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CHAPTER III NATIONAL, STATE, AND LOCAL ROLES AND RELATIONSHIPS The results of the committee's study of national, state and local relationships in the health planning program are discussed in this chapter. The first section provides background information for an under- standing of the strengths and limitations of the program. The second section discusses issues brought to the attention of the committee at the public hearing and in written testimony. The last section presents the committee's recommendations for improving the functioning of the program In respect both to vertical national, state, and local relation- ships and horizontal relationships at each level. There are few industries in the United States more fragmented or diversely controlled than the health care enterprise. The characteris- tics of the health system at the operating level result from public and private forces directed horizontally at local, state, and national levels as well as vertically among those levels. Public agencies at each level are engaged in financing, regulating, and delivering tradi- tional public health services and coexist with a substantial private voluntary system for delivering similar services. The majority of per- sonal health care services are delivered by individual or organiza- tional providers on a voluntary fee-for-service basis, but a signifi- cant portion of medical care services, particularly for the poor and disadvantaged, are delivered through public hospitals and clinics financed by general tax revenues of state and local governments, and through federal programs. Government has had an increasing role in the financing of health care services for specific segments of the population yet many of its payments for services are made through private insurance organizations operating as fiscal intermediaries. The education of health profession- als takes place in public and private universities and other training institutions. The interests of private nonprofit hospitals and pro- prietary hospitals, though both are in the private sector, are some- times divergent. This pluralism in the health care system of the United States is usually regarded as a strength of the system. It also creates a variety of interest groups with different stakes in the structure and operation of the system. -31-

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-32- Ilany of these interest groups have aggressively and successfully resisted centralization in the financing and organization of health care services. It is not surprising that a complex health planning structure has evolved over the past 30 years. The lack of political enthusiasm for centralizing financing or organization of health services, or for mak- ing the system more "public," affects planning as well as the operation of the system.* But there also is an historical resistance to "planning" in this country. While the current structure of health planning is decentralized, the federal government is clearly the "senior partner."** The federal statute prescribes the structure and functions of both local and state level planning agencies, and establishes a complex of administrative regulations, operating policies, and program guidelines promulgated and administered by the Department of Health and Human Services (DHHS). Congress provided national priorities in the statute, and authorized the Secretary of DHHS to develop additional national guidelines and re- source standards to shape state and local planning documents and re- lated implementation activities. The Secretary of DHHS has the autho- rity to alter planning area boundaries proposed by a governor; has the final say concerning HSA designation; determines when HSAs are capable of carrying out their full responsibilities; and determines whether or not agency plans and procedures are technically acceptable. In develop- ing their planning documents, the local and state agencies are required to use cost constraining/quality enhancing resource standards (such as standards for the number of open heart procedures per unit) promulgated by the federal government. If they do not, they must justify their divergence from the federally-desired directions. This litany of federal approvals, checks, and rules suggests a program in which the federal government exercises almost total control, achieving centralized planning through a superficially decentralized model. But that is not the manner in which it eventuates. Legislative authority contains important constraints on the ability of the federal government to control state and community health planning activities. For example, in the case of local agency approval or disapproval of uses of selected federal public health funds (a major plan implementa- tion activity), the Secretary's grounds for overriding USA decisions * The essentially private nature of the health care delivery system affected Congressional action in 1974. Federal financing of health care, although increasing, still represented less than half the total expenditures for health care in the United States. **P.L. 93-641 required state legislation to implement CON, acknowledg- ing the importance of state authority. The Act could have strength- ened the existing federal capital control lever (Section 1122--of the 1972 amendments to the planning to 1122, Medicare and Medicaid and a more heavily federal partnership.

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-33- are limited by statute and regulation. The Secretary is requir~d to accept local and state agency adjustments to the national guidelines for health planning when the adjustments are supported by data demon- strating special circumstances within the area or state. And the fed- eral government has no role in the review and disposition of individual projects under CON--the most powerful regulatory instrument in the pro- gram. Also, the Secretary has limited power to terminate designation and funding of local and state agencies, and again, administrative due process mechanisms protect agencies from arbitrary te~-~ination. The functional components of agency activities--plan development, project review, decision-making--are either not limited by federal authority or protected from arbitrary federal action by due process and adminis- trative review requirements. Consistent with the pluralistic nature of the health delivery system, the health planning legislation allocates specific functions to the local and state agencies and mandates linkages between them in carrying out these functions. P.L. 93-641 emphasized the development of private, nonprofit area agencies, following the model of the pre- decessor Section 314(b) comprehensive health planning agencies. It was recognized that a community-based voluntary model might lend HSA's credibility and enhance their potential for community acceptance. The federal government's ambivalence toward states is demonstrated by the relatively minor role originally given to governors, the limited attention given to state capacity building, and the comparatively passive activities assigned to state and governors' offices. None of the planning actors was given sanctions or authority, and there was no consideration of a capital expenditures moratorium or expenditures limit that planning bodies could use to directly control the explosive growth of expenditures. Although the feeral government funds HSAs, they are neither fed- eral nor state administrative entities. The federal law carefully limits the degree to which local agencies render 'ifinal" decisions, placing greater emphasis on their responsibility for developing plans for the community's health system and utilizing those plans as models to guide resource allocation by decision makers outside the HSA. An HSA is expected to assist providers in the community who voluntarily attempt to implement planning goals; to make recommendations to the state on capital investment review decisions and the appropriateness of institutional and other health services; and to approve or disapprove uses of federal funds (subject to reversal by the Secretary of DHHS under certain specific conditions). In each of these cases, the final decision-making authority concerning resource allocation is located outside the HSA. Lest this be perceived as a weakness for the local bodies, the federal law also limits the conditions under which de- cision makers can overturn or amend an HSA's recommendation or deci- sion, and provides for administrative or judicial appeals when a decision differs from the HSA recommendation.

