Brideau: Authority should consider health care 'need'

Hospital chief wants additional step before tax-exempt bonds OK'd

Milwaukee Business Journal, August 10, 2007

By Elizabeth Sanders

A Milwaukee business leader is calling for a change in state law to require hospitals to prove "community need" before qualifying for tax-exempt bonds to finance new construction.

Leo Brideau, president and chief executive of Columbia St. Mary's Inc. in Milwaukee, wants the Wisconsin Health and Educational Facilities Authority to take community need into consideration before approving health care organizations' requests for the tax-exempt bonds to finance construction of hospitals and other major health care facilities.

Brideau's comments came a week after Aurora Health Care announced plans to build an 80- to 90-bed hospital in Grafton in Ozaukee County, just a few miles from Columbia St. Mary's hospital in Mequon, which is completing a $72 million expansion. Last week, Brideau called Aurora's Grafton hospital plan "irresponsible" and unnecessary. Another hospital in Ozaukee County will drive up health care costs for patients and employers, he said.

In an interview with The Business Journal, Brideau said a solution to unnecessary hospital construction in Wisconsin would be to change state law so that WHEFA, a state agency that approves hospitals' financial fitness for tax-exempt financing of construction projects, would have to consider whether a new hospital is needed before approving financing for it.

Currently, WHEFA determines only whether a hospital or nonprofit health system meets the financial criteria to qualify for a bond issue. WHEFA helps educational and health care institutions gain access to low-cost private capital market financing and bonds that are exempt from federal taxes, allowing them to borrow at lower interest rates.

Aurora's plan to build a hospital in Grafton has prompted Brideau to call for another look at regulation of the health care market, where he said competition does not lower prices as it does in other lines of business.

Brideau said he questions whether using tax-exempt financing is a proper use of government organizations like the authority. He would like to see health organizations be required to prove they meet a community need before getting financing assistance from the state through the authority.

"If you can demonstrate community need, great," he said.

Aurora officials have not yet said how they will finance the proposed hospital in Grafton, but Aurora has gone through WHEFA to finance many of its projects. Aurora currently has $900 million in outstanding debt bonded through the authority, according to Larry Nines, executive director of Brookfield-based WHEFA.

Nines said he is opposed to requiring WHEFA to consider community need as part of the bond approval process. Making the authority into a health planning or certificate of need organization was never the intent of WHEFA, he said.

"We are a four-person staff," Nines said. "We know how to do financing, not whether something is needed or duplicative."

Whether the system is based on certificate of need or a public market makes no difference from a financial perspective, Nines said.

The state had previously required a certificate of need for all new hospital construction. The requirement, which was needed for construction, purchase or substantial change in a health care facility or for the purchase of expensive clinical equipment, was repealed in 1983.

Nines said Aurora has not requested bonds for financing construction of a hospital in Grafton, nor its construction of a hospital in western Waukesha County. Aurora announced the Grafton project at the same time it said it would affiliate with Advanced Healthcare, the area's largest independent physicians group. The Grafton hospital would be built in collaboration with Advanced.

A change in the way financing of health care construction is approved would be welcome, said Candice Owley, president of the Wisconsin Federation of Nurses and Health Professionals, Milwaukee. The union, which represents nurses at Aurora's hospital in Burlington, also has criticized Aurora for proposing a hospital in Grafton.

While WHEFA may not be the best venue for making a decision on need, Owley said the community should be more involved in decisions to open and close hospitals.

"It would make more sense to have some type of planning process, approval process, a process that you can't get WHEFA money until the community says, 'We agree.' " Owley said.

Brideau said the proposed hospital in Grafton would create an excess of health care services in the area. Columbia St. Mary's Ozaukee campus expansion was designed to accommodate future growth in Ozaukee County at a rate of two beds per 1,000 people if area population growth continues at less than 1 percent annually. The Columbia St. Mary's expansion is expected to be finished in September with three of five floors built out, and the third and fifth floors shelled for future growth, with a reserve capacity of 64 beds.

Aurora and Advanced Healthcare officials said competition -- not market regulation -- is the way to go in health care.

"In most cases, if consumers have choices, there are better outcomes," said Dr. Eugene Monroe, president of Advanced Healthcare.

Aurora's perspective has always encouraged competition, said Dr. Nick Turkal, Aurora CEO.

Though still in early planning, the Grafton hospital would be an 80- to 90-bed hospital and employ about 600 people, Turkal said. A construction cost estimate is not yet available, but Aurora's Summit hospital will cost about $189 million and will be financed with Aurora's operating funds.

The decision to build a hospital in Grafton wasn't taken lightly, Turkal said.

"We're obviously looking for places where we can complete the continuum of care," he said. "When we build on a site, it's not just a hospital, that's only a third of what we do."

The site is also planned to include outpatient services such as a Vince Lombardi Cancer Clinic and other services that would be determined after discussions with the community, Turkal said.

Whether Aurora could meet a "community need" standard with a hospital in Grafton would depend on what the rules are and who's making them, Turkal said.

"It's not been shown to work in any state that I know of in controlling costs," he said of certificate of need regulations. "We believe in competition."