Health Planning in Fort Wayne - The Six Million Dollar Fizzle

by Joe Hochderffer

Federal health planning has cost our community more than six million dollars in inflated construction costs, a two-year denial of needed hospital facilities and a confused, divided citizenry .

This year, the Northern Indiana Health Systems Agency, a creature of Public Law 93-641, the health planning law, expects to become one of the nation’s first HSAs to receive "full designation" as a health planning agency by the department of Health Education and Welfare (HEW).

The Fort Wayne story began shortly after federal health planning became the law of the land. This was the result of a 1971 law, P. L. 92-603, which created Health Planning Councils. P. L. 92-603 was passed to correct the blunders of a previous Congress which, in 1965, created Medicare and Medicaid.

In the summer of 1973, Fort Wayne was a placid community of 170,000 people earning higher than average incomes and was served by six shopping centers, five McDonald’s, two Holiday Inns and three general community hospitals. Not one in a thousand residents was aware that his tax dollars supported the newly formed Health Planning Council (HPC), staffed by a handful of planners and secretaries whose paychecks came circuitously from HEW.

The health planners were making speeches about the plan they were going to create for our nine-county Health Planning Area when, suddenly, two separate groups of physicians presented them with proposals to build additional hospitals in Fort Wayne. The need for additional facilities was well known to a community accustomed to overflowing hospitals.

Federal procedure called for the planners to consider whether or not a proposal fit the overall community health plan. And there was no such plan. So the planners determined within a few weeks that Fort Wayne needed 156 medical-surgical beds.

Health Planning Council, which by law must be composed of more health care "consumers" than "providers," started a series of deliberations. After weeks of testimony and hearings, the consumer-dominated body approved one proposal and forwarded it to the State Board of Health for final action. The other they sent to the State Board of Health without recommendation. Thus a local controversy was transferred to the State Board of Health for resolution.

The state board dug out its guidelines and discovered that any proposal it approved must conform to a state plan, which was a creature of the Hill-Button Act. Under the state plan, Fort Wayne was allotted three hospitals-and they already existed.

"What about those three hospitals?" the state board asked. "Did they plan to do anything about the hospital bed shortage in Fort Wayne?"

As a matter of fact, they did.

Head Start

Each hospital had expansion plans on the drawing boards when the health planning legislation was passed. Being more familiar with the law than others (because they had to be), the hospitals had been waiting for the HPC to develop its master plan before submitting expansion proposals.

Now the State Board of Health asked the hospitals if they could add 156 beds more economically than could the backers of new hospitals.

Yes, they could.

The reason was simple: New hospitals had to build laboratories, X-ray departments, kitchens, pharmacies, and laundries to serve their beds; existing hospitals already had such ancillary services and needed only to utilize them more fully or enlarge them.

During the next several months as the local HPC again went through a long series of meetings to consider plans of the existing hospitals, promoters of new hospitals debated board members and administrators of existing hospitals. And the public got a picture of three giant hospitals conspiring to gain a monopoly and to strangle any attempt to build a fourth hospital in Fort Wayne.

The public still had the idea that we were under the free enterprise system. They believed that if a group of people wanted to build a hospital, and had the wherewithal to do it, they should be able to.

The public was not aware that when it turned the hospital care of its senior citizens over to Medicare, free enterprise went out the window. If you do not get HPC approval of your capital outlays, the law states, you cannot count those expenditures as legitimate costs when the government reimburses you for Medicare/Medicaid patients.

So existing hospitals and backers of new ones were forced to seek HPC approval for new facilities. Since there was a magic quota fixed by master planners on the number of beds needed, existing hospitals could win only at the expense of new hospitals, and new hospitals could win only if old hospitals were denied expansion plans. What was in reality a battle of "hospitals versus federal quotas" appeared to be "hospitals versus hospitals."

When the smoke cleared six months later, existing hospitals were allowed to expand. They could add new beds more economically than a new hospital could build them.

But that was not the stated reason for the decision. The stated reason was that the state plan called for only three hospitals in Fort Wayne and therefore a fourth one could not be built. This seemed ridiculous to a public that had no previous knowledge of health planning laws and regulations.

There followed two years of lawsuits by new hospital backers, during which time existing hospitals were enjoined from carrying out expansion plans. And inflation hurried on, unrestrained.

The appeals process was not exhausted until late 1976, when the fourth hospital backers had clearly lost. Nobody in Fort Wayne felt good about the whole matter. I work for one of the existing hospitals, the alleged winners, and there’s a dirty taste in my mouth.

True, our present three hospitals can build and operate new beds more economically than could a new hospital. But the federal planning process created a divided medical staff at our hospital, caused bitter animosities within the community, wasted thousands of hours and millions of dollars, and after four years has not yet produced a single new hospital bed in Fort Wayne.

