The Futility of Trying to Grow


Snodgrass wanted to build a hospital.  He spoke to Lapius directly, because he knew I didn’t have the money to invest.


“What do you say, Simon, will you come in with us?”


“With who?”


“We have a group of about 20 doctors.  We can get the financing from the bank.  The plans are drawn.  Would you like to see them?”




“Simon, that’s not like you.  You know we could use another hospital around here.”


“Sure you do.  Sure we do.”


"So look at the plans.  Join us.”  




“Why not?”


“You are wasting my time.”


Snodgrass was hurt.  Lapius had never spoken to him that abruptly before.  “You are not consistent, Simon.  Why would it be a waste of time?”


“Because they won’t let you build a hospital.”


“Who won’t?”




“Who is they?”


“How do I know who ‘they’ are?  All I know,” Lapius said emphatically, “is that you can’t build it.  It’s against the law.”


“Against the law?”


“Whatever law says that you have to have a certificate of need to build a hospital.”


“So we’ll get a certificate of need.  Surely a formality.”


“That’s what you think.  It is a very difficult thing to obtain.”


“We can prove there is a need.”


“But no one asks you to prove that.  The state government will tell you whether or not there is a need.  They don’t want you to compete with the present hospital.”


“Why not?  The competition will do them good.”


“The government* and the insurers. Medicare and Blue Cross don’t want competition.  They don’t want empty hospital beds.  They don’t want you to build a hospital near the present hospital because with empty beds the per diem cost per patient goes up.  They are afraid that your hospital will take only paying patients and leave the other hospital with welfare patients.”**


“Can’t we promise to take all patients who apply?”


“Sure.  But they won’t believe you.”


“Can’t they pass a law that says that all hospitals have to take all patients that apply?  That hospitals can’t discriminate on the basis of a means test.”


“There are those that say such a law would be unconstitutional.”


“But preventing us from building a hospital also seems to be unconstitutional.  That smacks of restraint of trade.”


“Of course it does.”


“We can fight that.”


“Sure if you are willing to spend $20,000 or more in legal fees.  After all, a chicken farmer upset the NRA under Roosevelt.”


“Well then, maybe we should fight that in the courts.  Would you join us then?”


“I’ll contribute $1,000 for the lawyer.  Now get the rest from your partners.  But short of a law suit, you’ll never get the certificate of Need.”


“Why should the community be robbed of extra medical services, Simon.  The whole thing is unfair.  We are short of beds, every patient lying on stretchers in the halls knows that.”


“Yes but there aren’t enough of them to create a stir.”


“Do you mean to tell me, Simon, that the government is subsidizing a monopoly in health?”




“That’s outrageous.  Why are they doing this?  The community knows it needs more services.”


“Because the community isn’t paying the bill.  The government is.”


“But it costs them more to administrate the system than it would to allow competitive health institutions to exist, even if some of them lose money.  I can’t believe an unreasonable system such as this would be sanctioned by the government.  Surely there must be a way out of this.”


“There is, Snodgrass, there is.”


“Good old Lapius, I knew you were only pulling my leg.  I knew you had something up your sleeve.  How can we get around it?  What’s the gimmick?”


“The three mile limit.  Buy one of the surplus hospital ships that are in mothballs.  Modernize it and anchor it three miles at sea.  We can have hydrofoil ferry service to and from the ship, and helicopters for emergencies.”


“Lapius, a brilliant idea,” Snodgrass gasped in admiration.


“Only it won’t work,” I interjected, annoyed at having been ignored for so long.


“Ah yes, Harry is right,” Lapius said, robbing me of my moment of glory.  “It won’t work.  The government wants to extend the coastal limits to 12 miles.”


“And there is talk of 200 miles,” I added.


“That wouldn’t be too bad,” Snodgrass said thoughtfully. He was undeterred.  “We could anchor the hospital to an oil drilling tower.”



*In 1946 the Hill-Burton** Act was passed that provided for the construction of hospitals, and provided to some extent for a number of them for the indigent, uncompensated beds. After Medicare and Medicaid were encated the Government trying to contain costs felt that with fewer available beds there would be fewer hospital admissions and costs would be reduced.


**The Hospital Survey and Construction Act, also known as the Hill-Burton Act, is a United States federal law passed in 1946. This act responded to the first of Truman’s proposals and was designed to provide federal grants and guaranteed loans to improve the physical plant of the nation’s hospital system. Money was designated to the states to achieve 4.5 beds per 1,000 people. The states allocated the available money to their various municipalities, but the law provided for a rotation mechanism, so that an area that received funding moved to the bottom of the list for further funding.


As is always the case, these federal dollars came with strings attached. Facilities that received Hill-Burton funding had to adhere to several requirements. They were not allowed to discriminate based on race, color, national origin, or creed – except for the proviso that allowed for discrimination so long as separate, equal facilities were located in the same area. The U.S. Supreme Court struck down this segregation in 1963. Facilities that received funding were also required to provide a ‘reasonable volume’ of free care each year for those residents in the facility’s area who needed care but could not afford to pay. Hospitals were initially required to provide uncompensated care for 20 years after receiving funding. The federal money was also only provided in cases where the state and local municipality were willing and able to match the federal grant or loan, so that the federal portion only accounted for one third of the total construction or renovation cost. The states and localities were also required to prove the economic viability of the facility in question. This excluded the poorest municipalities from the Hill-Burton program; the majority of funding went to middle class areas. It also served to prop up hospitals that were economically unviable, retarding the development wrought by market forces. Once Medicare and Medicaid were enacted, participation in those programs was added to the list of requirements for access to Hill-Burton funding.


The reality, however, did not nearly meet the written requirement of the law. For the first 20 years of the act’s existence, there was no regulation in place to define what constituted a "reasonable volume" or to ensure that hospitals were providing any free care at all. This did not improve until the early 1970s, when lawyers representing poor people began suing hospitals for not abiding by the law. Hill-Burton was set to expire in June 1973, but it was extended for one year in the last hour. In 1975, the Act was amended and became Title XVI of the Public Health Security Act. The most significant changes at this point were the addition of some regulatory mechanisms (defining what constitutes the inability to pay) and the move from a 20-year commitment to a requirement to provide free care in perpetuity. Still, it was not until 1979 that compliance levels were defined.