inflationary costs of health care by squelching expensive duplication of facilities and equipment. Although the federal government no longer requires CONs, all but 15 states have at least some form of it.
While the CON process has been controversial almost since its inception, over the last several years conservative legislators have been trying to repeal it in Florida, saying opening competition to a free market would lower costs.
However, Lakeland City Manager Tony Delgado said that any financial impact that deregulation has on Lakeland Regional Health Medical Center could impact the hospital’s ability to make its lease payment and ultimately impact the city budget and city services.
“We are concerned,” and not only about the city’s capital improvement fund, Delgado said. “We want our hospital to thrive. It handles health care for everyone, both charity care and for those who pay.”
CON deregulation could impact the type of patients going to the 864-bed Lakeland Regional Health Medical Center if insurance companies filter patients to other hospitals that move into the market and if patients choose to go to smaller hospitals for specific services, he said.
Impact on hospital
“There is no way to do projections” on the financial impact to the hospital, said Elaine Thompson, president and CEO of Lakeland Regional Health System, the nonprofit organization that operates the hospital. “We have to see what other entrants to the market will or will not do,” Thompson said.
“Our biggest concern is new entrants in the market will not have the community commitment that our board does to see there is access for everyone through our safety net programs.”
It is very expensive to run the hospital’s various accredited programs, including the only level II trauma center in the region, a PCI chest pain center accredited to treat acute heart attacks and rehabilitate heart muscles, a comprehensive primary stroke center, high-risk obstetrics services, a level III neonatal intensive care unit to treat the tiniest of babies, and the state’s second accredited electrophysiology laboratory, Thompson said.
In addition to providing expensive programs for complex health issues, Lakeland Regional provides services that have very low reimbursement levels, including a behavioral health program that accepts the most emergency mental health admissions in the county, as well as provides inpatient behavioral health beds for adolescents and for memory disorder patients.
“I don’t know if every new entrant that might come in to the market will be as community oriented, such as will put in a behavioral health program and hire the necessary psychiatrists,” Thompson said.
The hospital has been exploring expanding its behavioral health facilities and still hopes to do so; however, the decision on when to do that will be delayed to see what impact the CON repeal has on hospital finances, she said.
“Our board said we will provide all services, not just the profitable ones,” Thompson said. “This board is firm on its commitment that we will provide to this community those important services. However, this CON change could make the need for community support greater.”
Such support would include continued use of Lakeland Regional by insured patients with the means to pay, as well as charity patients, she said. And the hospital will rely on the donor community to “continue to support the not-for-profit essentials that make sure we can offer tertiary services for all our community.”
Throughout the legislative session that ends Friday, “Most hospitals across Florida had individuals in Tallahassee to speak to the members of their legislative delegations,” said Michael Spake, a lawyer who is Lakeland Regional Health’s vice president of external affairs and chief compliance and integrity officer.
“We spoke with the Polk County delegation and worked with Baycare to be as consistent as possible with our messaging,” Spake said. The 15-hospital nonprofit Baycare Health System owns the hosiptals in Bartow, Winter Haven and Plant City, the nearest hospitals to Lakeland.
In the end, the vote to repeal hospital CONs was mostly along party lines, with the Republican party members voting in favor of repeal and the Democrats voting against it.
The Florida Hospital Association lobbied against the repeal. The association includes not-for-profit hospitals, public hospitals and some for-profit hospitals, although not the major national chains that have a presence in Florida, such as Hospital Corporation of America, Tenet and Community Health Systems, said Monica Corbett, senior vice president of the association.
Corbett forwarded a statement from Florida Hospital Association President Bruce Rueben that said in part: “New hospitals may be built more quickly without CON. It is unlikely they will be built in areas where there are high numbers of low income and uninsured Floridians. CON was never a mechanism designed to lower health care costs. Payment reform is the only way to effectively drive higher quality and affordable cost. We look forward to working with others to achieve responsible payment reforms that improve access, reduce cost and promote quality hospital services in the state of Florida.”
Even before the repeal of the CON process, both nonprofit and for-profit health care systems have been rapidly encroaching into one another’s traditional territories by erecting free-standing emergency departments, which do not require CONs.
While the free-standing 24/7 facilities provide full emergency services staffed with emergency medicine physicians, nurses and technicians, they do not have the other specialty care available at a full hospital, do not provide expensive trauma care and must transfer patients who need hospitalization.
In Lakeland, the for-profit national chain Hospital Corporation of America has plans on South Florida Avenue for a free-standing emergency department. And on the eastern edge of the city limits, near Florida Polytechnic University, the nonprofit Adventist Health System has purchased a large tract with plans to first open a free-standing emergency department and eventually open a general hospital.
City budget impact
During a Lakeland City Commission strategic planning retreat on April 17, Commissioner Scott Franklin asked finance director Brossart to look into possible impacts to the city’s revenue stream if the hospital is unable to make some or even all of its $14.4 million lease payment.
“We have seen Elaine (Thompson’s) presentations on how razor-thin hospital margins are,” Franklin said. “What if we do not receive any money from the lease payment, no dividend. If that money goes away, it could be a game changer for us.”
A look at the capital improvements portion of the city budget shows that the Lakeland Regional Health lease makes up 10 percent of the revenue this year. And projecting out for the next decade, city financial planners are expecting it to provide an even bigger chunk of revenue – 13.9 percent.
The lease agreement, which currently runs through 2040, anticipates a 2.75 percent increase in revenue annually, Brossart said.
Thompson said LRH and the city “have been in dialogue all year because of the striking degree of state cuts to the Medicaid program,” which pays for medical care for low-income, disabled and elderly adults and for children from low- income families. “Over the last five years, the rates have been lowered so we are seeing $20 million a year less in reimbursement for low-income patients while we are seeing the same number of patients.”
The potential threat of deregulation and its impact on hospital revenue is further complicating the discussions, Thompson said.
Over the years, Florida has repealed various requirements for CONs. In 2007 it repealed the CON process for adult cardiac catheterization and open-heart surgery services.
According to a legislative analysis, opening cardiac services to the free market led to more than doubling the Level I services that do not require onsite cardiac surgery (from 25 to 61 licensees), but only a marginal increase level II services including those that provide more expensive onsite cardiac surgery (from 73 to 81 licensees).
The analysis pointed out that some studies have found that CON programs “do not meet the goal of limiting costs in health care.” And a literature review conducted in 2004 by the Federal Trade Commission and the Department of Justice concluded that “on balance, CON programs are not successful in containing health care costs, and that they pose serious anti-competitive risks that usually outweigh their purported economic benefit.”
The analysis also said studies are split on whether CON regulations has improved access to care for the underinsured and uninsured population.
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