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-34- Because the health planning structure was designed to accommodate the pluralistic nature of the health care system, implementation of health planning has created challenges to the conventional structure of national, state, and local relationships. Although the health planning legislation contains substantial detail concerning vertical interrela- tionships among the component agencies, it is less effective in defin- ing and providing tools for the equally important horizontal relation- ships at each of the three levels.* In designing a planning system that could accommodate the realities of the health system, compromises were required. Many of the implementation problems of the health planning legislation flow from these compromises, as do related prob- lems in role definition for participants in planning. In framing the health planning program, some proponents in Con- gress saw it as an essential step preceding national health insurance. But many factors worked against the creation of a more centralized planning model. One was the existence of voluntary community health planning agencies. Another was distrust of state and local government on the part of key individuals involved in drafting the 1974 legisla- tion (see Raab and Brown). This led to a legislative package which emphasized voluntary nonprofit agencies for community planning and limited the state government role in the overall program.** Characteristics of Congress also had an effect on the planning program, particularly on its scope. Responsibilities for health activ- ities are widely diffused within the congressional committee * Vladeck (1979) highlighted specific examples of dysfunctional struc- tural elements of the planning network. Health service area bounda- ries that are consistent with rational technical approaches to planning may be politically unrealistic and impractical. For example, health service market areas often cross state borders. The work of an interstate HSA is complex because it must be involved with two SHPDAs, SHCCs, and State Health Departments various subcom- mittees. Vladeck (1979) warned that The planning process, rather than encouraging efficiencies in resource utilization, may actually accelerate duplication and overbuilding. Residents of southern New Jersey, for example, have long sought tertiary care in Philadelphia, but New Jersey HSAs will experience considerable political pressure to foster the development of additional tertiary facilities on their side of the Delaware River. **Detailing what was expected of the executive branch, was intended to reduce the usual delays in promulating regulations. Such detail was also included because of distrust of the executive branch.

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-3S- structure.* The committee responsible for developing the health plan- ning legislation lacked jurisdiction in several matters that might rationally have been incorporated in a broad health planning statute. The substantive committees dealing with health planning had no jurisdic- tion over such related matters as the Veteran's Administration's health program, Medicare and Medicaid financing, quality review under the Pro- fessional Standards Review Organization program, Section 1122 capital expenditure review under the Social Security Act, or antitrust respon- sibilities related to nonregulatory plan implementation. As a result, linkages between the health planning agencies and the Veteran's Admin- istration or PSROs took the weak form of coordination and cross-repre- sentation. Realth planning was not tied to reimbursement, and the issue of conflict between the aims of planning and existing anti-trust laws was dealt with only in the Congress and then not until 1979. Inclusion of such programs as PSRO was perceived as involving too much delay and possible loss of the entire planning program. These issues that were not dealt with legislatively have plagued implementation of the law. The compromises of 1975 have become the problems of 1980. They are issues that this committee of the Institute of Medicine concluded should be dealt with directly at the first legislative opportunity to eliminate some impediments and inconsistencies in health planning policy. Health Planning as American Federalism touch in the health planning program is common to other federal programs and can be regarded as another version of American federalism. The federal system was created by a complicated series of compromises and was more politically pragmatic than administratively or theoreti- cally tidy. Its main purpose was to protect citizens from abuses of power by limiting the powers of different branches of government. The Constitution's framers visualized two levels of government, each exercising power over the nation's affairs at the same time, (but) they failed to make clear what should be the precise relationship between them or how either level might relate to local and private sources of power (Leach, 1970~. ~ A discussion of this is presented by Sapolsky in Volume II. Related topics and some consequences of the phenomenon are described by Brown, also in Volume II. For the planning program, as for most federal grant-in-aid programs, there is no guarantee that state desires and federal requirements will effortlessly gibe with each other. Indeed, some of the worst intergovernmental snarls develop as the result of conflict between them (Leach, 1970~. *For a good discussion of these issues, see Harold Seidman, Politics, Pn~i Pi on and Power, New York: Oxford University Press, 1980.

