The business of health care

COEUR d’ALENE — Larry Spencer is worried about spending getting out of control.

Hospital spending, that is.

“We’re going to create a hospital race,” the Spirit Lake resident said this week.

That’s his and some taxpayers’ concern over a proposed constitutional amendment that will appear on the November ballot.

House Joint Resolution 4, or HJR 4, will give public hospitals more spending power.

The amendment would allow county and district hospitals to take on long-term debt without voter approval, in order to purchase improvements like new equipment, facility renovations, expansions and new buildings. No ad valorem tax could be used to retire the debt.

But some worry there are risks.

“We’re going to open a Pandora’s box with unknown consequences,” said Spencer, a developer who is vocal about community issues.

Currently, public hospitals can’t take on more than one year of debt without obtaining two-thirds public vote.

Being free of voter approval, Spencer says, might result in hospitals spending recklessly to stay ahead of each other with new technology and better facilities.

“The number one concern of all hospitals is competition,” he said. “’If we don’t build our (hospital) bigger and faster, someone next to us will.’”

As a result, they could raise their service rates to keep up with spending, Spencer added.

“How much would they spend if they didn’t put it in front of the voters?” he said. “It will drive the cost of medical care in Idaho through the roof.”

Chuck Reitz, a board member of the East Shoshone Hospital District, pointed out that HJR 4 will allow hospitals to build anywhere in their service areas.

As some service areas overlap, he is concerned hospitals will build on each others’ turfs.

“They don’t need to go into competition with other entities providing the same service,” Reitz said. “I think it (HJR 4) is too much power for a hospital board over taxpayers.”

All these fears are unfounded, said Steven Millard, president of the Idaho Hospitals Association.

Public hospitals in Idaho had been taking on debt without voter approval for nearly 40 years, Millard said, under the authority of the 1972 Idaho Health Facilities Authority Act.

That spending power was only just overturned in 2006, by the Idaho Supreme Court case City of Boise v. Frazier.

“All the amendment does is restore the ability to do what they could do for 30-plus years with no problems occurring,” Millard said. “There hasn’t been an arms race in the past, I don’t know what would change to say it will be that way in the future.”

He added that hospital spending would be reined in by the rigorous requirements for borrowing money, whether from banks or the Idaho Health Facilities Authority, which provides less expensive financing for healthcare facilities.

“The Health Facilities Authority will not loan them money if it doesn’t pencil out that it can pay for itself,” Millard said.

He added that needing voter approval has made it more difficult for small, rural hospitals to obtain materials they need, due to their smaller income from patient operations.

“I don’t think they’re saying today that they can’t provide services, but they’re going without things. They can’t lease a piece of equipment that may be something to help patients,” he said. “It just makes it more difficult to operate.”

That has been true for Benewah Community Hospital in St. Maries, said CEO Brian Nall.

Before the 2006 Frazier decision, Nall said, the hospital borrowed funds for a 5-year lease on a new CT scanner, he said.

“That was a necessary piece of equipment in our radiology department,” he said.

Last year, however, the hospital had to go to the voters to get approval for a $28.5 million renovation, which included replacing a 50-year-old building.

Although banks and financial auditors approved the project, construction was delayed over a year to get voters’ permission, he said.

“We weren’t asking for a tax increase, we were just asking for the right to incur debt. We spent an enormous amount of time and energy on educating the voters,” Nall said of the measure that did pass. “The idea of having to go seek public approval to have a piece of equipment that’s really necessary, that would be hurtful in providing continuing care.”

Nall has never heard of any Idaho hospitals defaulting on a debt, he said.

“You’re building what you need, and building for future need,” he said. “Sure, maybe we would want a $140 million facility with all the bells and whistles. But what we do have will suit us.”

There are 19 public hospitals in Idaho, Millard said, and all but three are small facilities with 25 beds or less.

Since 2006, about four hospitals have had to become 501 3Cs to get more funding, he said.

“They did not have access to capital since the Frazier decision,” he said. “If you go to a vote to get approval to expand your bed count or your emergency department and it fails, then you have to wait until next election cycle to do it again.”

Spokespeople could not be reached for Bingham Memorial Hospital in Blackfoot or Portneuf Medical Center in Pocatello, which Millard said have become 501 3Cs since the Frazier decision.

Incurring debt allows local hospitals to provide good care close to home, said Joe Morris, CEO of Kootenai Medical Center.

Morris pointed out that the original KMC built in 1984 was funded through revenue bonds.

“That was all paid within 10 years that they were borrowed,” he said.

He doubted that hospitals would build excessively to compete with each other if HJR 4 passes.

“I think public hospitals tend to be more conservative in acquisitions of equipment and buildings,” Morris said. “They (district hospitals) have elected boards, county hospital boards are appointed by county commissioners. I think those boards don’t make reckless decisions.”

Although KMC has tried to stay out of debt in recent years, Morris said, he anticipates it will eventually borrow funds for large projects, like a $30 million women and children’s facility that has been discussed.

“Certainly over the next 10 or 15 years, this hospital will need to borrow money through revenue bonds,” he said.

Mike Pruitt, CEO of Shoshone Medical Center, said he favors HJR 4 because the measure will allow hospitals to purchase needed materials without waiting for an election.

“The time factor, the ability to replace equipment when you need it, is the issue,” Pruitt said. “I think it would help a lot of communities.”

Nall said hospitals might have to raise rates to afford equipment if they have trouble getting approval to incur debt.

“If we’re handcuffed, we can’t stay top notch like we are now,” he said. “It’ll cost us more to catch up in the future.”