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State tries to slow medical expansion

Proposals will face tougher scrutiny

By Robert Weisman and Liz Kowalczyk
Globe Staff / June 4, 2010

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Patrick administration officials, seeking to pressure hospitals as well as insurers to rein in costs, say they will more closely scrutinize plans for new medical buildings and technologies to determine how they might affect the cost of health care in Massachusetts.

The move is intended to halt what some call an escalating “medical arms race,’’ in which Boston teaching hospitals vie with suburban hospitals to establish new outpatient care centers and buy expensive imaging and detection equipment that can draw hefty reimbursements from Medicare and private insurers.

“We’re going to be paying more attention to the financial implications of these expansions and their impact on costs,’’ said Dr. JudyAnn Bigby, the state’s secretary of health and human services. “This is not something that will bring down health care costs tomorrow. But it could curtail the rate at which costs are increasing.’’

A more rigorous examination could affect the “determination of need’’ applications filed with the Department of Public Health when health care providers propose to open or expand buildings, add medical equipment, or change ownership — all of which require state approval.

Two of the largest projects under review have been proposed by Children’s Hospital Boston and Partners HealthCare, which are among the state’s most powerful and best-paid providers.

Children’s Hospital filed an application in February to build a $125 million, 10-story inpatient center next to its main building in Boston’s Longwood Medical Area. The primary purpose of the project is to expand the emergency room, add surgery recovery beds, and increase the capacity of the imaging department.

Partners in January proposed a complete $225 million replacement of Spaulding Rehabilitation Hospital, relocating it from Nashua Street in Boston to the Charlestown Navy Yard. The project would significantly increase the size of the hospital and provide water access to patients for canoeing, kayaking, and windsurfing.

More robust reviews by the state could also affect Caritas Christi Health Care, the Boston-based Catholic hospital chain that has filed determination of need applications for each of its six hospitals. The filings are part of its campaign to gain state approval to be purchased by Cerberus Capital Management, a New York private equity firm, which wants to run the hospitals as for-profit operations.

Plans for the enhanced reviews were disclosed in a letter sent by Bigby and state Housing and Economic Development Secretary Gregory Bialecki last week to a trio of industry leaders:

Massachusetts Hospital Association president Lynn Nicholas; William C. Van Faasen, interim chief executive at Blue Cross Blue Shield of Massachusetts; and Lora Pellegrini, president of the Massachusetts Association of Health Plans, a trade group representing other health insurers.

The letter said state officials were exploring the use of Governor Deval Patrick’s executive power to conduct more extensive reviews. The aim would be to ensure that “new health care facilities or technologies are both necessary for the effective provision of care and justified given the economic circumstances,’’ the letter said.

Bigby, in an interview yesterday, said the review process for determination of need filings had been weakened in the late 1980s and 1990s, allowing health care providers to build or expand almost at will if they could afford it or could borrow the money to do so.

The result, Bigby said, was a proliferation and duplication of services such as magnetic resonance imaging and linear accelerator radiation therapies that drove up medical costs in many communities by encouraging more procedures.

The intensified focus on health care provider costs comes as some critics have faulted the Patrick administration for squeezing insurance carriers by rejecting proposed premium increases, which would have taken effect April 1 for small businesses and individuals.

Joe Kirkpatrick, vice president of health care finance for the state hospital association, said the organization isn’t sure, based on the letter from Bigby and Bialecki, how the determination of need process will change.

He said a recent strengthening of regulations already has made it more difficult for hospitals to get projects approved, and “if they got a lot tougher we would have real concerns.’’

Massachusetts hospitals already spend far less than the national average on capital projects, Kirkpatrick said, while their facilities are generally older. “Many hospitals desperately need to update their plant and purchase new equipment,’’ he said. “Rampant capital expenditures are not the problem here.’’

Insurers applauded the state’s plans for tougher oversight.

“We hope the administration will strengthen the Department of Public Health watchdog role to assure that duplicative services and facilities are not contributing to escalating health care costs,’’ said Jay McQuaide, vice president at Blue Cross Blue Shield. “We believe that any requests for new services and facilities should be examined through the lens of how it affects the cost and quality of health care.’’

Pellegrini, at the health plans’ association, said she also welcomed the administration’s move. But she noted that her trade group has proposed legislation that would mandate a stronger state review process for new medical facilities.

“These issues are not new to us,’’ she said. “We’ve been working on these issues for years.’’

While saying the governor’s “bully pulpit’’ was important to addressing cost issues, Pellegrini called on him to focus more on the role of the most powerful providers in making medical care more expensive.

Robert Weisman can be reached at weisman@globe.com; Liz Kowalczyk at kowalczyk@globe.com.