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CHAPTER II OVERVIEW The committee reviewed the present health planning program in the United States in order to develop a conceptual framework for a study of technical and policy issues associated with national guidelines. In its review, the committee examined the history of health planning, the differences between health planning and regulation, the renewed interest in the role of competition in health planning and regulation, and some of the national policy issues that affect health planning. In particular, it was seeking answers to the following questions. o What are reasonable expectations of the new planning program? O What is the role of health planning in the health care system? O What is the evidence concerning the effectiveness of past health planning programs? How should the new program be viewed and its effectiveness measured? Should the new program's structure and functions be modified now? Health Policy Background Health planning is directed against the major problems of the health system: ever-rising costs, misgivings about the distribution and use of technology, maldistribution and redundancy of facilities, services, and personnel, and continuing disparity in the health status of different subgroups of the population. In particular, some people in the United States suffer from limited availability and accessibility of health services. The services available, with a skew toward institutional care and high cost technology, often are not well matched to health needs. There is inadequate attention to health promotion and disease prevention in the system as a whole. The problems are widely known by now and have been described and analyzed by many, including other committees of the Institute of Medicine. 7

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8 But the main public policy problem in health and the major stimu- lus for federal support of health planning continues to be the high rate of inflation in health care expenditures, especially hospital costs, for which spending has increased more than 260 per cent in the past ten years (USDHEW, 1979~. Increases in health expenditures because of new technology and expanded services led to interest in controlling the allocation of such services, and the uneven distribution of technology and services raised questions about a need for national resources allocation policies. The idea of controlling capital investment--not only the construction of faciJities--gained some advocates. The idea of limiting the supply of health resources drew supporters from proponents of the concept of the availability effect (Feldstein, 1971) or "Roemer's law" (1961), which holds that there is a positive relationship, independent of all other factors, between the number of hospital beds available and utilization of those beds. The most prominent problems for health planners arise from the mismatch between the services offered and the services required. The rapid rise in health care expenditures and the comparatively unlimited opportunities for application of new technology have made it obvious that resources for new or modified health services will have to be earned by making the system as a whole more effective and efficient. Health planning offers no single prescription or specific answers. It is not regulation, although the current program has some regulatory authority at the state level. Rather, health planning is a structure and a process for determining, primarily at the local level, what health services are wanted and will be encouraged in each community. Why Health Planning? The choice of planning over other public policy instruments is not an obvious one. Health planning, as we know it, combines voluntary planning and consensus development among consumers and providers, the use of quantitative methods of resource allocation, and limited regulation--all carried out through a complex planning system that involves three levels of government. The choice of health planning rather than other means has been ex- plained by several factors. First, some proponents cite an apparent appeal of planning's being more rational than individual institutions moving independently. Few could argue with the need for rational allocation and distribution of country health resources, and planning offers, on its face at least, a systematic and orderly method for accomplishing that. Second, there has been a widely held belief that medical "need" could be objectively measured and used as a criterion for making policy and allocating health resources.

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- 9 - A third explanation for health planning is historical. After World War II, a large backlog of hospital construction and modernization requirements led many communities to form committees to decide what was most essential so that community funds could be sought, raised, and appropriately allocated. Credibility and acceptability of this kind of planning, especially for facilities, was imparted by its involvement with philanthropic, business and industrial leaders. The committee finds that the most persuasive case for health plan- ning rests on the divergence of interests of autonomous providers and the broader public (Klarman, 1978~. The public interest is not well served when individual institutions, however good their intentions, are free to pursue their own goals and to expand services for their own patients and physicians. There will be unnecessary and costly duplication of services, as well as gaps in services, because the individual institutions are influenced by the same incentives. There are some who have argued that sound institutional planning would minimize the need for community-wide planning and that good institutional planning should be fostered to reduce the need for regu- lating the industry. Institutional planning will achieve some of the goals, but cannot always resolve differences in favor of the public's interests. Why does the market not control excesses? The independent forces of supply and demand do not operate because of the unique aspects of the medical system. The conditions under which the free market operates efficiently are well known: large numbers of purchasers and suppliers; full knowledge of price, quality, efficacy, certainty of outcome; and all important factors included in the transaction. In the medical system, however, consumer knowledge is limited, and insurance coverage modifies the impact of price as a consideration by either the pro- vider or consumer at the time of service. Most decisions beyond entry are made by providers, not consumers. Externalities (effects whose value is not reflected in the prices of output sold or resources used and which fall on others outside the transaction) are appreciable. Some of the reasons for market failure have been attributed to public policies--public third-party payments and modes of reimbursements, tax incentives to overinsure or insure in inefficient ways--but planning and regulation are expected to counterbalance deleterious policies and other effects of market failure. Planning works best when it is conducted in an area or community as a collaborative process. The community9 through a "representatives' group, works out agreement on what is wanted for the area as a wholes The area's plan typically includes attention to the identified health service requirements, programs that are lacking, and the individuals who are not getting care. It guides decisions about facilities,

