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To Group Members:

My latest article is enclosed for your use.
I appreciate any comments or criticisms.

Thank you
Stephen Miles Sacks


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MARKET PENETRATION TRUMPS EDIFICE COMPLEX -
POSTMODERN MEDICINE AND SYSTEM RESTRUCTURING
MAKE CERTIFICATE OF NEED LICENSING OF
HEALTH FACILITIES PASSÉ

(Article length: 1200 words)

©1996, Stephen Miles Sacks, PhD,
National Policy Research
PO Box 381, Ardmore, PA 19003, USA
Telephone and Fax: 610-658-2332
E-mail: [log in to unmask]

Permission to reproduce this article in part or in whole is freely granted
provided the author’s copyright notice is included.

      On December 19, 1996, the legal authority for Pennsylvania’s
Certificate of Need licensing expired. "Good riddance" to an outmoded
approach. Now the entire health system in the Region can undergo a much
needed restructuring through market forces. Facilities licensing approaches
are passé and counter-productive to the ideal of providing high quality
health care to all economic groupings. For the emerging health systems and
new technologies are better suited to dynamic service delivery methods -
featuring early diagnosis, rapid introduction of new kinds of treatment,
health education, rehabilitation, and preventive medicine.

      The rationale of the certificate of need approach is the large dollar
value of rejected applications for duplicate expensive facilities in the
same locale - on the scale of hundreds of millions of dollars in Pennsylvania
alone in recent years. However in actual practice, the long-term effect in
containing costs has been only fair to poor and because the license approach
limits productivity and protects the market for those who al-ready have it
and keeps innovative and more efficient newcomers from the scene.

      New medical methods are well-suited to dispersal to hosts of smaller
units in outlying communities. The developments are ideally suited to meet
the needs of the Region’s middle income population groupings that are
continually migrating from the dense urban areas - where most of the large
research medical schools and service centers are located. The ridiculous
irony is that the patients’ who are the most reluctant to travel from the
hinterlands to urban facilities such as Temple University’s Hospital in North
Philadelphia or the University of Pennsylvania’s Hospital in West
Philadelphia are by their actions sayings "I would rather die first." Yet,
the best health and medical services should be made available to everyone
without regard to locale or income grouping.

      The new markets extend to the hinterlands beyond the suburbs. And in
order to penetrate them, every one of the six existing medical research and
medical schools in Philadelphia is acquiring community hospitals and medical
offices in the areas. The acquisition and merger boom is unparalleled since
the hospitals construction and bond financing booms of the 1970’s. The
"edifice complex" is  trumped by market penetration. All six of
Philadelphia’s medical schools have formed their own health systems to market
health insurance as well as to compete against each other and against the
expanding power of the major health insurance managed care organizations -
such as US Healthcare/Aetna and Independence Blue Cross. That is a good thing
because the stand-alone health insurance and managed care organizations are a
bane to progress. They just add a hefty fat layer of administration and high
paying executive salaries to the health bill.

      Having competition among provider centered health systems makes much
more sense for the sake of quality as well as for containing costs. So it is
that the rivalry among the medical schools and managed care organizations is
fierce. The University of Pennsylvania (Penn) and Temple University Health
Systems are being challenged by the Allegheny University Health System - a
newcomer from Pittsburgh to the Philadelphia area. In addition to several
hospitals, the Allegheny System also acquired two medical schools in
Philadelphia, namely, the Hahneman University and the Medical College of
Pennsylvania (the latter includes the Eastern Pennsylvania Psychiatric
Hos-pital that was formerly the Commonwealth of Pennsylvania’s citadel of
psychiatric re-search and training. Also, the Pennsylvania College of
Osteopathic Medicine was acquired by the Graduate (Hospital) Health System,
while the Jefferson University Medical School and Hospital has not yet
publicly announced its merger intentions. Still, there is the threat of
outside medical institutions coming to the Philadelphia Region to penetrate
the market such as the Hershey Medical Center, Sloan-Kettering from New York
and Johns Hopkins from Baltimore.

