News from the Tennessee Valley Business

How should number of hospital beds be decided?

State and local governments have invested enormous time and resources into deciding when area health-care facilities can add beds, but some wonder if the free market could do the job better.

The highest profile governmental involvement in the issue of hospital beds has dragged Athens-Limestone Hospital into a battle between Huntsville Hospital and Crestwood Medical Center. At issue is Crestwood’s application for a certificate of need that would allow it to build a 60-bed hospital in Madison.

The silent question that runs through such proceedings: If a health-care facility believes there is sufficient demand for additional beds, why should the state — and taxpayer money — be involved in approving it?

The issue is not an idle one. The baby boomers are coming, and the state will have its hands full trying to predict when their aging bodies will begin streaming into nursing homes and hospitals. According to the Alabama Center for Business and Economic Research, the state had 609,000 residents age 65 and over in 2005. That number will jump to 757,000 by 2015.

Dr. Michael Morissey is a professor of health-care organization and policy administration at The University of Alabama in Birmingham’s Lister Hill Center for Health Policy. He said 24 states have abandoned the certificate of need system — the federal government stopped mandating it in 1986 — and this is a good time for Alabama to do the same. The market is better at determining demand than governmental agencies, he said, and it does so more efficiently.

Political clout to blame

Morissey said the main reason that the state has not abandoned the certificate of need process is the political clout of those who have already made it through the process. They do not want competition from those who have not.

Rick Harris, director of the state Bureau of Health Provider Standards, said vested interests make it difficult to change the system, if indeed it needs changing.

“Once you put together a big infrastructure, like we have with nursing homes and our Medicaid system, people have gone out and made pretty major business investments based on that infrastructure being in place,” Harris said.

Medicaid reimbursement rules have a lot to do with the need for state control over the number of nursing home beds, said Jim Sanders, deputy director of the state Health Planning and Development Agency. This is the case because Medicaid pays an amount that incorporates a nursing home’s fixed costs. If the state’s nursing homes were at 50-percent capacity, the state’s Medicaid costs would be much higher than having fewer facilities at 95 percent occupancy.

There is now a moratorium on nursing home construction in Alabama, and the Medicaid reimbursement formula is why.

Contact Eric Fleischauer at

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