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HOUSE RESOLUTION

 
2     WHEREAS, Hospital construction is booming, according to
3 the USA Today news report (January 3, 2006) that the United
4 States is "in the middle of the biggest hospital-construction
5 boom" in more than 50 years, a trend that likely will increase
6 use of "high-tech medicine and add fuel to rising health care
7 costs"; the report indicated that the hospital industry has
8 spent almost $100 billion in inflation-adjusted dollars in the
9 past 5 years on new facilities, a 47% increase from the
10 previous 5 years, with spending likely to reach a record $23.7
11 billion in 2005, according to the Census Bureau; and
 
12     WHEREAS, State and federal authorities have historically
13 expressed alarm about spiraling health care costs and
14 implemented various strategies to contain those costs,
15 including "Certificate of Need" programs aimed at controlling
16 excessive capital expenditures by health care corporations
17 that contribute to higher health facility operating costs; and
 
18     WHEREAS, Concerns about health care inflation caused New
19 York to enact the first "Certificate of Need" law in 1966 in
20 response to health insurers' and business leaders' concerns
21 about an excessive number of hospital beds contributing to
22 increasing costs; and
 
23     WHEREAS, Rising health care costs also prompted the United
24 States Congress to enact the Comprehensive Health Planning Act
25 in 1966, which required the establishment of local and state
26 health planning agencies; states that already had planning
27 agencies were required to expand the scope and authority of
28 these agencies; and
 
29     WHEREAS, Federal authorities began to recognize that the
30 major infusion of federal funds into the existing health care
31 system and payment methodologies of the Medicaid and Medicare

 

 

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1 programs contributed to inflationary increases in the cost of
2 health care; the system provided little incentive for cost
3 reduction; state and federal policy makers believed then that
4 excess facility supply led to increased costs of business, and
5 that those increased costs would be passed on to patients;
6 health planning and strict "Certificate of Need" laws were
7 supposed to constrain supply and therefore control prices; and
 
8     WHEREAS, Policy makers also believed that the tremendous
9 growth in federal health care spending was a major factor that
10 contributed to the poor distribution and utilization of health
11 care facilities; early health planning and "Certificate of
12 Need" laws were supposed to control the geographic distribution
13 of health care and ensure more efficient and full utilization
14 of health care facilities and equipment; and
 
15     WHEREAS, These concerns resulted in the 1972 amendments to
16 the federal Social Security Act that required all states to
17 review health care capital expenditures in excess of $100,000;
18 non-compliance would result in the denial of Medicare and
19 Medicaid reimbursements for capital expenditures; this federal
20 law effectively became the national "Certificate of Need" law;
21 and
 
22     WHEREAS, The U.S. Congress passed the National Health
23 Planning and Resources Development Act in 1974, which directed
24 each state to examine proposed health care facilities and "make
25 findings as to the need for such services"; federal financial
26 participation in the cost of Medicaid and Medicare would be
27 withheld if a state did not comply; and
 
28     WHEREAS, Every state and the District of Columbia enacted
29 "Certificate of Need" laws and regulations to comply with
30 federal law; and
 
31     WHEREAS, The federal government in 1986 reversed course and

 

 

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1 repealed the federal mandatory health planning law; since that
2 time, 14 states repealed their laws; 36 states and the District
3 of Columbia still have "Certificate of Need" laws; and
 
4     WHEREAS, Proponents argue that "Certificate of Need" laws
5 regulate surplus capacity in health care facilities so that
6 there is less duplication of services and lower operating
7 costs; the higher cost of excess capacity is passed on to
8 insurance companies and patients in the form of higher prices;
9 by regulating the supply, surplus will be avoided; and
 
10     WHEREAS, Opponents argue that the law has not controlled
11 costs, improved quality, or increased access to health care; it
12 may block access to health care choices and to modernized
13 health care facilities; opponents also claim that "Certificate
14 of Need" laws constitute over-regulation and are harmful to the
15 economy, and that health care should be subject to the same
16 market forces that determine the quality, availability, and
17 price of other goods and services; and
 
18     WHEREAS, The Federal Trade Commission (FTC) and the
19 Department of Justice (July 2004) reported: (a) that
20 "Certificate of Need" programs pose serious competitive
21 concerns that generally outweigh their benefits; (b) that there
22 is considerable evidence that they can actually drive up prices
23 by fostering anticompetitive barriers to entry; (c) that this
24 process has the effect of shielding incumbent health care
25 providers from new entrants, which can increase health care
26 costs, as supply is depressed below competitive levels; (d)
27 that these programs can retard entry of firms that could
28 provide higher quality services; and (e) that these programs
29 have been ineffective in controlling costs because they do not
30 put a stop to "supposedly unnecessary expenditures" and merely
31 "redirect any such expenditures into other areas"; and
 
32     WHEREAS, The American Health Planning Association refuted

 

 

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1 the FTC criticism of "Certificate of Need" programs, claiming
2 that there is little analytical or factual basis for the
3 criticism or for the recommendation to eliminate them; little
4 evidence is presented to demonstrate that market forces have
5 had, or are likely to have, the positive effects in the health
6 care system; the argument that planning and "Certificate of
7 Need" regulation result in higher costs and prices, inferior
8 quality, reduced access, less innovation, and lower operating
9 efficiency, though repeatedly made, is not supported by
10 demonstrated facts; "Certificate of Need" regulation, with
11 related community-based planning, is one of the few tools that
12 policymakers, health system officials, and ordinary citizens
13 have available for use in trying to compensate for known
14 weaknesses and deficiencies in the existing health care system;
15 these decision-making processes provide a unique forum where
16 all interested parties, and ordinary citizens, can express
17 their views and state their needs; this oversight identifies
18 critical quality, cost, and access concerns that are important
19 to consumers; and
 