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- 10 - equipment, or new programs. The current planning structure posits that the public's interest can be agreed upon by key participants in the health care system, using quantitative information Inhere possible, and analytical methods as appropriate. Planning vs. Regulation There is some confusion between the concepts of planning and regulation. A number of planners feel that regulatory power, such as that associated with Certificate of Need, is needed for planning. Such power has been urged by some (Somers, 1969) and was regarded as a gain with the 1974 planning legislation. Although planning and regulation are intermingled in the planning program, there are real differences between the two concepts. Plan- ning has been defined as thinking in advance about what a person or group, or community wants to work toward, as a basis for action (Sigmond, 1976; Gottlieb, 1974~. It typically involves thinking about, agreeing on, and establishing a plan on what to do or work toward (goal-setting); thinking about how to get it done (programming, alter- native strategies for action); and evaluating and subsequently modi- fying goals and strategies based on experience and new knowledge (Taylor 9 1972~. The most appropriate view of planning in the context of health care may be as an activity entailing interagency coordination, not merely the looking ahead by an organization in pursuit of its own interests. The aim is to marshal the community~s resources for the purpose of accomplishing certain specified goals, including the resolution of overlapping services and jurisdictions (Klarman, 1971~. This can be achieved through several approaches, including health planning or regulation. Planning is a process that brings together the community's resources to accomplish certain agreed-upon common goals 9 while regulation is based on the police power of the government. In regulatory programs, agencies (state, federal, or local) have authority to compel individual behavior. Regulatory agencies may, for example, permit only services that meet certain criteria to be offered in any area e Certificate-of-need (CON) authority is a regulatory instrument; that is, the state has the power to coerce. CON may be used to help implement a plan or the decisions and policies that are out- growths of planning. Planning may produce an advisory opinion to a regulatory body, or an office such as the state agency (SHPDA) may have both the responsibility and the authority to regulate through law. The areawide planning agency may be influential but have no authority except as adviser to the state, or perhaps to a third-party payer e Regulators sometimes use planning along with criteria and standards to guide regulatory decisions, because they believe that planning can help determine what is medically needed or would be most effectively utilized. But regulators are sometimes more concerned with what is "affordable."

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11 An argument for a blend of planning and regulation is that regu- lation provides an opportunity for negotiation. An example is CON, which is primarily a reactive instrument. A CON application can provide an opportunity for reviewing, sharpening, and improving institutional plans, and for negotiating. Approval of a project may be made con- tingent on restructuring, or eliminating, a service, or working with another institution (rein, 1977), as long as the conditions are within published criteria and standards related to the relevant state and federal statutes. At this stage there are few technically sophisticated plans as called for under the new legislation. In time, they may be specific enough to be important factors in CON decisions. As plans begin to make clear what will be approved, what is not needed, and what will be given the highest priority in a community for development, potential applicants will increasingly be encouraged to shape their own internal planning to the community's preferences, spelled out in the plans. Regulatory authority at the state level, with areawide agencies as advisers,is said by proponents to have many advantages. Planning is voluntary, and its purview is at a healthy distance from governmental authority. The areawide agency usually is a private, nonprofit body with limited direct accountability to the public; its governing body is not elected through publicly supervised elections. It does, how- ever, have elaborate requirements for public participation and over- sight. The state agency, as part of an administration whose executive is publicly elected, has formal procedures for ensuring accountability to the public, although its direct accountability may be more in principle than in substance on health planning issues. Administrative requirements also can ensure due process, including formal appeal opportunities. There are differences of opinion about how close regulation and planning should be. Some feel that planning should not be related to regulatory decisions, but that regulators would be wise to use plan- ning's products. Others feel that the constraints under which state regulators operate indicate a need for selectivity in relying on plan- ning. Still others feel that too much separation between planning and regulation will undermine interest in, or serious attention to, planning (Somers, 1969; Bauer, 1978~. The 1974 Act gave planning a prominent role, with limited regulatory controls over capital investment for in- stitutions at the state level. The law also gave HSAs advisory authority to review and approve or disapprove the proposed use of selected federal funds for health projects. The Role of Competition One reason given in 1974 for the passage of the original planning Act was that effective planning is needed to overcome failures in the medical marketplace.

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- 12 - Critics of planning and regulation as devices to correct for market failures argue that they introduce political controls. Part of the skepticism about planning arises from the confusion of it with regulation. Planning, as a process, can be developed along many lines, including planning without any regulation. The health planning program, and particularly the regulatory authority in it, has not been exempt from criticism. Some observers have questioned the fundamental assumptions of the current programs and argued for different approaches. This committee does not believe that it is sensible or safe to return health care -to a laissez-faire philosophy, although regulation should be used as sparingly as possible so that market forces can operate when appropriate. More knowledge is needed about the most effective combinations of regula- tion, other instruments of social policy, and competition. A new state certificate-of-need law in Utah is designed to test the potential for using planning and regulation to foster more compe- tition in the health sector. There is considerable interest in trying to encourage the use of competition in the health system. Congress noted its importance in the health planning amendments of 1979, making it one of the 17 national priorities. Congress ex- pressed its desire for HSAs to encourage market forces "wherever com- petition and consumer choice can constructively serve to advance the purposes of quality assurance, cost effectiveness, and access." The general idea of using "command-and-control" regulation where market forces and private incentives cannot do as well has been written about for several years (see, for example, Schultze, 1970; Havighurst, 1979~. Havighurst (1979) presented a case for combining planning for health services in the institutional sector, with plan- ning to foster competition wherever possible. In the 1979 amendments, Congress exempted large HMO s from certificate-of-need requirements in order to encourage HMO develop- ment. The amendment also introduced new criteria for planning and decision making on certificates of need to encourage the use of competition to restrain costs. Congress explicitly stated in the 1979 amendments, and this committee agrees, that hospital and other institutional services would not be appropriately allocated by market forces. But while other opportunities are probably limited, planning by the HSAs can incorpo- rate an interest in, and concern for, strengthening competitive forces. The emphasis on strengthening competition simply gives the HRAs more ways to attack the problems of rising health expenditures and does not require changes in the structure of the program. The current program's most prominent feature is that it is a method and a structure for decision making in interlocking ways at local, state, and federal levels. Precisely what combination and form of planning, regulation, resources development, fostering of competition, cost

