Hospitals in Indiana don't have to prove need exists

Indiana's legislature abolished its law in 1985 during the Reagan administration era of deregulation. That's opened the door to a competition explosion.

Northwest Indiana, which had no for-profit acute care hospitals 10 years ago, will have five in Lake and Porter counties alone within the next year.

Neighboring Illinois continues to have such regulation. Its Illinois Health Facilities Planning Board, which was plagued by scandals in recent years, has approved only two new non-replacement hospitals in the last 25 years, one of which was rescinded due to allegations of kickbacks and a tainted approval process. In response, the Illinois legislature scheduled the board to expire this year, but offered a 15-month extension through August 2008.

But because Indiana has no certificate of need law, in the last five years 10 hospitals have already opened or are under construction, according to Bob Morr, a spokesman for the Indiana Hospital and Health Association.

Many are for-profit.

The newly announced plan by South Bend's Memorial Hospital and Health System to build a hospital would mean competing with another new hospital project planned by Porter hospital, the former Porter Memorial Hospital, which was sold in April to the for-profit hospital chain, Community Health Systems in Brentwood, Tenn.

Morr said while it's uncommon for a hospital system to build a new hospital in a market where another competitor also plans to build a new hospital, it's not unprecedented. He said recently Indianapolis-based Clarian Health Partners partnered with the Arnett Clinic in Lafayette to build the Clarian Arnett Medical Center nearly an hour's drive from Clarian's base in the state capital. The Sisters of St. Francis Health Services is building a new hospital as well for its St. Elizabeth Regional Health system.

Philip Newbold, president and chief executive officer for the 400-bed Memorial, denied that his system's announcement to build a new hospital was a hard ball negotiating ploy to convince Community to sell Porter and reduce competition.

Newbold said his system intends to finance the hospital by offering equity partnerships with local physicians, following a similar tactic employed by Clarian Health, a not-for-profit system that has joint venture for-profit hospitals with physician partners. While the proposed hospital would be primarily owned by Memorial, a not- for-profit health care system, if physicians hold ownership stakes, it would become a for-profit hospital like Porter, paying taxes and borrowing money through conventional means.

Newbold said if that ownership model is not successful, Memorial would probably borrow the money to pay for the new hospital through tax exempt bonds or other means. He said he's not worried that Memorial has no name recognition or physician relationships in Porter County.

"We will spend the next three or four months talking with doctors," he said. "We think the growth patterns of Porter County and its proximity to Chicago are real assets. We're not so concerned that we don't already have something in that market. It's a fairly fragmented market and we think we can bring some consolidation and quality to it."