Critical Condition

By Jeremy Harrell

Wisconsin state government doesn't have the most sparkling track record when it comes to regulating hospital spending and construction projects.

Twenty years ago, lawmakers established the Hospital Rate-Setting Commission to determine a hospital's appropriate expenditures, including how much it spends on building new facilities. And 25 years ago, legislators created a certificate-of-need program intended to weed out proposed building projects that would drive up rates for patients.

Both programs failed. In fact, lawmakers were so dissatisfied with both programs that they killed them off before they were scheduled to die.

State Rep. DuWayne Johnsrud, R-Eastman, was a member of the Legislature in the 1980s, and he helped to both create and eliminate the Rate-Setting Commission.

His evident exasperation is typical. "It seemed like the rates went up anyway. It got so bureaucratic and arbitrary. It was one of those things that out of sheer frustration people threw up their hands and got rid of it."

Mark Moody, who served as the Rate-Setting Commission's chief of staff, said the program was created at a time when inflation was sending the prices of everything skyward. "It was a last gasp, or twilight, of attempts to control health-care costs. The Rate-Setting Commission was brought in on the assumption that the market wasn't working."

Meriter Hospital in Madison

What the Rate-Setting Commission learned, however, was that "it's pretty much impossible to argue with hospitals about their costs," given the wide range of services and products each hospital provides and because prices vary greatly from hospital to hospital, said Moody, who now is the administrator of the Division of Health Care Financing in the State Department of Health and Family Services. In other words, government was trying to assume the role of the marketplace, and it wasn't very effective. "The problem you have when you try to do that is the whole process becomes political, whereas the market can make it more impersonal."

The certificate-of-need program, as well as its successor, the Cost Containment Commission, fared no better. According to the Wisconsin Hospital Association, every proposal that went through the certificate-of-need process ended up getting approval. But the months of delay, as well as the hiring of legal and accounting specialists to smooth a project's path, only served to drive up the costs of the project.

There are stories of an unnamed lawyer who bought a cottage in northern Wisconsin solely on the revenue he earned representing clients seeking certificates of need.

Get legislative proposals to implement some form of state control keep coming up. Though just about everyone can agree that health-care costs are exorbitant, measures and state budget amendments inevitably die a relatively quiet death before making it out of committee, if they even make it that far.

As long as the state wants to get involved in the process, it will remain inherently political, and some legislators have learned that's a recipe for disaster, said Steve Brenton, president of the Wisconsin Hospital Association. As an example, he pointed to a 2002 proposal pushed by state Sen. Russell Decker, D-Schofield, to ban all hospital construction projects in Wisconsin.

St. Marys Hospital in Madison

Within weeks of introducing the measure, Decker allowed a loophole to exempt Racine County from the moratorium. It just so happened that a colleague of Decker's, former Sen. Kim Plache, D-Racine, was facing an uphill fight for re-election that fall, a race she ultimately lost. The moratorium proposal didn't succeed either.

"That's just scratching the surface of how political it can get," Brenton said. "Even though there are a handful of legislators who want to bring back some form of regulation, they're a minority and there's little appetite for it. We're in an era where folks are extremely sensitive about rising health-care costs, and if there was a time when it would have credibility, it would be now. But it has little credibility."

Whether it's the Rate-Setting Commission or certificate of need, state regulation forces a hospital to run through a bureaucratic meat-grinder. Recalling his days as a Hospital Association lobbyist during the 1980s, Brenton said the commission failed because it was a clear example of a "Madison-knows-best" philosophy. Deci-sions on hospital spending and expansions should be left to local authorities, not to "24-year-old kids in Madison" who served as the staff of the commission, which the Legislature endowed with a $1 million annual operating budget, he said.

It's true the bureaucratic cost of state control made the process prohibitive, but there were other reasons the programs didn't work. Jim Friedman, a partner with the Milwaukee law firm of Quarles & Brady, represented a few hospital clients as they sought certificates of need 20 years ago. One reason projects tended to earn ap-proval is because only those hospitals sure of success would apply. "Some people thought the expenses of fighting the fight would be too much. People who actually went through the process were usually confident."

Those who didn't want to entangle themselves in seeking state approval would find other means to build their projects, Friedman said. For instance, it wasn't unusual to avoid the certificate of need by having someone else construct the project and then have the hospital take it over through a lease agreement. A lease, Friedman pointed out, probably ended up costing the hospital more than building the project itself. "It's always going to be a piecemeal approach. On the face of it, it's competitive restriction sold under the guise of helping the consumer save money. And it doesn't."

And then there are cold, hard facts. A 1987 Federal Trade Commission study on certificate-of-need laws, conducted when the programs were prevalent around the country, tidily summed up the problem: "There is no evidence that CON laws have resulted in the resource savings they were purportedly designed to promote." In fact, the study concluded, hospital costs rose 4 percent in states after they instituted certificate-of-need requirements.

For the construction industry, there remains a paradox, best exemplified in January when the members of the Carpenters union went to Madison for a legislative conference. Union members peppered state legislators with questions about why health costs are skyrocketing and urged them to find some kind of solution. State Rep. Jon Richards, D-Milwaukee, a friend to labor, suggested that one reason costs are on the rise was because the crowd he was talking to was building so many hospitals, particularly the specialized "boutique" hospitals that siphon off the most profitable procedures and leave general service hospitals in a financial lurch.

At the same time, however, health care has been just about the only market sector that's shown any buoyancy, keeping construction afloat during sober economic times. It's also one of the few markets that appears poised for growth. The construction industry has joined a chorus with hospitals to beat back state regulatory measures, making persuasive arguments that building is a negligible factor in the health-care debate.

The industry's paradox isn't the only one. As long as lawmakers feel obliged to correct the problem of rising health-care costs, even failed measures will see some form of life. Just ask Johnsrud, who's written a new bill with Decker to have the state Health Department review construction projects for need, arguing that even a flawed process is better than no process at all.

"It's a glorious hog trough we're all feeding in," he said. "It won't be pure as long as we have a system like we do. Politics will always enter into it. But there's no process for the public to take part in. We don't have a process for you or me to say, 'Hell, no!'"