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-36- The health planning act also inherited conflicts because of its timing. The act was passed after an era of generous grants to the states, promises of rejuvenation of state authority, and devolution of controls from Washington. In many parts of the nation, the dollars that state agencies had to spend for planning and resources development were reduced. When the funds available for all pi development are added together, it is evident that I). The pla or states. flowed attains 'anning and resources total planning appropriations fell after 1975 (Table I). The planning program with its relatively weak role for states, flowed against the tide of the promised new federalism, sparking activism in public officials' interest groups. However, as a result of this interest, a great deal of learning about planning took place quickly. The situation can be summarized in the words of several authors: ...the brief history of the law reads like a catalogue of contemporary confusions in American federalism: local governments are spurned for the partially new, partially redundant USA structures, states and counties fight for influence within the framework of of the law (Iglehart, 1973~. Federal guidelines are promulgated with little clarity about how seriously they will (or ought to) be taken in the communities (llarmor and Morone, 1980~. Issues Raised in Testimony to the Committee Federal Management The health planning statute details the structure and functions of the planning agencies. These details have been substantially ex- panded through regulations, policy documents, and guidelines prepared by the federal administrative agency. The committee heard considerable testimony in the public hearings suggesting "over-management" of the program by the federal administrative agency, and an emphasis on achieving program compliance rather than providing assistnace to en- hance program effectiveness. This testimony echoed problems identi- fied earlier by observers of the health planning program. Some of the complaints are common to other federal programs and grow from inevita- ble conflicts and tensions in a federal system. The most frequently reported complaints about federal management, in addition to those already discussed in this chapter, include the following.

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-37- cn ~t f~ O cn ~3 Z; ~ <; C`; C~ C~ U) Z O J 1~1 Z ~ ~0 P. U. U. Z 5: u3 C~ E" p .~ ~= 5: a: O ~ O E~ tn C H _~ cn z o o 04 - o CO 0 a' 1 ~_ ~0 _ C) a' ^ ~ cn r~ o 1 0 a' 0 C C~ a, ~ O 0` ~C ~ 4 C~ 1 t O 1 C~ i I I 00 1 1 1 00 1 1 1 - 0 1 1 1 ^ 1 1 1 1~ 0 I i I 1 1 1 _t 1 1 1 0 1 1 1 1 0 1 1 1 1 0 1 1 1 1 ^ 1 1 1 1 c~ 1 1 1 1 ~ 1 1 1 1 _' 1 1 1 I ii 1 1 1 1 1 1 1 1 1 1 1 1 1 1 i i 1 1 O O O O 0~00 0 r~ 0 0 ~ ~ ^ ^= 0 ~ 00 ~J ~ _t C~ 0 1 00 1 0 1 0 0 1 1 00 1 ^ 1 ~ ^ 1 a~ 1 0 0 1 C~ ~ 1~ _1 1 ~ ~ C~ 1 C~0 Z 1 ~) - ~ t ~ ~ ~ 1 00 0 _1 1 _I CO 1 C~J 1 O 0 ~ O r" ~ Z :~ 0 U. ~ O ~ U~ ~ ~ ~ O ~ Z ~ ~ a U~ 0 ~ O O _t ~ ~ 0 ~ 0 c~ a' Z Z 0 U, o' C~ tD C~ O C~ O Irl ~ O ~; Z: _I O O ~ O C~J 0 0 - " - O :: S" `:4 3 =- 1 ~ s~ 1 0 1 0 1 O~ 1 ^ :~ 1 u~ _ 1 1 _I 1 0 1 1 0 1 1 0 1 1 ^ 1 1 0 1 1 ~ 1 1 _~ 1 g U~ 1 o o o C'7 g o U~ o o o o o o ~o g ~r a' CO ~o Ch o C~ o o 1 C~ a~ cr, C~ ~o C~ C~ '_ r~ ~o o E~ 0 ~ o o, ~ . 0 0 C~ Q) 3 3 ~t ~ o C) o s~ o ~ CO oo ~ a~ ~ oo 0 s~ o ~o ~ ~ ~ ~4 C a~ ~ ~ o c~ ~ 3 V~ ~_ ~- 1 ~ O- ~4 =~ =" :e ~ ~ o X o 0 ~ o C) o C} o. s~ o C s~ ~ ~ ~ ~ 0 0 3I O = 0 ~ C1S ~ ~ O so 4J ~e V O ~ " - X ~ ~4 Q ~ _1 ~ ~ ~ ~ ~ 0 ~ O O U ~ ~ - b0 ~ ~ ~ ~ bO O ~ ~ O dJ ~ ~rl V 14 O :~= ~7 ~ O ~ ~ O "0 - > - $4 ~ ^ ~ O P4 ~ O O 0 " U~ i4 O ^ - O ~ V~ ~ 1_ V ~ ~ 0= ~ :r: o ~ ~ ,: . 00 _ O . ~, - ~ ~ ~ ^ O O ~ t0 C~ ~ ~ C~ ~ O 0 ~~ O ~ S4~ C~ ~ 4J =~ ~ ~ ~ - O ~ ~ ~ ~ ~ V O ~ ~ O ~ ~ ~ 00 ~ ~ - ~= 00 :~ ~ ~ = - 0 3 _' ~ ~ CL ~ ~ o ~ ~ >0 0~= - S- ~ ~ 0 3 ~ O O ~ . ID ~ ~ ^ 1 ~ X ~0 ^ O a: oo 0 ~ " - O ^ ~ ~ O ~2 S ~ ~ 3 <: E~ =~ ~ ~ 0. ~ ~ ~ C 4~ c~ od U] <: a~ ^ C~ Co r .= s" 0 ~ CO s~ ~ cn C, U, o ~ LQ 4 UJ C~ O ~ ~ O a c~ U _ 0 ~ . ~o 0 ~ ~ a, ~ as C) ~ ~ ~ U =4 ~ 0 0 ~ ~ oo 0 Pt ^= a) C~ . ~ r~ S cn c~ ,_ ~ U, C :~: ~ q~ o'D ~ 0 ='C 0 ~ ~ C~ E tO ~: ~ s~ U] ~ :3 ~s . C) s~ o ~n D . ~ 0m'

