Debate over health care development takes legal twist: Three county-imposed construction moratoriums face federal lawsuits

Hospitals and developers recently filed lawsuits in U.S. District Court against three counties that enacted moratoriums to slow health care construction in their territory.

The Sisters of St. Francis Health Services Inc. sued Morgan County in April, and some Kentucky-based companies filed complaints against Clark and Floyd counties June 13.

County officials say they need to make sure their county-owned hospitals remain viable in the face of more development. They also argue that providers want to enter their turf and cherry-pick profitable services.

Developers contend the counties are protecting monopolies and they don’t have the power to enforce such restrictions.

Plenty of people will want front-row seats for this court fight. A total of 37 counties have a county-owned hospital, according to the Indiana Hospital and Health Association.

Only four of those counties have passed moratoriums on health care construction so far, according to Bob Morr, the association’s vice president. Harrison County-unlike Clark, Floyd and Morgan-has escaped litigation so far.

The debate reached the county level this spring after languishing for a couple of years in the General Assembly. Several businesses lobbied hard for either a moratorium or the return of a certificate-of-need law during the 2004 legislative session.

Certificate-of-need laws require anyone who wants to build or expand a health care facility to obtain the state’s blessing that the project fulfills a need in the market. In contrast, a moratorium places a temporary halt to construction.

Indiana is one of about a dozen states without a certificate-of-need law. Lawmakers repealed it at the end of 1984. Some lobbyists testified last year that the new proposal had too many loopholes to be effective.

Nothing made it out of the Statehouse then, and the same thing happened this year, when a much quieter debate returned to the Legislature.

As the legislative session wound down, Morgan County enacted an ordinance that calls for a moratorium on most new health care construction until the end of the year.

County officials have watched new health care providers like medical centers pop up in their county, and they’re concerned they’ll see more of this expansion, which lures “the most lucrative insured patient away from Morgan Hospital,” according to a response to the St. Francis complaint.

Morgan County Commissioner Norman Voyles referred questions to lawyer Pete Foley, who did not return calls seeking comment.

Clark County officials shared some of the same concerns for Clark Memorial Hospital. They enacted a two-year moratorium earlier this year, according to Vickie Haire, a member of that county’s board of commissioners.

She said the county hospital does $1.5 million in indigent care each year, and government leaders were worried about doctor groups coming over from Kentucky to set up shop and take away more profitable business.

“We just want to protect what we think is one of our county’s biggest assets,” she said.

This cherry-picking fear is common among small and m e d i u m – s i z e h o s p i t a l s around the state, Morr said. They worry about MRI centers or small, outpatient operations moving in and skimming their profitable business, leaving behind a poorer patient base and larger overhead costs.

The moratoriums have surfaced in the homes of county-owned hospitals because those governments see the hospital as an asset, oftentimes built with public dollars.

“Psychologically in some of these counties, you’re going to have a community that sees it as theirs,” Morr said.

St. Francis, which operates a Mooresville hospital in Morgan County, sees the moratoriums as a way to create a monopoly. Its complaint accuses county leaders of trying to suppress competition, and it notes that the the St. Francis Mooresville location provides charity care, too.

St. Francis has invested $60 million in its Mooresville location over the past five years and, in 2003, provided $1.7 million in uncompensated care to Morgan County residents, the complaint states.

Whether more counties will adopt moratoriums and face subsequent legal action remains to be seen. Daniel Warncke, an antitrust lawyer representing plaintiffs in the complaint against Clark and Floyd counties, hopes it doesn’t happen.

“Competition lowers prices, you know; that’s the basis for the free-enterprise system,” he said. “I would hope that counties think twice before eliminating additional choices for consumers for health care.”

Russ Towner, regional director of health care initiatives for automaker Daimler-Chrysler, said too many variables at the county level make it tough to say whether Indiana will see more moratoriums.

“I don’t see a groundswell of support for it, but I could see where you have specific situations, in particular where the county hospitals are struggling, that that might be an option for them,” he said.

Towner and Daimler-Chrysler, which provides insurance coverage for 35,000 Hoosiers, have long argued that new construction drives up the cost of health care and hurts Indiana businesses.

“Our position would be that it’s something that still needs to be addressed,” he said.