      Biomedical breakthroughs in genetic identification of causes of
diseases and physical disabilities as well as the development of vaccines and
ways to regenerate tissue and nerves are just beginning to provide the
promise of new thresholds of health and quality of life. There is no
certificate of need that can accurately direct where or in what form the new
breakthroughs will emerge, and having certificate of need licensing can only
retard the breakthroughs to longer life. Since biomedical advances are very
costly and carry intellectual property rights, the market-place and investors
are the best determiner of who and what organizations become the foremost
health care providers in the future. Where market failure exists, public
administration should to contract for designated services to fill the gap.
And overcoming market failure is a role that can be efficiently done through
public payments to the medical school research centers and their health
systems, for they are the most knowledgeable of the needs of patients they
serve.

      Further, the burden for paying for the costs of upgrading existing
facilities and building new ones as well as the costs of all the modern
electronic and mechanical equipment and furniture should be borne by the
general tax base and not the patients’ medical bills. Public financing for
health/medical facility modernization does not have to be direct but can be
done by public guarantees of loans through private lending in-stitutions or
bonds floated in the market place.

      Special trust funds for research and technological modernization should
be established by public and private sources. In such a system, the costs of
securing capital, conducting research, and professional training is not be
recovered through patients’ fees for service. Such expenses greatly in-flate
the costs of care and cause patients to bear the burden at the time when the
burden the pay them is the greatest. Similarly, the costs of research and
training should be re-moved from patients’ fees and funded separately.

      The financing of major capital investments, research and training
should come from the combination of many sources, including: the general tax
base, public and private foundations, and proceeds from civil lawsuits
against firms whose products cause health problems or environmental damage.
 Also, the costs of providing services to those who do not have health
insurance and cannot pay their medical bills should be borne by the general
tax base and not patients’ fees.

      Finally, the common practice of blaming health and medical providers
for escalating costs for giving the public what it demands is illogical and
irrational. Public criticisms that America’s health and medical care bill is
heading upwards of 20 percent of the gross domestic product is a
counter-productive argument. Instead consider the prospect of having upwards
of 40 percent of a nation’s economic activities for promot-ing health and the
quality of life. Such a degree can greatly spur the domestic economy because
it drives upward in a multiplier effect the entire range of economic
activities throughout the nation among the multiplicity of suppliers and
support service organizations. Longer life through postmodern medicine can
thus become America's new basic industry, the keystone of the domestic
economy, creating better paying skilled jobs for the multitudes. I for one
think it is a desirable goal.      ###

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Biographical Note:
      Dr. Sacks has been one of Pennsylvania’s top health systems planners
and strategists. During the 1970’s in duly appointed positions in the
Governor’s Office, the Department of Public Welfare, the House of
Representatives, and the Attorney General. He researched and published
several seminal studies of hospital costs, organized state-wide cost
containment programs, and authored land-mark state regulatory and planning
legislation for health care. - Author of numerous bills and legislation in
health and welfare including professional licensing acts. He advocated the
maintenance of the regional Health Systems Agency to be the sole body for
Philadelphia region’s health planning and certificate of need deliberations.
And he has spoken widely on the subjects and took numerous administrative as
well as legal actions to ensure the viability of the Health Systems Agency
(HSA). During the 1990’s he intervened with the Clinton Administration to
reverse its decision to move the US Department of Human Service’s (HHS)
Regional Office from Philadelphia to Baltimore that would have left
Philadelphia’s key health and medical establishment without a high ranking
local HHS officials.

His positions included:
° Manager of the Governor's Comprehensive Health Care Program, Executive
Office of the Governor.
° Consultant to the Attorney General for Health, Environmental, & Science
Policies
° Assistant to the Speaker of the House of Representatives, authored health
and welfare legislation
° Counsel to the Committees on Health and Welfare and Consumer Protection,
House of Representatives
° Director, Pennsylvania Hospital Cost Project
° Senior Program Consultant for Mental Health, Eastern Pennsylvania
Psychiatric Institute
° Supervisor of Social Services
° Assistant Director of Medicare Audits, Blue Cross fiscal intermediary in
Southeastern Pennsylvania covering virtually all the major and teaching
hospitals and nursing homes

Dr. Sacks earned his BS, MPA and PhD degrees at Temple University. He taught
political science, small business management, and intellectual heritage at
Temple and he was formerly the Director of Temple’s Small Business
Development Center and Entrepreneurship Institute. He is presently a science
and technology programs consultant and resides in Ardmore, Pennsylvania. ###

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