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.theoakla
ndpress.com/stories/032405/loc_20050324011.shtml,
accessed August 25, 2005.
2
Beds in the Wrong Places

• Like many metropolitan areas, metropolitan
  Detroits 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 Detroits 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
  Detroits 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 .
• Michigans 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.

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