That was all under the old planning law, 92-603. Now we have a new law, P. L. 93-641, that is much more restrictive.

It mandates "consumer" domination of HSA boards. On the surface this is not much different from P. L. 92-603. That law required "consumers" to compose at least 51 percent of planning boards; "providers" of health care (doctors, dentists, nurses, hospital administrators) composed the remaining 49 percent. A "provider" was defined as anyone who derived a major portion of his income from providing health services. The new law is different. It broadens the definition of "provider" to include anyone who has even remote connections with a medical institution. Hospital board members, for example, who usually serve without pay and who derive their income from other sources, are classified as "providers." People who sell health insurance are "providers." Thus the effect of the new law is to insure domination on planning agency boards of persons wholly ignorant of medical care. In practice, these people become dependent upon the professional planners employed by HEW to guide them in the decision-making process.

The new law further removes the power base from the local community. P. L. 92-603 had shifted the planning base from the community to a multi-county district. P. L. 93-641 eliminates these small districts and creates large ones. Our HSA covers one-third of Indiana, from the Chicago suburbs to the farmlands of northeastern Indiana.

P. L. 93-641 mandates planning. No hospital (or any other business) ever survived without planning, so what’s new? Now the planning must meet the approval of HEW bureaucrats.

The new law eventually substitutes federal power for state power. Under previous laws, final decision-making was done by state boards of health. Under P. L. 93-641, as soon as the HSA receives "full designation," it becomes the final authority.

Ours was one of the three Fort Wayne hospitals asked to submit plans and cost estimates for adding beds back when the Health Planning Council was considering applications for new hospitals in the city. On our drawing boards at that time (1973) was a large project to expand certain service departments, such as X-ray, laboratory, and dietary, which our hospital had outgrown. We were also considering additional beds, but those plans were not as well-developed nor was the need so pressing as that of the ancillary department expansion.

In its 20-year history, our hospital had grown from 250 beds to a 600-bed regional referral center. We were one of the most successful and financially sound hospitals in the nation. We had consistently operated at high occupancy (over 90 percent), had engaged in six expansion projects and paid for them without incurring major debt, and were charging our patients $l0 a day below the state average and $30 a day under national averages. In American Hospital Association records we could find no hospital in our class operating so inexpensively as we were.

In 1970 we had added 56 beds and paid for them out of operations. In 1973 we needed to expand ancillary departments to handle the increased capacity, as well as the burgeoning growth of outpatient business.

When the planners asked us how much it would cost to add new beds, we had to speed up the planning process for beds and delay the ancillary expansion plans. We asked if we should submit both proposals at once, because our most pressing need was for ancillary services, not bed expansion.

No, said the planners, that would cloud the issue. Just tell us how much the beds would cost.

Okay, we said, but we can’t add beds without expanding service departments. The new beds will mean that we must enlarge our ancillary areas slightly more than our existing plans call for. How will we show that in our proposal for new beds?

Just take a percentage of your ancillary expansion needs and tack that onto your bed proposal, said the planners.

So we did. It was backwards planning as far as we were concerned, but we did it the way the planners told us.

Our bed proposal was approved, including the percentages of upcoming ancillary expansion, plans which had not yet been submitted. Then followed the two years of lawsuits and injunctions, during which me we had undersized service departments to accommodate growing numbers of patients. We could not proceed with ancillary expansion, because the size of that expansion depended on whether or nor we received final approval for the new beds.

During the waiting period, P. L. 93-641 replaced P. L. 92-603 as the federal health planning law. Old health planning boards were replaced with large new ones. New bureaucrats moved into the wealth of new federal jobs created. And when the court decision finally freed us to add the beds, we faced a new agency with a new set of rules in trying to get approval for ancillary expansion.

We brought our ancillary expansion proposal before them.

Our hospital, with its one part-time planner (me), faced a new agency with a staff of 25 planners.

"How many meals do you produce per square foot?" they asked. Why is the volume of X-rays performed so much higher on the day shift than on the night shift? Can you fully document the need for 2750 more square feet of surgery? Why not 1,375 square feet?"

Thus began a six-month ordeal to try to get facilities to serve patients who had been denied them too long.

What evolved was an 80-page application plus a 40-page financial feasibility study conducted by independent auditors. The fourth draft of this document was accepted as adequate.

Following federal guidelines to the letter, we met with the HSA staff a given number of days before the board hearing was to be held. They informed us that the staff would recommend our project be rejected.

Why? we asked.

Because it does not meet federal mandates to contain costs, they replied.

