Indiana county's hospital construction ban overturned

A court case considered to be an indication of whether local governments are able to dictate the terms of hospital competition resulted in a ruling showing that, so far, local governments may not.

In a Nov. 2 ruling, U.S. District Judge David F. Hamilton in Indianapolis ruled against one county's attempt to protect its community hospital from encroaching competition, saying that state law "explicitly grants the Indiana State Dept. of Health the right to license and regulate hospitals" -- not counties.

The ruling came in a challenge to ordinances that were passed in Morgan County. The ordinances imposed first a limited moratorium and then a county approval requirement on hospital construction. St. Francis Hospital-Mooresville and its parent company sued, arguing that the ordinance unfairly restricted it from moving forward with plans for a $40 million expansion project.

The case was closely watched by other hospitals and at least four other Indiana counties that have imposed similar ordinances in the last year. Observers say similar efforts by local government entities could become more widespread as increasing competition and financial pressures bear down on community hospitals.

Recent competition has come largely from private, limited-service hospitals that don't have the same responsibilities as community hospitals, said Thomas Laux, president and chief executive of Morgan Hospital & Medical Center, the community hospital involved in the case.

"Our purpose in seeking the ordinance was ... to foster a fair, competitive environment," said Laux, who said the county was considering appealing the ruling. That decision may be influenced by the outcome of a legal challenge to a similar ordinance in another Indiana county, he said.

St. Francis, part of a three-hospital nonprofit health system in the south suburbs of Indianapolis, is seeking to build the new facility to add to the services of its existing 60-bed Mooresville facility, said Keith Jewell, executive director of the hospital. Construction could begin by next spring.

Jewell said he "would not be opposed to a statewide solution" to address the competitive challenges facing hospitals. But he said the ordinance tackled things the wrong way. "My concern was at a countywide level, that's not where those decisions should be made," he said.

In 1987, Indiana repealed its certificate-of-need law that limited hospital construction, instead allowing market forces of supply and demand to set the pace. But in the last few years, county hospitals have said they're suffering against private competition. Bob Morr, vice president of the Indiana Hospital & Health Assn., said his group considered a push to revive certificate of need, but that plan was scrapped because the previous law "did not serve its alleged purpose of controlling health care costs," he said.

A bill was floated earlier this year in Indiana's legislature that would have allowed counties to require that new health care facilities obtain county permission to build. But the measure died without a final vote.

Morr said county commissioners decided that even without the legislation, they would set their own rules.

Dean Montgomery, director of the Falls Church, Va.-based American Health Planning Assn., said similar efforts surfaced several years ago in Oklahoma, though such actions are rare. He said the licensing and monitoring of health care facilities is traditionally "a state function."

Certificate-of-need programs are offered in some form in 36 states and Washington, D.C. Richard Cauchi, health program director of the Denver-based National Conference of State Legislatures, said that number has remained fairly constant in recent years. But state lawmakers have addressed regulation in other ways.

The Indiana State Medical Assn., which has not taken a stand on the county ordinances, does not support certificate of need, said spokeswoman Adele Lash. "Our position has been that we support physicians being able to develop health facilities."