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- 13 - control, etc., emerges at each level will depend on many factors, including the decisions of governments, local participants, providers, and others about their public policy choices and the structure of industry at the local level. The combination will change over time and vary with the local communities and states. Substantial wariness about regulation where it is not essential is healthy and desirable. History of U.S. Health Planning Although health planning does not have a long history in this coun- try, there has been growing movement toward systematic planning for health services since the 1930s. Its origins and development have influenced the particular kind of planning that the United States has today (Gottlieb, 1974; Klarman, 1976b and 1978; Lave and Lave, 1974; Sigmond, 1976; Stebbins and Williams, 1972; Yordy, 1976~. Area-wide health planning typically began as hospital planning councils. These were composed of lay community leaders, with staff members who often were professionals, such as hospital administrators. Council members, like hospital trustees, were active in philanthropy and civic affairs. The impetus for hospital planning often came from an interest in raising and allocating community or charity funds for hospital construction and modernization. New York, Rochester, Detroit, Pittsburgh, Columbus, Chicago, and other cities had voluntary hospital planning councils in the 1940s. In 1964, there were 33 such agencies in the major metropolitan areas. Health planning began and has remained largely in the private, non-profit sector, with private citizens deciding what buildings or equipment are desired for medical services in a given community (Gottlieb, 1974~. The Hill-Burton Program The first significant involvement of the federal government in health planning began in 1946 with the Hospital Survey and Construction Act--the Hill-Burton program. It was intended to be a model federal/ state grant-in-aid program to provide matching grants for hospital construction and public health centers. (Yordy, 1976; Lave and Lave, 1974a; Gottlieb, 1974~. From 1947 to 1975, more than $4.4 billion in grant funds were appropriated and more than $2 billion in loans were made or guaranteed. The proportion it contributed to the total investment in construction were comparatively modest, approximately 15 percent (Lave and Lave, 1974a), but the program helped to improve the geographic distribution of hospital beds and physicians. It also expanded plan- ning. By 1974, about 496,000 inpatient beds and 3,450 outpatient health centers had been built with Hill-Burton support. To do this, each state had to create a hospital planning council, which was to survey the state to determine the need and priorities for new construc- tion.

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- 14 - Other Planning Activities Another part of health planning's history were federal programs that had planning requirements, including the Community Mental Health Act of 1963, Community Retardation Center Act of 1964, and the Comprehensive Rehabilitation Act of 1968. Each delegated planning and administration to the states, each provided construction and staffing funds, each emphasized a coordinated system of services, and each required statewide program planning. Also contributing to the growing weight of planning was the Regional Medical Program (RMP) aimed at creating regionalized networks of care for heart disease, cancer, and stroke. Under RMP, more than $525 million was authorized for project grants to assist universities, medical schools, hospitals, and health agencies in planning and operating research, training, and demonstration projects. The program was pre- dominantly concerned with applying increased knowledge and technical development to medical care (Lewis, 1977), and it was generously financed in the traditional pattern of the National Institutes of Health (Somers, 1969~. The program received little federal guidance, but also was not subject to state government. Also during the 1960s, community action agencies developed commu- nity health centers. Two features of those were important to the history of health planning. First, the federal government supported the belief that consumers, particularly the poor and minorities, should have a policymaking role in the institutions that affect them. Second, ideas about accessibility, use of pare-professionals, "career ladders" for manpower, and suspicion of societal institutions stem from that period and helped encourage certain ideas in health planning. Comprehensive Health Planning The federal government became more involved in the concept of area- wide planning in 1966 with the Community Health Planning Amendment. It deliberately steered away from the Hill-Burton construction emphasis and the categorized project grant approach of RMPs. The legislation was very general; it created planning agencies to be concerned with all factors related to health and emphasized the need to coordinate federal programs (Yordy, 1976~. Its aim was to promote planning and coordination at every level of government. The states once again had a role in planning and coordinating activities. State and territorial health officials had authority to distribute public health funds in their states, in accordance with the state's plans. Some observers regarded this authority as the first real opportunity to establish a structure for changing the organization and delivery of health services (Gottlieb, 1974~. Planning became more popular among diverse health policy inter- ests. Hospitals, physicians, and others who had feared and opposed the