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-38- Local and state observers believe there is federal insen- sitivity to traditional local and state roles and rela- tionships, and little apppreciation of the time required to nurture relationships, to develop regulations and guide- lines, and to educate the citizens involved. O According to state officials, some federal actions pre- empt or override state government, implying that greater knowledge resides at the federal level. Examples include the 1979 amendment that will prohibit state certificate- of-need laws from covering HMOs, and bypasses state government in the proposed use-of-federal-funds review, giving only HSAs the review authority. o State officials alleged federal indifference to state legislative timetables. For example, some state legisla- tures are in session or take up new authorizing legisla- tion only every two years. For them, it can be impossible to meet federal deadlines. o State officials lamented that states were asked in 1980 to revise their CON laws on the basis of proposed--not final--federal rules. At the time, state officials be- lieved that the state would be expected to revise the sta- tutes again when the rules were final. "Changing CON in some states means open warfare and, in many states, every time they are forced to reconsider CON their statutes are weakened not strengthened" (Merritt, 1980~. The coalition used to pass the statutes often is not composed of natural allies, nor are there strong constituencies; assembling support for statutory change can be difficult and politi- cally expensive. o Some state and local officials felt that internal incon- sistencies in federal policies and inadequate federal funding are evidence of a lack of commitment to health planning. State budget officials feared that, once federal support dwindled, federal officials would turn to the state for continued support, although the state had had nothing to say about the program's development. o Frustration was expressed about a program whose structure and administration do not seem to take into account the diversity of health care requirements in the nation. Some witnesses said that a strong general direction from the federal government is not balanced by the flexibility needed to adapt general direction to diverse circumstan- ces. For example, one official noted that the program

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-39- often issues a new national policy to correct a problem at one or two agencies, which creates problems for other agencie s . o A problem in the program's administration, according to some early observers, was the use of regional offices to directly oversee the Act's implementation. Although regional level administration often brings decisions closer to the people and permits some flexibility, it also allows unevenness in quality of the program, and sometimes inequities. Frustration with regional operations and cut- backs in staff positions encouraged a recentralization of final authority into Washington. The solution lies in properly balancing federal and local direction. Strong general direction from Washington should allow regional offices to give strong direction within bounds dictated by Washington. Changes in location of authority also left state and local officials confused about who is in charge. Local and state officials wondered why they had to consult with regional officials if all decisions are made in Washington (Clarke, 1980). Issues Identified by a National Council Subcommittee This committee is also aware of some specific problems identified by the Subcommittee on Implementation and Administration of the National Council on Health Planning and Development: o Guidelines, directives, deadlines, and other federal de- mands are often viewed as inconsistent and unrealistic, resulting in distorted priorities and unnecessary consump- tion of time of agency staff. Federal officials at the regional office level are accused of conducting process-oriented checklist reviews of plans because they are not familiar with local priorities and needs and cannot properly or fairly judge the stature of the agency or the quality of the plans. o State agency reversal of local recommendation on capital project review sometimes is perceived by the RSAs to be caused by political pressure. State agency representatives feel that they did not receive sufficient direction and resources, particularly when the program was being put in place, because the federal govern~nent was concentrating on building the 'USA network.

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-40- Even state planners find the~nselves spending time support- in~ dSA staff development. O The activism and role of the Statewide dearth Coordinating Council, (SHCC,) vary among the states. Some councils ac- tively participate in plan development and review state and local planning agency performance. Others merely act as rubber stamps. Budgetary constraints do not permit the councils to have their own staffs, therefore the more active councils become dependent on the State Health Plan- ning and Development Agency staffs. Yet, SHPDAs in states with passive SHCCs find it difficult to force their coun- cils to act on issues, particularly on controversial ones. It is clear that the SHCCs can help strengthen the plan- ning process by providing an arena for bringing together and resolving differences between the state and local per- spectives. When it works well, the SHCC can also help to provide understanding, legitimacy and credibility for . . . decisions . Issues Raised by Recent Federal Policy Directions Some public officials charge that the 1980 and 1981 budget cuts are examples of the federal government's penchant for starting pro- grams and then, by design or changes in policies or priorities, re- ducing their commitment. Planning is a staff function, not a service program, and thus more liable to budget cuts. Planning--like research, statistics, and evaluation--often seems expendable in the short-run because many non-planners do not see its advantages. The benefits of planning's regulatory aspect are most manifest to those concerned with federal and state budgets and third party payers. Ironically, it may be the regulatory side that will keep planning alive, although its supporters feel that its greatest strength and its probable contribution to cost containment will be through plan- ning, not regulation. Such planning would be aimed at redirecting re- sources in the health system toward more health promoting services with a reduced emphasis on costly high technology and necessary use of sophisticated medical care. The federal budgetary commitment, as con- trasted with general statements of support, reflects an underlying doubt about the need for planning and the potential effectiveness of regulation. National policymakers may not be willing to put sufficient resources into planning to have a chance of testing its value as a service to the community, the state and the federal budget. This committee also uncovered a number of issues that have gained visibility in recent months as federal financial support for planning

