When You Need a

August 5, 2010

Hospital, Will It
Be There?
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The Problem
How many hospitals does the Land of Lincoln Department and Federal Trade Commission
Spotlight on Spending

need, and who gets to decide? In Illinois, the VXSSRUWHGWKHUHSHDORI VWDWH&21ODZVVWDWLQJ

process is far more complicated than you might WKHSURJUDPV´XQGHUFXWFRQVXPHUFKRLFHVWLÁH
think—and, unfortunately, it also restricts ac- innovation, and weaken markets’ ability to con-
cess to health care for citizens across the state. WDLQKHDOWKFDUHFRVWVµ5

In 1974, a federal law gave states incentives to

FUHDWH&HUWLÀFDWHRI 1HHG&21SURJUDPV Illinois Health
which regulate the creation of new hospitals Facilities Planning
Fiscal
and healthcare facilities.1 In response to the in- Fund Revenues
Year
from Licenses, Fees
centives, Illinois, along with many other states, or Registrations
FUHDWHG&21SURJUDPV
2000 $ 1,830,657.32
Today, the Illinois Health Facilities and Services
5HYLHZ%RDUGIRUPHUO\WKH,OOLQRLV+HDOWK 2001 $ 2,001,523.05
)DFLOLWLHV3ODQQLQJ%RDUGLVVXHVFHUWLÀFDWHVRI  2002 $ 1,017,684.92
QHHG´IRUFRQVWUXFWLRQRUPRGLÀFDWLRQSURM- 2003 $ 1,631,943.38
ects proposed by or on behalf of healthcare
facilities, and for approving transactions for 2004 $ 1,775,354.36
WKHDFTXLVLWLRQRI PDMRUPHGLFDOHTXLSPHQWµ2 2005 $ 2,073,085.45
Among other requirements, entities seeking a 2006 $ 2,318,002.45
FHUWLÀFDWHRI QHHG´PXVWMXVWLI\WKDWDSURSRVHG
2007 $ 3,029,720.10
SURMHFWLVQHHGHGµ3
2008 $ 3,286,743.30
According to the Illinois Department of Pub- 2009 $ 2,548,271.37
OLF+HDOWKWKH&HUWLÀFDWHRI 1HHGSURJUDPLV 2010 $ 2,114,119.61
meant “to restrain rising health care costs by
2011* $ 91,375.60
SUHYHQWLQJXQQHFHVVDU\FRQVWUXFWLRQRUPRGLÀ-
FDWLRQRI KHDOWKFDUHIDFLOLWLHVµ4 But this way of * Year to Date Revenues
thinking is outdated. The federal law has since 7SYVGI-PPMRSMW3J½GISJXLI'SQTXVSPPIV
been repealed, and in 2008, the U.S. Justice

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 Page 2 of 3

The Department of Justice and the Federal DSURMHFWWKDWQHHGHGDSSURYDOE\WKH,OOLQRLV

7UDGH&RPPLVVLRQZDUQWKDWZLWK&21
laws, “market incumbents can too easily use
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David Dranove illustrates how unfair this
process can be, pointing out that it is like
allowing American automakers to “block entry
by Japanese and Korean competitors, claiming
that they had more than enough capacity to
PHHWRXUDXWRPRWLYHQHHGVµ7
$OWKRXJKWKHVH&21SURJUDPVDUHPHDQW
to reduce health care costs, due to their anti-
7KH*HQHUDO competitive nature, they have the opposite
effect. Wharton School economist Mark Pauly
$VVHPEO\ found that “the consequence of restricted
VKRXOGUHSHDO VXSSO\ZDVKLJKHUSULFHVµLQVWDWHVZLWK&21
laws as compared to those without them.8
WKHFXUUHQW The American Medical Association “has long
opposed certificate-of-need restrictions,
&HUWLÀFDWH and the Illinois State Medical Society has
DGYRFDWHGUHSHDOLQJWKHVWDWHODZµVLQFH
RI 1HHG ´OLWWOHHYLGHQFHH[LVWVWRVXJJHVW&21
SURJUDPDQG regulations effectively rein in health care
FRVWVRUSURPRWHDFFHVVWRFDUHµ9
DOORZKHDOWK
7KHEXUHDXFUDWLFSURFHVVHVLQWKH&21
IDFLOLW\FRQ program are often time-consuming and
expensive, and in states that got rid of their
VWUXFWLRQWR hospital planning boards, per capita health
care costs are lower on average than in states
EHGULYHQE\ like Illinois, which still have planning boards.
FRQVXPHU 10
For example, 2002 data from the American
Hospital Association shows that the average
GHPDQG cost of hospital services per capita in Texas,
which has not had a hospital planning board
UDWKHUWKDQD for more than twenty years, was 16 percent
less than in Illinois.11 From fiscal year 2000
VWDWHDJHQF\ through fiscal year 2010, entities applying
for certificates of need paid $23.6 million in
fees to the Illinois Health Facilities Planning
Fund.1213 Instead of paying for fees, this
money could have been invested by the
applicants in their facility expansions.
Health Facilities Planning Board was warned
WKDWDSSURYDORI KHUSURMHFWUHVWHGRQKLULQJ
DVSHFLÀFFRQWUDFWRUDQGÀQDQFHFRPSDQ\
with political ties.7KHKRVSLWDO&(2ZRUHD
wiretap for months for the FBI, resulting in
federal convictions of Illinois Health Facilities
Planning Board member Stuart Levine and
others.1516
The Solution
The General Assembly should repeal the cur-
UHQW&HUWLÀFDWHRI 1HHGSURJUDPDQGDOORZ
health facility construction to be driven by con-
sumer demand rather than a state agency. In-
stead of creating barriers to entry and encour-
aging anti-competitive behavior in the health
care market, the state should let health care
SURYLGHUVKDYHJUHDWHUÁH[LELOLW\WRUHVSRQGWR
the needs of the community.
Why This Works
As costs of healthcare rise, Illinois needs to
re-evaluate the state’s healthcare system to
ensure the system best serves citizens’ needs.
High regulatory barriers to entry create an anti-
competitive environment and long travel times
to hospitals—issues that can literally be a mat-
ter of life and death. In addition, rather than
NHHSLQJKHDOWKFDUHFRVWVGRZQ&HUWLÀFDWHRI 
1HHGSURJUDPVFDQDFWXDOO\KDYHWKHRSSRVLWH
effect, creating scarcity and ramping up prices
for people who need health care. Removing
this bureaucratic process for approving health
facilities will also remove opportunities for po-
litical corruption in the health care realm—and,
most importantly, increase health care access
throughout the state.

Because existing hospitals have great incentive

to lobby against new competition, there is also
an opportunity for corruption and “pay-to-
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WKH,OOLQRLV+HDOWK)DFLOLWLHV3ODQQLQJ%RDUG
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that a member had orchestrated kickbacks for
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 Page 3 of 3

Endnotes
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