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- 15 - planning movement as the enemy of professional and institutional autonomy now saw it as a lesser evil than the growing threat of direct public regulation (Somers, 1969~. During the same period, planning received support from insurers, business, and industry. As they paid or disbursed payment for growing health care bills, the need for public intervention in the form of better planning became increasingly apparent. In the late 1960s and early 1970s a number of Blue Cross agreements with hospitals included submission of capital projects to planning review. The Comprehensive Health Planning program required that the local board have a majority of consumers and reflect the population of the area. There were also various goals for the program, from a concept of the agency as a forum for interest groups to reach consensus to an idea of it as a means of controlling costs and reorganizing the delivery systems (Gottlieb, 1974~. The Comprehensive Health Planning (CHP) program was hampered in several ways. It never had adequate funding or stability of funding. Battles over control and participation drove away technically compe- tent people and handicapped the agencies. Some observers were not impressed by the achievements of Compre- hensive Health Planning, which was characterized as having "no political muscle on its skeletal structure." As a consequence, planning "resembled political ski~ishes between vested interest groups" rather than efforts to regionalize care (Lewis, 1977~. Another observer noted: Ten years ago, local area health planning was a sporadic activity taken seriously by only a few. At the state level, health planning often con- sisted of routine paper work, a necessary annual precondition for receiving and awarding federal construction grants under the Hill-Burton pro- gram. At the national level, health planning consisted of ringing pronouncements in pre- ambles to legislation, supported by modest appropriations. At best, health planning was viewed as inconsequential, and often it was irrelevant to the development of health care delivery, utilization of services or health care expenditures. (Klarman, 1978) Section 1122 The 1972 amendments to the Social Security Act (Public Law 92-603) included a method for controlling SSA's expenditures for "unneeded" capital investment. Under Section 1122, which is still in effect, a state can enter into an agreement with the Secretary of Health, Education, and Welfare to have planning agencies review all capital

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- 16 - expenditures of more than $100,000 or any changes in capacity or service accompanied by capital expenditure. Any service or expenditures denied by the designated planning agency would be denied reimbursement for capital costs (interest and depreciation) by Medicaid, Medicare, and Maternal and Child Health programs. By 1975, 39 states had Section 1122 agreements, including 15 that also had certificate-of-need programs. The 1974 Legislation The Congress held hearings on the planning program early in 1974 and found serious deficiencies in the approach of the federal government. The National Health Planning and Development Act made some important changes in the approach, although there were enough similarities to inspire skepticism. But longtime students of the field noted changes. Federal involvement in health planning was to be made more consistent and carried out within an articulated national health planning policy, which would provide guidance to the state and local agencies, as well as other federal health programs. The unusual legislative climate and the political context for the 1974 Act were described by Yordy (1976~: The Congressional committees were sensitive to rising pressures for resolution of problems of health care costs and the distribution of services...and determined to make the new legislation focus specifically on defined problems of the health care system.... The imminence of national health insurance added to the pressures to create a stronger planning and development mechanism through federal legislation. Though the new legislation was conceived in an initial atmosphere of legislative-executive conflict, a suprisingly broad area of agreement rapidly emerged. The Administration and the Congress could agree that the existing programs had not been sufficient instruments for improving the effective- ness and efficiency of the health care system. There was agreement to replace the multiple planning structures of the previous programs with a single planning program involving both state and areawide components. There was agreement on the need to sharpen the objectives of the new program and establish clearer criteria for accomplishment... As the intent to draft legislation that looked afresh at the structure for planning, regulation, and development of the health care system proceeded, a number of major policy issues needed to be resolved--issues that had never been clearly settled in previous legislation. These issues included:

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- 17 - --the influence of public authority over the predominantly private health care sector; --the division of responsibilities among the federal, state, and local levels of government; --the degree to which the major sources of health care financing, both public and private, are subject to the influence of planning agencies; --the extent of regulation over capital use, rates, and the distribution of manpower; --the relationship of medical centers, including medical schools, to a structure for the planning of health services; and --the relationship of the planning structure to other federal health services programs. The success of any attempt to develop and implement plans for regionalization of health services in this country would seem to be heavily dependent on how these issues are received. However, the pressures of compromise prevented a clear reso- lution of any of them, except perhaps the strengthening of controls over the availability of capital for the construc- tion of new facilities. According to the law passed in 1974, the program was to be more adequately funded--authorized at $.50 per capita with additional federal matching funds up to $.25 per capita--and cover the entire nation and its territories. It supplanted the Regional Medical Programs, Community Health Planning , Hill-Burton, and the Experimental Health Services Delivery Systems (Cain and Darling, 1979~. The 1974 Act authorized a network of area level agencies (HSAs)* and state level agencies (SHPDAs). Each agency's service area, reflecting a medical trade area, has approximately 500,000 to 3 million residents. The specific purposes of the agencies are to (1) increase accessibility, acceptability, continuity, and quality of health services provided; (2) restrain increases in the cost of providing health services; and (3) prevent unnecessary duplication of health * The nation has been divided into 213 health services areas, but 8 of those areas are served by a special kind of agency that performs both the State Agency function and the health systems agency function and receives funding for both. The agencies are called 1536 entities (after Section 1536 in the Act, which allowed an exemption when certain conditions were met). Examples are Rhode Island and the District of Columbia.