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41 becomes wore tentative. * For example, a standardized approach to health planning raises a series of specific questions: 0 Must planning agencies cover the entire nation? Could planning programs be concentrated in areas of the greatest problems of access, health status, or costs? If so, who or what should they cover? O Would it be better to have fewer agencies funded at an ade- quate level than national coverage funded at minimal level? O Should health insurers be encouraged to be major financial supporters of health planning? Should Medicare/Medicaid pay a share? Issues of Certificate of Need Effectiveness The effectiveness of certificate-of-need programs is questioned in any discussions of problems in national, state and local relations. Recent studies lead to the following generalizations about CON. There are enormous inter-state and intra-state variations in the program.** The older programs and those with a stronger "will" and "mandate" (see Cohodes) to regulate the system more agressively have had some effect, notwithstanding as Bauer observed in a 1978 analysis, that the law was given: no power to influence where physicians practice, their referral networks, their staff privileges or their degree of cost consciousness when order- ing ancillary services; * Agency funding is based on size of the population. This offers surface equity but it is inequitable since planning costs vary with geography and distance. Also, large remote areas are further handicapped by dif- ficulties of attracting and holding staff. Although some of these problems have been ameliorated by the small fund for special needs authorized in 1979, this is not adequate because the agencies are not even funded to their authorized level. **Apart from such inter and intra state differences, a recent study by the American Health Planning Association, "Analysis of Health Plan- ning Agency Activity under CON and 1122" HEW Contract Number 100-79- 0121 noted that some differences in such as types of applications-re- ceived or approved and volume of expenditures required and approved appear to be associated in some cases with such local characteristics as the size of RSA population, the extent to which USA areas as rural and the hospital bed-to-population ratio of the RSA area.

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-42- no power to prevent non-institution-based physicians or others from acquiring facilities and equipment that, for institutions, would be subject to certificate-of-need regulations;* no power to influence the many federal, state, local regulatory bodies and voluntary agencies whose decisions may push up institutional costs; no authority to bring federal hospitals under the aegis of local and state planning and regulation. The effect of CON is certainly not as significant as proponents of "cost containment and bed closure" would like to see, nor is it as weak or as questionable as critics aver. For example, after a thorough review of CON in Massachusetts, Howell concluded: "The presence of Certificate of Need regulation in Massachusetts, then, has improved institutional capital planning and encouraged the development of co- operative relationships among hospitals. ... (But) even the presence of a mature program ... does not force an institution to choose among projects." The most serious continuing problem of CON is that it has no way to determine or estimate the "need" with some sense of what can be afforded (Bauer, 1977; Needleman and Lewin, 1979; Howell, 1980; Cain and Darling, 1979; and Sapolsky, Volume II). The absence of technical certainty, limitations in knowledge concerning efficacy of treatment and the appropriate supply of services, planning technology limitations, and inadequate data make CON decisions complicated and ultimately the product of value judgments by the decison makers. It has also been ob- served that political bargaining is a major factor in CON decisions. Most comprehensive studies of CON cite and document the changes that occur as a program matures. These include (1) a shift from cri- tical review of number and types of beds to extensive analyses of the development and application of more detailed and more technically defensible standards and criteria for decisions. A recent report on planning and regulation in New England (Codman, 1979) made the following observations. Contrary to early predictions, the planning system has not been captured by health care providers. Provider interests are often divided. Where providers do not have a *A recent report in the New York Times (11/20/80) describes the pur- chase of CAT scanners by physicians and notes that of the 54 scanners in place in New York State about 376 are in private use by radiolo- gists. A scanner manufacturer is reported as saying that 70 percent of machines now on order are for radiologists in private practice. It is clear that the exclusion of physicians from CON is a significant gap in the coverage of health care capital investments.

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-43- direct interest in a project they generally stand on the sidelines, un- willing to use up their own political reserves. Nevertheless, providers can outmaneuver the HSAs and state agencies through multiple strategies, and mobilize a constituency, usually the consumers in their area. This committee found that even the best evidence available does not answer the question of relative costs and benefits of CON programs. It is difficult enough to measure the costs of the programs,* the benefits are even less clear. It has been argued that a significant contribution of the planning program is the acceleration of sound institutional planning for which there is a great deal of anecdotal evidence. However, calculating the costs and the benefits of such improvements would be hard. To the extent that the planning program has encouraged improved institutional planning, circularly, good institutional planning can lighten the task of area planners. Research should be initiated to discover and disseminate information on good institutional planning models and on successful linkages between institutional and area planning. Because the planning program is more than regulation, and because the impact of CON and 1122 programs is more complete than mere dis- approval of capital expenditures, the committee concluded that an assessment of the planning program on the narrow criteria of approvals and disapprovals under CON or 1122 project reviews is inappropriate and likely to be unsatisfactory. The bases on which the program should be judged are discussed in Chapter II. Specific Issues Addressed by the Committee Relationships with Federal Medical Care Systems The medical care system owned and operated by the federal govern- ment, including the Veterans Administration, are significant elements in the total health care resources available to the nation. Federal beneficiaries represent a substantial subset of the population in most health- service areas, and one that often utilizes both the commu- nity system and the federal systems. Federal beneficiaries and the resources should be considered as part of the community health planning process.** Conversely, planners for federal systems will undoubtedly want * Even the cost of processing applications is hard to quantify. Cohodes' paper in Volume II estimates the cost to selected state CON agencies of processing an application to vary from $400 to over $7,000. **Here, as in the first year's report of this committee, the distinc- tions between planning and decisionmaking, and between planning and regulation, are deliberate. The committee is not trying to make any statement about the Congress' decisionmaking authority in terms of the VA health care system.