But, we protested, our hospital has the best cost record in the country. It would seem that you would want to encourage operations such as ours.

True, they said, you have a good cost record. But we have no assurance that it will continue.

During the next hour our board members and administration made almost no impression on the HSA staff. So we decided to take our case to their board anyway.

Our presentation before the board convinced them that our project was deserving and financially feasible. We were able to demonstrate that, even with proposed expansion, our square footages were below the ranges the planners had used. Even with construction and financing costs added, our rates would still be far under state and national averages.

The board went against its own staff and approved us.

But, we were to discover, the fight had just begun.

The group that endorsed our project was known as a "sub-area council." The next step was to get approval before the executive committee of the Northern Indiana Health Systems Agency. This was a small committee, most of whose members lived more than a hundred miles from our community and whose allegiance to the professional planners was unmistakable.

The hearing was held 70 miles from home. The procedure allowed no presentation on our part. We were permitted to answer questions, but nothing else. It took less than 10 minutes for them to dispose of us. Our proposal was rejected.

We had one more chance.

At this point the HSA had only "recommending" authority. The initial decision still rested with the State Board of Health. Our alternatives were either to take our application to the State Board of Health - with one "approval" and one "disapproval" on our record - or withdraw it, as the planners hinted we should do, and revise it.

Our inclination was to go to the State Board. These were reasonable people who were familiar with our hospital. Surely we could get fair shake.

But the federal procedure stated that if an applicant is turned down by the state agency, it cannot submit the proposal again for three years. Our patients had already waited three years, should we gamble?

Through unofficial channels we tried to get a feel as to how the State Board of Health viewed our proposal. What we learned was frightening.

The State Board was intimidated. Much of the State Health Department’s funding comes from federal sources. And the word was that if the state didn’t go along with the federal recommendations, there would be serious questions raised about federal funding in other areas of operations.

We learned (unofficially) that our project didn’t stand a chance.

So we withdrew it, as the planners had suggested. Our next step was to meet with them and learn the surrender terms.

In a two-hour conference with the top HSA officials, we asked what it was in our application that should be reduced or eliminated. Should we, for example, scale down the dietary department or surgery or what?

The director merely looked over our heads at the light fixtures. We were patiently reminded of federal concern over medical costs and gently scolded for not being more cooperative with the planning staff. After a series of hints and innuendoes, we finally got the picture.

"Cut at least 10 percent from the costs. We don’t care where or how you do it. Just cut the dollars."

On the surface this sounds reasonable. Federal planners insisting that those inefficient, gouge-the-public hospitals reduce their expenditures Who could quarrel with that?

But our hospital was not inefficient. Its cost record was documented and known. It had demonstrated at the public hearing that if it were to become "average" (and thus fit all the planners’ guidelines), it would spend an extra $8 million in operating costs in two years, nearly enough to finance the proposed building project.

We had learned our lesson, however. The federal planners now called the tune. No longer did our hospital board determine the institution’s destiny. What counted was how close the hospital could come to the "averages" used in planners’ reference guides.

The purpose of the average is, presumably, to bring below-average hospitals up to par. The effect is also to bring above-average hospitals, such as ours, down to par.

In order to get the needed facilities, we played the game.

The cuts made in our project were designed to please the planners, not to make good economic or operational sense. The planners, in effect, wrote our new application for us. We ground out more reams of data-laboratory procedures per square foot, man hours per meal, ad infinitum. It was the same material we’ve done before, only turned upside down to please the bureaucrats.

The HSA staff approved us this time. The sub-area council okayed this ( for a second time) and the executive committee gave us unanimous approval. Now we can build; we’ve paid the ransom.

In the spring of 1977, we broke ground on a project that, without the federal planning laws, would have been started in 1974. Construction costs had been escalating at one percent per month all that time. We’l1 have to build these inflated costs into our charge structure. (And guess whom the public will blame?)

Today in Fort Wayne, $27 million in construction is underway by three hospitals. If hospital boards (much more local in composition and with a greater ratio of consumers than the HSA boards) had determined the construction starts, rather than governmental agencies, more than $6 million could have been saved.

Many Fort Wayne citizens still believe that the three existing hospitals kept a fourth hospital from opening in their community. That the public itself allowed federal intervention, through Medicare and health planning laws, to stifle free enterprise, they do not believe.

In the rest of the nation, HSAs are not yet in full operation. But the mandate is clear. The federal planners will absolutely control hospital development. They will not save money, they will waste it.

They will achieve only one thing: control. And that’s what they’re after.

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Mr Hochderffer, a hospital administrator in Indiana, wrote this article for the August 1977 issue of Private Practice. It was reprinted by permission in the December 1977 issue The Freeman. It is used with permission.