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- 18 - resources. Each agency's primary responsibility is the provision of health planning for its area and the promotion of the development of health services within the area, manpower, and facilities that meet identified needs, reduce documented inefficiencies, and implement the health plans of the agency. Each agency must complete a Health Systems Plan (HSP), which is a statement of long range goals for the community. Not only are the plans themselves considered important documents for the public statement of the community's goals and objectives, but the plan also serves as the basis on which all proposals for new institutional health services and programs requiring funds will be reviewed. In addition to the long range plan, there must be an Annual Implementation Plan which has specific objectives for each year within the minimum five-year span of the HSP. Agencies must review existing services in terms of their appropri- ateness to the health needs of residents. In conducting these activi- ties, agencies are required to coordinate with other federally sponsored programs (e.g., PSROs and the Cooperative Health Statistics System), as well as existing planning activities under state and local agencies. The Health Systems Plans for each area in the state serve as the basis for the State Health Plan. The State Health Planning and Development Agency An agency of state government, chosen by the Governor, serves as the State Health Planning and Development Agency (SHPDA). The SHPDA, must have a program approved by DREW. For areas such as the District of Columbia, Puerto Rico, Virgin Islands, American Samoa, Trust Territories, Marianna Islands, and Guam, the 1536 Agency is also counted as a SHPDA. There are now 57 SHPDAs, each responsible for conducting its state or area health planning activities and implementing the parts of the State Health Plan and plans of Health Systems Agencies that relate to the government of the state. The SHPDA prepares a preliminary state plan from the Health Systems Plans for approval or disapproval by the Statewide Health Coordinating Council. It serves as the desig- nated planning agency under Section 1122 (capital expenditures review) of the Social Security Act, if the state has such an agreement and administers a state certificate-of-need program. It reviews proposed new institutional health services, and will review the appropriate- ness of existing institutional health services. The law mandated the creation of a Statewide Health Coordinating Council (SHCC). Sixty percent of its members are appointed by the governor from the Health Systems Agencies, and have a consumer majority. The Council reviews annually and coordinates the Health Systems Plans and Annual Implementation Plans of the State's Health Systems Agencies

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- 19 - and makes comments to the federal government. The SHCC is responsible for the State Health Plan. It also reviews budgets and applications of Health Systems Agencies, advises the State Agency on the performance of its functions, and reviews and approves or disapproves state plans and applications for formula grants to the state under a number of federal health programs. National Council on Health Planning and Development The 1974 law created a National Council to advise the Secretary of Health, Education, and Welfare and make recommendations about the development of national health planning policy and the administration of the planning program. The Council also evaluates the implications of new technology in the delivery of health care, and has been appointed as an appeal body for cases under Section 1122, in which the Secretary has the final decision. It takes an active role in facilitat- ing communication with the public and planning agencies in the program and serves as a non-governmental contact point for participants in the program. It is seen by the Congress as a public forum, independent of other governmental units, but coordinated with them, that can be of value in integrating complex health care issues, in discussing problems in health care, and in proposing solutions (House Report, 1979~. Certificate of Need Under the 1974 Act, every state is required to have passed a certificate-of-need law by January, 1980, for capital investment control that meets minimum federal requirements. The certificate-of-need pro- grams constitute the closest the United States comes to nationwide control of the supply of health services and the spread of expensive new technology. By 1980, all capital expenditures over $150,000, changes in numbers of beds, and all new services must be reviewed for hospitals, nursing homes, kidney treatment centers, and ambulatory surgical centers. There have been proposals to expand coverage to purchases of major medi- cal equipment for physicians' offices, but that idea routinely is rejected by the Congress. Some states, however, already include any large medical equipment purchases in their CON programs. A 1979 compromise amendment to the Act requires CON review if equipment is to be used for hospital inpatients although not owned by the hospital. States have until October, 1982, to extend their coverage (e.g., to cover major medical equipment wherever it might be) outside the institution, if the state chooses. Federal funds under the Public Health Service Act and selected mental health and alcohol and drug abuse authorities can no longer be granted in local areas without the review of local agencies. Although DREW can grant funds even if the USA disapproves, the depart- ment is expected seldom to override local preferences.

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- 20 - Other Features There is emphasis on improved technical methods and data. The law mandated five regional technical assistance centers. The Congress initially appropriated between 6 and 10 million dollars each year for technical methods development, training, education, and applied research through contracts and the technical centers; the amount is now much lower. In addition to a consumer majority on the HSA board, the 1974 Act required representation of providers--physicians (especially those in practice), dentists, nurses, and other health professionals, health care institutions, insurers, professional schools, and allied health professionals. Also, public officials, residents of non-metropolitan sub-areas, and HMO s are to be represented when appropriate. In 1979, representation of hospital administrators and mental health workers was added as a requirement. Consumers have to be in the majority and selected to represent the social, economic, linguistic, racial, and handicapped populations and geographic areas of the health service area, as well as the major purchasers of health care. Because the governing body is supposed to mirror the community, the selection of its members is a significant policy issue in the program (Marmor and Marone, 1979; Chesney, 1978; Vladeck, 1977). There is emphasis in the 1974 Act on the creation of a comprehen- sive data base for health planning, with attention to such questions as the relationship between health status and the effects of the health system. There is an open process of decision making, with announcement of meetings and other public opportunities for influence. The 1974 legislation did not bring the federal hospitals and health systems under the planning umbrella, although health service areas with veterans facilities must have an ex officio Board member from the Veterans Administration (VA), and a VA official meets with the National Council. The 1979 Amendments permit a federal hospital to be reviewed by RSAs if the facility requests it e Although it found that increasing costs were a serious problem, Congress did not in the 1974 Act make any changes in the financing system. It authorized rate setting experiments, mandated the establish- ment (but not the application) of uniform cost accounting and reporting systems, and aimed several of the Act's national priorities at controlling costs. In 1979, cost containment was explicitly added to the list of national priorities. The 1979 amendments made other changes in the planning program not mentioned elsewhere in this report. The most significant is the authorization of a program to assist and encourage the voluntary con- version or discontinuance of unneeded hospital services. Grants can be made to hospitals for liquidation of debt, termination pay, restraining and other expenses due to closure or conversion. The local USA must