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-44- to take into account an area's total resources when plannin~ for their eligible populations. In the past few years a number of steps have been taken to help coordinate health planning among the different sytems. Improvements include having the non-federal health planners at state and local levels review and comment on proposals for changes in federal health services. Participants on all sides of these complex issues need to develop improvement in planned linkages, better coordi- nation and, where appropriate, sharing and regionalization of services. This committee is aware that two previous committees--one of the Institute of Medicine and the other of the National Research Council-- have made recommendations on this subject. However, this committee did not have the time to explore this problem in depth and does not have a specific recommendation, except to encourage movement toward more dia- logue in these matters and actions that will create the most cost effective health system for all citizens' including those to whom the federal government has obligations. Recommendations to Expand Coverage of the Planning Program The committee and the authors and speakers at its public hearing found the relative lack of linkages between planning and financing to be a major barrier to achieving the goals of the health planning legis- lation. In the committee's view, strengthening linkages between health planning and the reimbursement system should be a high priority for study in a series of experimental programs within selected states. Such linkage might take the form of a tie between reimbursement under federal programs and findings that services reimbursed are appropriate- ly organized and accord with the plans, criteria and standards develop- ed and applied by the health planning agencies. The committee recom- ~ends that expanded efforts to link planning and state rate review pro- grams be fostered by the federal government so that the most effective linkage models can be identified. While a decentralized planning approach, such as this one, is unlikely as discussed earlier to constrain cost increases, other state and federal actions could more favorably influence planning agencies functions. For example, reimbursement schedules for physicians and hospitals which today favor expensive technology and procedures might be modified centrally to change the incentives. Also, studies funded centrally through the National Institutes of Health, the National Center for Health Care Technology, and other research institutes might help determine what technologies, procedures and services are medically beneficial and cost beneficial. With such information, the HSAs might be better prepared to set priorities in the areas they serve. Another issue is the possible conflict between health planning and anti-trust legislation. Congress explicitly required health planning agencies to implement their plans through a variety of means, including securing voluntary cooperation of institutions in

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-45- regionalization of health services and reductions in redundant ser- vices. Although the legislativie history suggests that the Congres- sional committee was aware of the anti-trust implications of such actions, the legislation itself contained no explicit exemption from anti-trust legislation for planning activities undertaken by providers. The issue has since been raised in the courts and with the Department of Justice. Federal court decisions thus far suggest that an implied exemption exists. The Department of Justice, however, has proved un- willing to commit itself on the implied exemption issue, leaving the threat of anti-trust action hanging over a variety of implementation efforts. The committee recognizes that anti-trust exemption is only reluc- tantly granted by the Congress. In this case, however, the public interest in rationalizing the health system and controlling costs must receive priority. The current economics of the American health system preclude effective competition, although major changes in the financing and reimbursement, if made, may affect those conditions. Until that time, the open public nature of the health planning process in itself -~plies safeguards against anti-competitive abuse. Accordingly' the committee endorses the concept of an explicit anti-trust exemption for activities publicly undertaken by providers in conjunction with health systems agencies, and in accord with the goals, objectives, and recom- mended actions embodied in adopted health systems plans. The committee . recognizes that the issues involved in granting such an exemption are complex, and that the exemption language must be carefully structured to prevent abuse. In order to define the issues more carefully, and to develop the most useful legislative language, the committee recommends that the National Council on Health Planning and Development working with the Department of Justice and the Federal Trade Commission estab- lish a task force to develop proposed legislative language. As long as the threat of anti-trust action casts a shadow over efforts to secure change through cooperative actions, the pressure will mount to apply regulatory solutions where nonregulatory action would work equally as well. The committee hopes that the Council will move expeditiously to begin this important task. Recommendations Concerning Agency Diversity The co~mittee's consultants and persons appearing at the public hearing emphasized a need for federal administrators to exhibit more flexibility in the conduct of the health planning program. Some of the planners in the field perceive the program to be "over-managed" by the federal government. The planning statute is unusually detailed, yet it has spawned extensive supplemental and interpretive regulations, program policies, and program guidelines. The development of such material has been slow, delaying implementation. At the same time, once these policies and regulations are published, agencies are given short deadlines to comply. There are misunderstandings on both sides. Federal administrators, Congress, and others, fail to understand the