20     WHEREAS, The Illinois Health Facilities Planning Act (20
21 ILCS 3960/) became effective in 1974; it created a 13-member
22 Health Facilities Planning Board to review the necessity of
23 capital expenditures for the establishment or modification of
24 health facilities and the procurement of medical equipment;
25 entities subject to the Illinois Health Facilities Planning Act
26 include licensed and state-operated hospitals, long-term care
27 facilities, dialysis centers, ambulatory surgery centers, and
28 alternative health care delivery models; facilities operated
29 by the federal government are exempt; under current law,
30 transactions requiring a permit include any construction or
31 modification by or on behalf of a health care facility
32 exceeding the expenditure minimum ($7,167,063) for projects
33 that result in a substantial increase in a facility's bed
34 capacity, for projects that result in a substantial change in
35 the scope or functional operation of a facility, and for

 

 

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1 projects that establish or discontinue a facility or category
2 of service; in addition, the acquisition of major medical
3 equipment (valued at more than $6,573,026) or health and
4 fitness centers (valued at more than $3,267,766) requires a
5 permit or exemption; and
 
6     WHEREAS, Proposals to repeal Illinois' law have not been
7 enacted, but there has been a substantial reorganization of the
8 Board; proponents have successfully argued that, although the
9 Board has not historically denied many projects, the review
10 process requires applicants to more carefully develop and scale
11 their projects to established criteria and standards of need;
12 many existing hospitals and the communities they serve have
13 generally supported the "Certificate of Need" law, because
14 elimination could jeopardize their economic vitality by a
15 radical proliferation or expansion of unnecessary facilities;
16 and
 
17     WHEREAS, The 93rd General Assembly restructured the Board;
18 Senate Bill 1332 (P.A. 93-0041) was enacted after extensive
19 debate about the history and performance of the Board and in
20 response to proposals for its complete elimination; the new law
21 replaced the 13-member board with an entirely new 9-member
22 board appointed by the Governor with no requirements that they
23 represent particular interests; the law also changed various
24 operating policies and procedures of the Board and established
25 a "Sunset" (repeal date) of July 1, 2008; and
 
26     WHEREAS, A major scandal involving conflicts of interest
27 and criminal indictments of a Board member for "influence
28 peddling, kickbacks, and other corrupt actions" by parties
29 involved in applications subject to review prompted the
30 Governor and General Assembly to reduce the size and makeup of
31 the Board and to impose more strict membership requirements; to
32 prevent conflicts-of-interest, the law now provides that no
33 person can be appointed, or continue to serve as a member of

 

 

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1 the Board, who is, or whose spouse, parent, or child is, a
2 member of the Board of Directors of, has a financial interest
3 in, or has a business relationship with a health care facility;
4 provisions were also added restricting ex parte communications
5 by board members and staff to protect against influence
6 peddling; the 93rd General Assembly enacted House Bill 7307
7 (P.A. 93-889) to restructure the Health Facilities Planning
8 Board again; the membership was reduced to 5 members and all
9 members were completely replaced; the status of the entire
10 "certificate-of-need" law was also going to be subject to
11 reconsideration under a new "Sunset" date of July 1, 2006; this
12 date was set to allow more time for evaluation of the Board's
13 operations, to provide an opportunity for the Board to
14 implement major rule changes intended to streamline and clarify
15 the existing review process, and to develop and report
16 meaningful data regarding its performance and effectiveness;
17 and
 
18     WHEREAS, The 94th General Assembly subsequently enacted
19 Senate Bill 2436 (P.A. 94-983) that extended the "Sunset" date
20 once again to April 1, 2007, so that the status of the Board
21 and the "Certificate of Need" program can be subject to
22 further, and more intensive, evaluation, given the
23 acceleration of health facility capital expenditures, the
24 national trends of such health care regulation, continuing
25 concerns about increasing health care costs, the need for more
26 effective cost containment, and the controversial history of
27 Illinois' current system; therefore, be it
 
28     RESOLVED, BY THE HOUSE OF REPRESENTATIVES OF THE
29 NINETY-FOURTH GENERAL ASSEMBLY OF THE STATE OF ILLINOIS, that
30 the Illinois Commission on Government Forecasting and
31 Accountability shall conduct a comprehensive evaluation of the
32 Illinois Health Facilities Planning Act, including a review of
33 the performance of the Illinois Health Facilities Planning
34 Board, to determine if it is meeting the goals and objectives

 

 

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1 that were originally intended in the enactment of the law and
2 the establishment of the Board, and as the law has been amended
3 and the Board policies and procedures revised since that time,
4 with special consideration for its affect on controlling
5 unnecessary and excessive capital expenditures that may be
6 contributing to health care inflation; the Commission shall
7 determine the criteria, standards, and procedures for this
8 independent evaluation; the Commission must conduct an
9 objective analysis of the impact of the "Certificate of Need"
10 program since its inception 32 years ago; and be it further
 
11     RESOLVED, That the Commission issue a report to the General
12 Assembly of its findings by February 15, 2007, together with
13 any recommendations for change to the Illinois Health
14 Facilities Planning Act and the structure, function, policies,
15 and procedures of the Illinois Health Facilities Planning
16 Board.