REPORT DIGEST

Management

Audit of

THE ILLINOIS

HEALTH FACILITIES PLANNING BOARD

 

Released: September 2001

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State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

AUDITOR GENERAL

 

To obtain a copy of the report contact:

Office of the Auditor General
Attn: Records Manager
Iles Park Plaza
740 East Ash Street
Springfield, IL 62703
(217) 782-6046 or
TDD: (217) 524-4646

This Report Digest is also available on the worldwide web at:
http://www.state.il.us/auditor

SYNOPSIS

Established in 1974, the Illinois Health Facilities Planning Board was created to help control rising health care costs by issuing permits or certificates of need (CON). These permits allow health facilities to modify or construct facilities and to acquire major medical equipment. In June 2000, Public Act 91-0782 amended the Health Facilities Planning Act (20 ILCS 3960) adding a sunset date for the Act and directing the Auditor General’s Office to conduct an audit of the Health Facilities Planning Board. The Public Act asked us to determine whether the Board:

  • Demonstrates that the CON process is successful;
  • Reflects cost savings in its annual reports;
  • Follows its adopted rules and procedures; and
  • Awards and denies certificates of need consistently.

The Planning Board has done a number of studies and reports that consider elements of effectiveness but has not done an overall evaluation of the program’s effectiveness. The only tangible cost savings the Health Facilities Planning Board has identified in its annual reports is the difference between dollars proposed and dollars approved. Because some of these projects are not denied by the Board but are withdrawn by the applicant and some applicants reapply and are later approved, the cost savings reported in annual reports may be overstated.

In the area of following rules and procedures we found:

  • That State Agency Reports, prepared by staff at the Department of Public Health, generally provide an objective evaluation of proposed projects by applying administrative rules, however we identified a few instances when criteria were not applied consistently.
  • Examples where the Planning Board did not consistently follow the administrative rules related to deferrals.
  • Some project review criteria in the administrative rules relate closely to one another so that one negative criteria may domino or carry over into other criteria causing them to be negative as well.

In the area of awarding and denying certificates of need consistently we found:

  • Instances where we questioned the consistency of the Board’s actions.
  • Cases where the Planning Board’s decision was not consistent with the State Agency Report analysis.
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To be approved a project must receive at least eight affirmative votes, regardless of how many members of the Board are present.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Determining whether a certificate of need program is effective is a difficult task.

 

 

The only tangible cost savings the Health Facilities Planning Board has identified in its annual reports is the difference between dollars proposed and dollars approved.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

There are some areas of Illinois’ program where changes could be considered to improve effectiveness.

 

 

 

 

 

 

 

 

 

 

 

 

 

State Agency Reports generally provide an objective evaluation of proposed projects by applying administrative rules.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In our review of projects that come before the Board, we questioned whether the Board was always consistent in awarding and denying certificates of need.

 

 

 

 

 

 

 

Because the Board does not issue a statement of findings that documents why they approve or deny a project it is sometimes difficult to see why a decision was made.

 

REPORT CONCLUSIONS

Established by the Health Facilities Planning Act (20 ILCS 3960) in 1974, the Health Facilities Planning Board was created to help control rising health care costs by issuing permits or certificates of need. These permits allow health facilities to modify or construct facilities and to acquire major medical equipment in order to improve their services to health care consumers.

In June 2000, Public Act 91-0782 made several changes to the Health Facilities Planning Act and other acts that affected the Health Facilities Planning Board. Among the changes were requiring the Auditor General to conduct this audit of the Board; limiting the projects which would be reviewed by increasing the capital expenditures dollar threshold and excluding non-clinical service areas from review; and including a clause to repeal the Health Facilities Planning Act on July 1, 2003.

Determining whether a certificate of need (CON) program is effective is a difficult task. The Planning Board has done a number of studies and reports that consider elements of effectiveness but has not done an overall evaluation of the program’s effectiveness. The Planning Board should make every effort to analyze its effectiveness and make and seek changes to improve the effect of the Illinois health planning process.