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-46- community dynamics that affect changes in board structure, development of consensus plans, or conduct of review procedures. There is a similar lack of appreciation at the community level for the federal regulations process, with its various mandated reviews, sign-offs, and approvals. Considering the detailed nature of the statute, the committee believes that administrative attention might better be directed to fostering diversity in approaches used by the agencies (within the broad constra- - ints of the legislation), and to studying the results, than to efforts to achieve a high degree of uniformity through inflexibly applied supplemental regulations. The operation of this program could provide provide an opportunity to learn what works well or poorly under differ- ent conditions. The committee recommends that the federal administra- tors of the program adopt a policy promoting or allowing natural experiments in both agency structure and in methods for carrying out agency responsibilities, and study the results. Some opportunity for such experiments already exists within the constraints of the statute. The committee feels that even more flexibility is needed. Trial of some alternative approaches to agency organization and operation will not be possible without changes in legislation. The committee believes that to enable such experiments to be performed, Congress, in reauth- orizing the planning program, should make explicit its interest in allowing experimental approaches to test different ways of health services planning. The current "controlling" approach being pursued by the federal administration denies the federal government, state government, and localities the opportunity to learn while doing, an essential ingredient to any program, but especially one aimed at creating local institutions with complex missions. The choices of experiments should be made by the planning agen- cies, according to size of grant, composition of staff, and priorities and interests of the governing body and the state. Accountability should be tied to the outcome and process goals discussed in Chapter II. These recommendations will require more flexibility than program administrators have permitted in the past. The emphasis on the part of the administrators of the program should be on facilitating variations responsive to a particular community's needs rather than promoting com- pliance with excessively detailed administrative guidance. The federal government should be firm and clear in its goals and expectations, and flexible in the means to achieve those goals that it will allow. There should be flexibility in the number and nature of agency functions and responsibilities. Agencies should be permitted to experiment with more or less frequent plan revisions, variable cutoffs for certificate of need, methods for doing appropriateness review, proposed use of federal fund (PUFF) review requirements, etc. The committee has already expressed its preference for the pro- gram's having fiscal and temporal stability overall, with a reasonable level of funding suited to the required tasks, but the committee also

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-47- recommends that some agencies be better funded to test and document possible effects of planning with greater funding. In some cases, the required supplemental money might come from third-party payers. l In addition, some agencies should be allowed extra Area Health Ser- vices Development Funds for seed money to help get projects started as discussed in Chapter II. The range of experiments should be sufficiently broad to assure the finding of effective new solutions. For example, some areas could be encouraged to test the placing of planning units in rate-setting agencies, or of programs to buy out, convert, and eliminate unneeded services. Other areas with low health care costs and little excess capacity might be excellent locations for raising the capital expendi- ture review threshold. It is particularly important to avoid "charting of outcomes" of experiments. A better understanding must be developed of the incen- tives and effects of different arrangements. The paper by Downs in Part II of this volume has a good discussion of these issues. Failure to improve the knowledge base and technology of planning will ensure that policy debates continue to be dominated by theoretical specula- tions about institutional behavior and untested assumptions. Congress must make explicit its interest (through funding and a legislative history specifying kinds of experiments) in genuine exper- imentation in how to effect change to find the best ways to conduct planning. Contrary to the usual uniform federal approach to problems, a major goal of this program would be to encourage variation and diver- sity and to learn more about optimal methods for allocating resources. While absence of uniformity and rigid administrative rules and procedures tends to create anxieties, particularly among Washington policymakers, it is essential that these fears be overcome by recog- nition that a program responsive to national diversity can be more effective than a uniform program. Experimentation in Reimbursement and Capital Controls Reimbursement programs that simply accept or pass through land, plant, and equipment costs as reasonable and necessary encourage investment. The committee finds that creative reimbursement approaches and new methods limit non-essential or excessive capital investment are long overdue. The Congress should enact enabling legislation and . . . authorize funds to monitor and evaluate such experiments There are a wide range of approaches that could be considered, such as: O a state setting an aggregate limit on capital expend- itures for a 3-5 year period;

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-48- o state rate regulators imposing per-case reimbursement limits, or studying the experience with this reimburse- ment in New Jersey; o federal reimbursement experiments that limit paying for interest, depreciation, rent, and other land costs; o federal or state efforts to limit the supply of private loan financing to hospital or nursing homes. These approaches would act as impediments to growth of the health industry and force planning agencies to become more selective in making determinations of need. If a special reimbursement program adequately contained expansion, experiments could be conducted in temporarily suspending CON for some elements of the health system. Recommendations for Stability and Funding Health planning agency efforts are directed largely to making changes in the health care services and facilities of communities. The components of that structure are often well-established and well- funded. There will be resistance against outside efforts to redirect activities. The health care system has demonstrated great endurance, and health planning agencies are at a disadvantage in working from a base of three-year authorizations. By placing the planning system at risk every three years (and even more often in recent legislative sessions), the Congress erodes the potential effectiveness of the agencies. In the committee's view, longer authorization periods would help planning maintain the commitment and interest of its thousands of citizen volunteers and combat resistance to change in the communities. Other adverse consequences of the current planning approach in- clude problems in recruiting and retaining staff and excessive invest- ment of scarce agency resources in restructuring programs to respond to triennial adjustments in the basic legislation. Further, although the program was authorized in 1974 at 50 cents per capita, it has never had such funds appropriated, and the purchasing power of that original figure has been eroded by six years of inflation before the program has ever been adequately tested. Accordingly, the committee recommends that Congress take the steps necessary to provide a greater degree of temporal and fiscal stability to the program. Among the con- siderations which should enter into development of improved legislation are the length of program authorization, the possibility of developing a stable financial base through use of a trust fund approach for at least a portion of the funding, and the use of guaranteed future funding to enable agencies to budget more effectively.

