NH Governor Speaks Out Against Healthcare Construction

Posted on March 11, 2011

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Becker’s Hospital Review provided a link to a report about New Hampshire Governor John Lynch, who spoke out last month against capital investments in healthcare.  The governor posed some interesting topics for consideration that may come up for discussion in other states.

The crux of his announcement was for a moratorium on hospital expansions. This is disturbing because it is government intervention in the free market. His evidence was projects of $500 million over the past five years, which works out to $100 million a year. New Hampshire is a small state, but a sizable community hospital or a significant patient tower project can push $100 million—for one project.  To me, this does not seem out of line.

Lynch pilloried state hospital administrators, particularly non-profits, for making too much money. Once again, this is government involving itself in free market activity—probably not its most effective role. Capitalism calls for charging what the market will bear and executive pay is incredibly difficult to legislate. Wall Street firms have managed to circumvent calls for CEO pay reductions; even firms that took government bailout money managed to pay out bonuses despite the federal government’s attempts to regulate.

Lynch claimed “we are overbuilding”, which inflates the cost of care, and that a comprehensive review is needed to determine the state’s health care facility needs.  He feels the state’s Insurance and Health and Human Services departments can conduct the study.

I am skeptical of how a report could analyze such complex demographic, population and needs data that influence if a project is required. I trust hospital administrators know their own markets best, so the info these departments would be using would be second-hand at best and without the local knowledge that administrators in each hospital can provide. This report will likely take years. By the time it is complete, its recommendations will be obsolete because the markets will have changed.

Perhaps most troubling is the Governor’s stance that most hospital building projects are “discretionary”. His belief is that these costs are the main reason behind constantly-increasing insurance premiums. Ironically, New Hampshire is a Certificate of Need (CON) state; the government has the ability to support or deny applications for healthcare capital projects, so Gov. Lynch has no one to blame but his own state government. The CON process is already an artificial market regulator. Most of the Governor’s claims can be “fixed” with modifications to the existing CON process.

I feel Governor Lynch is off-base with most of his accusations. Yet, it would be helpful to know the percentage of healthcare costs tied to facility infrastructure. In many Fortune 500 companies the cost of a new plant or campus is an imperceptible blip on the balance sheet because $100 million means little when companies are making billions. Perhaps on the smaller non-profit healthcare scale, a new project might significantly affect cost / fees. Still, hospitals are tethered to federal reimbursables, and those rates are beyond their control.

The public should have some control over municipal bond approval and various costs to the taxpayer to help support healthcare projects.  But once again, these are local and state decisions to invest public money, and are completely within the control of legislators.

Rising healthcare costs are frustrating, and an enigma for government officials at this point. I feel the problems are structural with how care is delivered and how providers are compensated, not related to structures (buildings). As politicians get more desperate to stumble onto a quick fix, it will be interesting to see if capital projects become an easy target to control.

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