Health care research literature includes many evaluations of health planning and certificate of need programs. Although a few studies show that health planning and CON programs may have some cost saving potential, studies did not consider or showed little evidence that programs have positive effects on access or quality of care.

The only tangible cost savings the Health Facilities Planning Board has identified in its annual reports is the difference between dollars proposed and dollars approved. Because some of these projects are not denied by the Board but are withdrawn by the applicant and some applicants reapply and are later approved, the cost savings reported in annual reports may be overstated. However, it should be noted that the requirement for the Board to do an annual report has been eliminated.

Staff at the Department of Public Health review certificate of need applications and prepare State Agency Reports that generally provide an objective evaluation of proposed projects by applying administrative rules. However, we identified a few instances when criteria were not applied consistently. We also found that some project review criteria in the administrative rules relate closely to one another so that one negative criteria may domino or carry over into other criteria causing them to be negative as well. Because State Agency Reports are one of the primary sources that the Board uses in making its decision, all criteria should be applied consistently and be adjusted to minimize this domino effect.

The majority of FY00 projects that we analyzed complied with the timeliness standards in the Planning Board’s administrative rules. However, Illinois’ review period was the 8th lengthiest compared to the 33 other states for which data were available. In addition, the rules include elements that can lengthen the process.

The Planning Board did not consistently follow the administrative rules related to deferrals. Our testing identified several examples of projects being deferred beyond what was allowable in the rules. The Board has also voted to defer projects even though nothing in the rules specifically allows them to do so. If the Board does not offer these deferrals to all projects, it could be viewed as giving one project an unfair advantage over other projects.

We identified some instances where we questioned the consistency of the Board’s actions. Because the Board approves the vast majority of projects it considers, there are relatively few denied projects that we could identify and compare to other similar approved projects to consider consistency. However, we analyzed projects in several ways and identified six instances for which we questioned the consistency. One of the instances involved three similar projects that we believed were treated inconsistently but were all eventually approved. These raise particular concern for two reasons. First, the approval process was long and difficult for the involved applicants and second, all the projects were approved and capital construction was not limited.

We also identified a few cases where the Planning Board’s decision was not consistent with the State Agency Report analysis. The Planning Board should work to assure consistency and should consider doing a statement of findings that summarizes the reasons for their decision to approve or deny a project.

BACKGROUND

The Health Facilities Planning Act (20 ILCS 3960) was implemented to establish a procedure designed to reverse the trends of increasing costs of health care resulting from unnecessary construction or modification of health care facilities. The Act provides that the procedure shall represent an attempt by the State of Illinois to improve the financial ability of the public to obtain necessary health services, and to establish an orderly and comprehensive health care delivery system which will guarantee the availability of quality health care to the general public.

In June 2000, Public Act 91-0782 made several changes to the Health Facilities Planning Act and other acts that affected the Health Facilities Planning Board. Changes included:

  • Raising the dollar threshold for review;
  • Excluding non-clinical service areas from review;
  • Including a provision to sunset the Act on July 1, 2003;
  • Including ethics laws requirements; and
  • Prohibiting ex parte communications.

The Act also required the Auditor General’s Office to conduct an audit of the Health Facilities Planning Board (Planning Board). The Act asked us to determine:

  • Whether the Planning Board can demonstrate that the certificate of need process is successful in controlling health care costs, allowing public access to necessary health services, and guaranteeing the availability of quality health care to the general public;
  • Whether the Planning Board is following its adopted rules and procedures;
  • Whether the Planning Board is consistent in awarding and denying certificates of need; and
  • Whether the Planning Board's annual reports reflect a cost savings to the State. (Pages 2-6)

The Planning Board

The Planning Board is composed of 15 voting members appointed by the Governor with Senate confirmation. The Board’s members include eight consumer representatives and seven industry members, one each representing the following:

  • Commercial Health Insurance,
  • Hospitals,
  • