Final Decision of the DHS Commissioner Regarding a New Surgical Unit in Portland

April 5, 2004

Michael R. Gottfried, Esquire
Duane, Morris LLP
470 Atlantic Avenue
Suite 500
Boston, MA 02210
MRGottfried@duanemorris.com

John P. Doyle Jr.
Chair, Health Law Practice Group
PretiFlaherty
One City Center
P. O. Box 9546
Portland ME 04112-9546
jdoyle@preti.com

Robert S. Frank, Esquire
Harvey & Frank
Two City Center
PO Box 126
Portland, ME 04112-0216
Frank@HarveyFrank.com

IN THE MATTER OF:

By Decision dated February 26, 2004 I denied Portland Surgery Center, LLC's ("the Applicant") application for a Certificate of Need to develop an ambulatory surgery facility in Portland. The Applicant timely filed a Request for Reconsideration dated March 4, 2004. This Request was granted, and a hearing was held in this matter on March 19, 2004. I want to thank Administrative Hearing Officer Michael LeBlanc for his work in presiding over this hearing and for organizing the record for my review. I also want to thank the parties for their work and input into this matter.

Under §335 of Title 22 I am to approve the application if I determine that the project meets all of the criteria set forth therein. As set forth in my earlier decision, there were a number of criteria where I did not find that the applicant had met its burden. Reconsideration was a vehicle by which the applicant and the parties could further address these criteria. Below is my review of these criteria.

Turning first to sub-section 335(7)(C), I remain unsatisfied that the applicant has adequately addressed the question as to whether the project "will substantially address specific health problems" in the area. While there is little doubt that the proposal presents an efficient way to deliver the specific surgeries performed by the staff of this proposed facility, I find little evidence in the record which demonstrates in any scientific manner that there are "specific health problems" to be addressed in the Portland area. I certainly understand the frustration of the surgeons in the applicant group around access and efficiency issues, and I also appreciate the possible frustrations of patients as documented by the anecdotal evidence presented in this record. However, I did not find the evidence presented regarding this criteria to be persuasive. In addition, I also note that the requests by Mercy and Maine Medical Center for additional or replacement OR space is similarly unpersuasive as an argument in this context. Mercy and Maine Medical Center will have the same burden to demonstrate and document that their proposals will substantially address specific health problems in the area.

I remain concerned about sub-section (7)(C)(3), whether services will be accessible "to all residents of the area." To be clear, I am confident that the testimony of the surgeons in this hearing was a demonstration of their sincere interest in providing appropriate charity care to patients who access their services. However, I am not convinced that in the end, on the basis of this record, that services will be accessible to all residents of the area. There are fundamental differences between the charity care patient caseload dealt with by hospitals and what appears to be the caseload to be dealt with by this project as demonstrated by the payor mix information and the different manner in which these two entities receive patients. Also relevant is concern that the charity care policy is entirely voluntary for this proposed facility as well as the assertion in the record that very few, if any, of referring physicians have charity care policies in place. While the applicant's submission of a written charity care policy was important, I find there remain serious questions regarding the issues of access to their services by "all residents."

I do not find adequate support in the record for subsection (7)(D)'s requirements regarding the "orderly and economic development of health facilities." I first note that there is evidence in the record supporting the applicant's contention that the facility has the potential to lower certain health care costs due largely to its ability to provide more efficient services to its patients. The statute, however, requires analysis of this economic issue on total health care expenditures, and so the concerns expressed by the hospitals must be taken into account. These concerns are as follows:

• Economic differences resulting from different payor mixes
  
  
• Evidence in the record regarding possible increases in utilization
  
  
• Financial losses to the hospitals and possible loss of services to the community

The evidence in this record supports the conclusion that there will be a negative economic impact to the hospitals as a result of the different payor mixes between the facilities. The impact flows from a possible shift in the payor mix as the proposed facility assumes a caseload that is possibly healthier and better insured than that assumed by the hospitals, a shift that is not remedied by the facilities adoption of its proposed charity care policy. This is important, because even if there is an assumption that "the slack will be taken up very quickly" by the hospitals due to pent-up demand for OR services, the payor mix difference will still have an economic impact on the hospitals.

There is also evidence in the record regarding possible increases in the rate of utilization. As noted in my earlier decision, there is evidence that establishes this general concern around ambulatory surgical facilities. In the hearing Mercy Hospital argued that other studies have shown that increased utilization is a potential risk with these facilities. Transcript at 197 - 202. While the record before me is mixed on this subject, in the end I am not satisfied that the applicant responded sufficiently to these concerns. Overall, then, I remain concerned that the risk of possible increases in utilization rates would negatively impact the "orderly and economic development" of health facilities.

Finally, both hospitals made detailed presentations regarding anticipated losses. By way of example, the record demonstrates that the loss to MMC may be around $2 million, a 40% reduction in its contribution margin (Trancript at pg. 185). These losses, even in light of the applicant's argument that Mercy's claims are "exaggerated", do appear to represent real losses to these facilities on the basis of this record. While I cannot determine the exact impact of these losses, it appears there will be a negative impact in the form of higher costs or loss of services to the community, or both. As I noted in my earlier decision, this is a complex issue. Undoubtedly, though, the claims of losses sufficient to have a substantive impact on the hospitals and the community is a real one and such claims were not sufficiently rebutted by the applicant.

My last concern in my earlier decision was the question of the applicant's ability to comply with the Health Care Practitioner Self-Referral Act as well as other related federal laws. While these are obviously important issues to be scrutinized carefully, I find that the applicants intended to fully comply with these laws. To the extent these laws require changes to their business plan, or require development of internal policies, I did not find any objection or inability for the applicant to comply.

Decision: It is my decision, based upon the record before me, that the applicant has not sufficiently met its burden to fully comply with the approval provisions of the Certificate of Need Act. I am therefore denying the applicant's request for approval.

Sincerely,

John R. Nicholas
Commissioner
Maine Department of Human Services

Cc: Christopher C. Leighton, Deputy Attorney General
Gregory A. Brodek, Esquire, gabrodek@duanemorris.com
Janine Massey, Assistant Attorney General

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