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- 21 - recommend approval. OHEW cannot approve the application if the SHPDA recommends against it and if DREW cannot determine that costs will be less with the discontinuance. Grants can also be made to the state agencies to demonstrate the effectiveness of various means for reducing excess capacity. The costs authorized were $30, $50, and $75 million, respectively, for fiscal years ending in 1980, 1981, and 1982. Policy Issues in Health Planning In its overview of the health planning program, the committee identified and discussed a number of important policy issues that either are in, or intersect with, the current health planning program. The committee has made some preliminary observations on the issues but has decided the topics were too important and too complex to be treated suitably in the time allowed for this report, if it is to cover adequately the primary topics of the study. At least two of these policy issues--consumer participation and national/state/local relationships--will be addressed in detail by the committee in the second year of the study. These issues are Listed here simply to make clear the committee's recognition of their importance, to illustrate the range of problems that are found in the program, and to identify areas in which some research might be pursued produc- tively. Policy problems that may be regarded as "external" to the current health planning network, but have an appreciable effect on it, include financing, reimbursement, manpower supply, education and training, and capital supply. Unresolved "internal" policy problems include governance of the health planning agencies, including representation, citizen par- ticipation, the role of the consumer, and intergovernmental relations; training of planners and governing body members; establishment of a national limit on the amount of capital expenditures approved in any one year ("capital cap"), grouping proposed projects under certificate- of-need ("batching"), the relationships between health planning and technology diffusion; the planning infrastructure, including data, tech- nical methods, and trained staff. In particular, the concept of "need" as a basis for planning and how to measure it are important, unresolved, technical issues. Reasonable Expectations of Planning Agencies As part of its review of the program, the committee examined existing evidence for the effects of planning and regulation. Unfortu- natgely, the evidence is sparse. The number of completed studies is limited, the few sound ones cover older time periods and, for the most part, cover only the certificate-of-need process. CON is only one aspect of the health planning program, albeit an important one. Further, there are wide differences in the nature of planning and regu- latory programs throughout the nation.

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- 22 - Evaluation of social programs such as planning is confounded by several factors. First, there is no universal agreement on what the program is supposed to achieve, at least not in terms that are measurable or even observable in the short run. Some see the health planning net- work as having been created to ensure an authority for making policy judgments about health resources. The program might then be judged on whether the decisionmakers properly reflect the community as a whole, have involved public officials and providers, behave in a publicly responsible manner, show integrity as well as commitment to a competent technical effort, and improve the distribution and organization of the health system. But the planning agencies also are expected to control costs of health care and inhibit the over-use of high cost technology. Many of the achievements asked about or cited for the program typically are concerned with the number of hospital beds allowed, amount of dollars saved, applications rejected, or technology stopped. This is an incom- plete approach, in the committee's view. Some studies of health planning and capital investment controls (Salkever and Bice, 1976, 1978a; Lewin and Associates, 1974, 1975, 1976; Russell, 1979) identified unanticipated effects of controls on beds, revealed an array of important administrative questions, and provided a foundation for increased understanding of the phenomena through research. But judgments remain primarily nonquantitative or exploratory. Opinions are derived from theory, analogous experiences, and evidence from earlier planning efforts. Some of the earliest evidence on the effects of health planning in the United States was published by May. He compared metropolitan areas that had health planning activities with those that did not and found no important differences in numbers of beds, utilization, and overall costs, although there was some indication that the number of hospitals with intensive care units, home care programs, and outpatient services grew under health planning (May, 1972~. Curran (1974), in reviewing CON statutes in 20 states, found con- siderable diversity, insufficient experience to discuss the administra- tion of the laws, and a number of apparent problems. In some instances the ties to local planning agency review were weak or unclear, the review system was reactive, there were no minimum thresholds for review in 13 states, and there was a paucity of review criteria. Experience with regulation in other industries, which should have been instructive, had clearly not affected the CON laws. A large-scale, descriptive study by Lewin and Associates (1975) of the capital investment controls in state and areawide agencies under Certificate of Need and Section 1122 also revealed many flaws. There were substantial technical limitations, markedly inadequate data, and the use of questionable criteria for judgments, as well as other criteria which were not made explicit. The problems of the planning agencies

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- 23 - were not solely those related to the poor state of the art, because good available methods and more refined techniques often were not used. The agencies were deficient in leadership, technical competence of staff, and ability to obtain the required information. Lewin concluded that hospital investment had not been controlled. For example, 46 percent of the 20 states and 40 areawide agencies had approved hospital beds in excess of their own published five-year projection of need. Some states with controls curbed growth in assets per hospital bed between 1972 and 1974. Unfortunately, however, the most successful ones also had reimbursement controls, so it is difficult to attribute the results to capital regulation. The same study found that equipment and new hospital service proposals were almost always approved (Lewin, 1975; Needleman and Lewin, 1979~. These findings were less surprising when it was also learned that less than half of the agencies believed that capital investment controls were primarily to contain costs and one-fifth of the agencies did not consider cost control as an importrant goal at all. Elements of process and structure were found to be unimpressive. For example, consumer partici- pation as measured by meeting attendance and other involvements was more form than substance. More circumscribed studies in 1972 and 1974 by the General Accounting Office found a number of structural deficiencies and limited involvement by consumers, including inadequate attendance at board meetings (GAO, 1972; GAO, 1974~. Two earlier studies of the Massachusetts CON program identified other problems. Reider, Mason, and Glantz (1975) documented some of the judicial and political consequences of planning agency judgments. Not only do the large, well-endowed hospitals have the power to have planning decisions reversed, but community hospitals can also mobilize citizen support and put pressure on officials. If necessary, as happened twice in Massachusetts, they can have special legislation reverse a decision. Bicknell and Walsh (1975), reporting on the results of 19 months of CON in Massachusetts, found that only 19 percent of the applications for beds were denied. They also found procedural and technical limita- tions similar to those cited by Lewin and others, including insufficient data and inadequate standards for judgment. They also noted that proposals for facility improvements without bed increases did not receive the "closer, technically, more sophisticated scrutiny normally reserved for bed applications." Howell (1977) found in Massachusetts that the denial rate for both bed and non-bed-related applications Increased dramatically in the fourth year of the CON program and concluded that program maturity may be an important factor in the agency's effective- ness. The most extensive and definitive analytic work on CONs effects has been done over several years by Salkever and Bice (1976; 19789.

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- 24 - Their original conclusions have remained the same although later analyses enabled more detailed discussion. Data for all states for the years 1968-1972 were examined, using multiple regression to find out if CON had been effective in controlling costs. The presence of CON had no effect on total assets of the hospitals, but it shifted investment from beds to equipment and services. Salkever and Bice found no effects of CON on hospital costs per capita. They concluded that bed expansion was restrained, but investments in equipment were being made at a higher rate. More recently, Salkever and Bice looked at five states that had CON programs prior to 1971. Some evidence--not statistically significant --of control in assets per bed was found. Four of these states, however, also had hospital rate review programs. In their 1978 report the authors concluded that controls have no appreciable impact on total investment and su~arized the implications of their study: Available evidence as to the effectiveness of CON programs suggests that this form of control is not likely to bring about lower rates of cost inflation. However, research to date has barely touched the range of policy questions and options advanced by proponents and critics of CON controls. Much of the reasoning employed by proponents and critics alike stems from thus far unsupported assumptions about the responses of regulatory agencies and regulated firms to the political context that accompanies imposition of regulatory programs. Until the incentives created by regulatory devices, such as CON programs, are better understood, we will be in the position of legislating in the hope that the public interest is necessarily served by more regulation (Salkever and Bice, 1978~. There are other sources of data on capital investment controls. Cromwell, _ al, ('916), found that CON slowed the adoption of x-ray, cobalt, and diagnostic nuclear medicine. The study used cross-sectional regression analysis of 1973 state data. The findings are not consistent with Salkever and Bice. The difference may be a function of the tech- nique used. In Cromwell's study, CON may be serving as a proxy for other factors omitted from the analysis (Salkever and Bice, 1978), because so many hospitals had already adopted some of the services studied. Rothenberg (1976) compared some of the experiences in New York between 1960-65 and 1965-70, for changes in the number of acute hospital beds in relation to a measure of need. She found that there were fewer beds added after 1965, and that additions were more likely to be in counties that had a higher number of non-conforming beds. "Non-conforming" beds are for the most part facilities that need replacement to meet code requirements.

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- 25 - Russell's recent report on Technology in Hospitals (1979) reveals some new evaluative information, based on an extensive study of technology diffusion. In states with capital expenditure controls that went into effect between 1965 and 1968, CON slowed the adoption of open-heart surgery and the increase in intensive care beds. For states with laws that became effective in 1970-1973, cobalt therapy and open-heart surgery were less likely to expand. This is not necessarily inconsistent with the results of Salkever and Bice. Total investment and costs per capita may have remained the same because hospital investment was being shifted to other technolo- gies not studied. More recently, in a survey conducted by the American Health Plan- ning Association, there was some evidence of "savings" estimated from the numbers of projects not approved by HSAs. For example, of the 166 agencies (81 percent) reporting, $8.4 billion in capital projects were reviewed by the HSAs under either CON or 1122. Of those, $1 billion were disapproved (American Health Planning Association, 1979~. The AHPA Survey also tried to obtain figures on the dollar value of pro- jects discouraged or modified by the HSAs prior to formal submission of the project (under either CON or 1122.) While often difficult to quantify, planners have long argued that it is in this area that they make their most important contributions. This review of empirical research unwittingly gives an inaccurate view of health planning and regulation. This committee would not like to confirm inadvertently the impression that the assessment of CON is, by itself, an adequate approach to studying health planning or even health planning and regulation. CON is an integral component of the health planning program and merits careful review, but in the long run it cannot substitute for a review of the entire process. The CON process and its actions and results are inherently easier to study. It would be most unfortunate if scholars avoided the more complicated and less satisfying but essential task of understanding and measuring the effects of the planning program. It is the committee's judgment that there is insufficient evi- dence about planning or capital investment controls under certificate of need to warrant significant changes in the program at this time. The Congress, other policy makers, and program administrators should recognize the limitations of available evidence for public policy judg- ments. The committee urges increased attention to, and support for, the kinds of evaluative studies that will provide a rational basis for any modifications at the end of the next three years. _ Policymakers do not have to wait for definitive results to begin to understand more about the strengths and weaknesses of the current program. In devising an approach to studying the planning network, the network could be viewed as an unusual example of democracy at work in American society and more suitable methods for assessing it from

