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Business Observer Friday, Jun. 14, 2013 7 years ago

Sorry, not enough people have died yet

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Put another way, not enough people died or suffered irreversible maladies on their hour-long or 30-minute ambulance rides to one of the far-away hospitals.
by: Matt Walsh Editor

Imagine Fort Myers-based Chico's wants to open another store in a fast-growing area, not far from one of its existing stores and right in the trade area of a weaker competitor. Or imagine the owner of a McDonald's franchise wanting to do the same.

Each case, of course, would require the investment of startup capital. And each opening, in essence, would be a risk and a bet that the owners of these stores have the know-how and skills to make them profitable. It's their risk.

Now look at these scenarios from the customer's standpoint. Heretofore, in each area where these stores is planned consumers have purchased their women's clothing from existing women's clothiers and, say, hamburgers from Burger Kings and Wendy's. So if you asked the consumers in this area whether they would want a Chico's or McDonald's, if they thought about it logically, they would say “yes.”

Why? Two reasons primarily: More choice, and more competition, which typically leads to better pricing in the marketplace. What's more, there is no risk to the consumer, only benefit.

Now along comes the state. Chico's and McDonald's are required to submit an application to a state agency to show that their stores are needed in this area. They spend thousands upon thousands of dollars and three to four months gathering data to fill out an extensive application.

Months go by. Finally, the state responds. It says: “Nope, applications denied. You can't build your stores. We, the state, have ruled there are enough women's clothiers in South Lee County and nearby and there are enough fast-food restaurants in the area. The applications did not prove consumers were unable obtain clothes or hamburgers in the proposed area.”

Can you imagine? Can you imagine the state forbidding you from opening a business where you are willing to risk your own capital because overwhelming data and your entrepreneurial instincts tell you the likelihood of success is high?

But this is how it works in Florida health care. Last week, Florida's Agency for Health Care Administration denied Lee Memorial's application to build an 80-bed, non-tertiary acute-care satellite hospital in Bonita Springs.

This is one of the fastest-growing areas in the state, sitting roughly midway between Fort Myers and Naples. And at present, documentation and testimony showed that it takes as much as an hour for residents to drive to the nearest hospitals — Naples Community Healthcare System North Naples Hospital or Lee Memorial's Gulf Coast Medical Center, each about nine miles away. This, by the way, is an area whose population has mushroomed to more than 180,000 residents and is expected to reach more than 200,000 by the time the hospital would have opened.

What's more, Lee Memorial proposed in its application to de-license 80 beds in its Fort Myers hospital, thus not increasing the overall supply of hospital beds in the two-county region. This is always a concern of regulators and competing hospitals; they always claim additional capacity and supply add to the rising cost of health care — which, of course, is contrary to the principles of supply and demand.

Here is something else: Consumer support for the hospital is overwhelming. The state received more than 2,200 letters in support of the new hospital. The Estero Council of Community Leaders, an organization of 35 residential communities representing 40,000 residents in Estero, expressed its support. Other homeowner and condominium associations representing thousands of residents voiced their support, not to mention just about every elected official in the area.

And just to add a little more data to the support, Lee Memorial's application said 28,422 hospital discharges occurred in the past year among the 12 zip codes that would be served.

To read through the data that Lee Memorial provided in its application to show “need” would be enough to make you say: Where do I sign up to invest? It's clear a new hospital makes sense today, and certainly will make sense in the near future.

But as always in these applications, there is opposition. Rarely from consumers. It always comes from competitors. In this case, Naples Community Healthcare System. It employed all the standard arguments: duplicate services; increased costs for all; bed occupancy is already running low, etc.

NCH also argued, according to the state response, “that with Lee Memorial Health System being the dominant provider ... and gaining increased dominance over the past several years, adding another Lee Memorial Health System hospital does nothing to bring about a more balanced service delivery system that promotes cost-effectiveness in the service area.”

And, to the cut to the real quick: NCH argued it would see its operating surplus shrink 46% because of the new competition.

With that, The State, on page 74 of its response, said: “Deny CON #10185.”

The rationale? “The applicant does not document that any residents within any portion of the proposed total service area in need of acute-care hospital services were unable to obtain them and also does not document that the current hospital arrangement results in a poor or undesirable health-care outcome for service area residents.”

Put another way, not enough people died or suffered irreversible maladies on their hour-long or 30-minute ambulance rides to one of the far-away hospitals.

All of this is the illogical result of government intervention. Fact is, Florida's certificate-of-need system needs to be scrapped. Take it from Michael Morrisey, director of the Lister Hill Center for Health Policy at the University of Alabama, who has done substantial research on the CON process and its results: “Certificate-of-need (CON) laws are supposed to lower costs, but the exhaustive literature on CON yields virtually no evidence that it has controlled costs. Instead, CON laws have restricted the entry of new hospitals and, as a result, increased prices.”

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