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-49- The committee explored the potential for alternative funding sources for health planning, particularly for tISAs. Proposals in 1980 from the Office of Management and Budget concerning HSA funding by third-party payers, health provider organizations, and state govern- ment, were given particular attention. The committee concluded that funding at the local level by interested parties raised potential con- flicts of interest, or the appearance of such conflicts. The possi- bility of influence was also a factor which makes unwise agency use of money from providers or third-party payers particularly if provided on a voluntary, rather than mandatory basis. This problem was seen as potentially most serious if individual agencies were expected to approach such sources directly for support. In addition to the poten- tial for conflicts in planning and project review, there was concern for the amount of time agencies would have to invest in fund-raising activities. Although state funding has been provided in some instances, variable state commitment to the program, as well as the problem of resource availability at the state level make that funding undepend- able on a nationwide scale. Thus, although the committee understands the desirability of broadening the basis of financial support, it is not optimistic about the feasibility of such efforts. For the federal government to act on the erroneous assumption that agency funding would be forthcoming from states or other sources would be harmful. The committee could not reach agreement on how funding for the plan- . . ning agencies might be broadened without putting other important goals, such as planning agency independence, at risk. But, the committee felt strongly that any actions by the federal government based on an assumption that state and local governments or others would pick up funding would be illusory at best. The committee recommends that the National Council on Health Plan- ning and Development undertake a special study of the planning agency funding issue, with the goal of producing recommendations for consider- ation by the Congress during the 1982 review of the authorizing legis- ation. Particular attention should be paid to securing support from third-party payers and health organizations in a manner that would insulate the HSAs from potential conflict of interest, and that would relieve individual agencies from responsibility for direct-fund ra1 s 1ng . Recommendations About Relationships Among Agenc tee A particular set of relationship problems for states with a single HSA were reported. In such states, where the population and resource base is not sufficient to support multiple HSAs, concerns were expressed concerning potential and actual duplication of efforts between the HSA and the SHPDA. The committee decided that special attention should be given to dividing functions and responsibilities so as to eliminate duplication or waste. It was concerned that eliminating agencies or turning them into "1536 entities" (that is, agencies in which both state and local functions are carried out)

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-50- might create problems of access to the agency, especially by consumers, and reduce opportunities for citizen involvement. Because citizen par- ticipation is one of the strengths of the planning program, it would be undesirable to constrict it in the name of system efficiency. At the local level, the health planning structure has an array of horizontal relationships with both governmental and nongovernmental organizations. In a cooperative planning model of this type, such relationships are essential both to the planning process and to imple- mentation of the plans. The range of organizations whose involvement would facilitate the planning process is broad. In some cases (local government, hospitals, HMOs), participation through the governance structure of the planning agency is specified by the statute. In others (PSROs, rate review bodies, regional planning bodies), there is a statutory mandate for the planning agency to exchange information and otherwise involve them in its activities.* Among the most important of these relationships from the perspec- tive of the committee are those with local official health agencies which are not directly required to deal with the planning agencies. An expanding interest in disease prevention and health promotion should help to enlist health planning agencies in such activities. Local and state health departments have the major operating responsibility and statutory authority in these areas and are a repository of expertise that should be engaged in planning for such efforts. The committee concludes that closer operating relationships between health planning and official health agencies should be pro- moted. This does not require that health planning be conducted by governmental organizations, but rather that such organizations be in- volved in planning. Michigan is an example of the initiation of sys- tematic efforts to bring planning agencies closer to the health departments in the state. Other important relationships are those among planning agencies and other federally-supported regional bodies. Such bodies, particu- larly PSROs, collect data and conduct activities for improving the quality of care, also a concern of health planning. The committee *Katharine Bauer in ''The Aranged Marriage of Health Planning and Regulation for Cost Containment Under P.L. 93-641--Some Issues to be Faced," Harvard University Center for Community Health and Medical Care Report, Series R58-1, December, 1977, discusses some special skills and information residing in rate setting programs that can be of use to HSAs. In particular, rate setters are conversant with the cost impact of new technologies, have historical data on the cost of introducing certain medical programs, and new facilities, and their affect on operating costs, and statewide cost/budget data by hospital service area which can reveal gaps or duplications of services or low occupancy that may indicate a need for sharing services.

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-51- recognizes the differences between the missions of the PSROs and the planning bodies and the real problems which exist concerning data confidentiality. In fact, the committee felt that there is too much attention paid to their working together when their tasks are quite different and the real opportunities for working together are limited. The committee recommends that the National Professional Standards Review Council and the National Council on Health Planning and Develop- ment jointly develop a position concerning data and other information exchange which meets the legitimate need for such data for health plan- ning purposes while observing legitimate concerns regarding confidentiality of individual patient data. In this chapter the issues of state, local and national relation- ships and relationships among agencies at the three levels were dis- cussed. The committee, recognizing the importance and complexity of such relationships, made such recommendations as to urge flexibility in federal administration of the planning program, experiments in methods of capital control and reimbursement, and expansion of the health planning program to include elements of the health system currently outside the planning framework.

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