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- 26 - that perspective could be constructed. The HSAs and SHPDAs were created under law by central government to help agree on the public interest and plan in American society and more suitable methods for assessing it from that perspective could be constructed. The HSAs and SHPDAs were created under law by central government to help agree on the public interest and plan the future course of the health care system through locally-based planning. Although centrally created, and to some degree, directed, HSAs, in particular, provide for regional autonomy, representation on policy boards by a wide range of interested local parties, and decision making in an open process. On several occasions Congress debated the nature of HSAs. Should they be private organizations reflecting the fact that, although the role of government is expanding, the health-care system remains predominantly private? Or should they be public agencies run under the aegis of local government? Congress permitted the private, nonprofit model as most appropriate for the assigned task. Thus, of the 203 HSAs operating today, 178 of them are private, nonprofit agencies and 25 are sponsored by local governments. In addition, the Congress established agencies at the state level that are to have the regulatory authority in the program. Measures of their effectiveness are more likely to be limited to performance as public agencies, as catalysts within the state, especially with other parts of the state government, and as to their ability to plan for the state as a whole. The nature of the planning network is important in relation to the assigned task and to a reasonable assessment of its effectiveness e Congress has placed a top priority on the role of HSAs and SHPDAs in constraining the rising cost of medical care. Although HSAs certainly can slow the development of capital projects through their recommenda- tions on applications for certificates of need, the committee believes it is important that Congress recognizes the limits of HSAs in appreciably reducing costs. SHPDAs have fewer limits, but the financing system and the way providers are reimbursed, the predominance of fee-for-service medicine, and the freedom of choice that most Americans enjoy in seeking medical care are all characteristics of the system over which HSAs or the SHPDAs have no control and which, in many instances, are cost promoting. It is the committee's judgment that the current health planning program has substantial potential for helping to achieve certain impor- tant social goals through local planning for improved local health care systems. The committee is concerned about a common tendency to look for evidence of effectiveness too early in social programs, especially when hopes about a program are high. The committee urges recognition of the difficulties of evaluating complex social programs. Different emphasis is given by various people to the multiple, sometimes con- flicting, goals of the health planning program. The planning program was designed to help determine, on a local level and in a public forum,

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- 27 - what health resources should be developed or modified in the future in each community. As it tries to balance cost containment interests with improvement of quality, access, and equity considerations, the planning program will not consistently satisfy any one side. But the health planning program is well-suited for determining and expressing the combined health care aspirations of consumers and providers for improving the provision of health care in a given geographic area. The committee recommends that the limitations of HSAs in reducing health care expenditures be recognized, because unrealistic expecta- tions are likely to lead to the conclusion that the program has not succeeded. In lieu of that limited approach, the committee recommends that the planning agencies be judged according to a broad set of measures including measures of improvement in access, quality, and equality, not only in cost moderation. The broad strategy is more suited to their statutory mandate. As an intermediate approach, the committee believes that certain measures of the desirable characteristics of the process of health plan- ning, mandated by the law, can be identified to assess and monitor the planning program as it is being put into place. However, the committee feels strongly that efforts should be undertaken simultaneously to define the goals of the program more concretely and develop quantita- tive measures of effectiveness as soon as possible. The intermediate measures of effectiveness should include: whether the HSA provides a useful forum for public policy discussions; whether it serves as a source of information about local health care problems and steps being taken to deal with them; whether it has credibility in the community; whether appropriate data and analytical methods are being employed as a basis for conclusions; whether the HSA is serving as an effective agent in helping to improve the health care services received by the public and promoting health for the area's residents at an acceptable level of cost; whether health care consumers and providers are being involved in improving the system; whether the HSA is catalyzing interest in and working to solve critical health issues, including problems of the underserved or underrepresented. Specific indicators that quantify those characteristics are needed; but there was not adequate time in this study to begin that task. In addition, useful measures of both the effects and the effectiveness of the planning program are needed. The health planning efforts provide a framework for public decision making about the allocation of the community's health resources. No other agency is looking at the entire health care system as it is organized in any given community. HSAs have been granted the responsibility to plan systemwide, and the SHPDAs to plan in conjunction with the Statewide Health Coordinating Council for the state as a whole. It must be recognized that the health system is large, complex, and highly valued by its citizens. Planning will require compromises among competing

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28 - . claims for limited resources. With resource allocation as a process of choosing among competing values, questions of who participates (i.e., whose values) and the openness, visibility, and defensibility of the process become paramount. HSAs, working with the SHPDAs, are well system that takes into positioned to achieve change in account everyone's interest and the health concerns. But it is also important to recognize that the planning agencies' responsibilities cut across some of the health system's most important and seemingly intractable problems. Inflation and recent attempts to control expenditures have made it even more urgent that unattended health needs be identified, including but not limited to the needs of the aged, children, and the Reinstitutionalized mentally ill. This is a task that must be carried out according to some systematic judgments about requirements and priorities that vary with each community. Foremost among the requirements for effecting improvements within fiscal constraints Is a Joint errors Dy providers and pooling their capacities, and making a commitment to adapt resources to help meet those unattended health needs. Resources distribution and organization decisions are best made at a local level and the planning network provides the opportunity and the obligation to address these problems. In the effort to control costs and to find more effective means for delivering health services 9 this committee believes that unattended needs should not continue to be overlooked, or more problems created. The planning agencies can help identify the consequences of changes in policies and programs, . . in. , , , . . . ~ . . . as requires. . . , . . . . ~ . consumers, ~ ~ . ~ ~~ ~ . The effects of restraining health care expenditures will not be borne equally by all citizens. It is important that decisions be made with full awareness of who is affected, and the long-term consequences in terms of health and costs, of the decisions. Planning agencies can contribute materially to efforts to contain health costs in ways that are not seriously harmful.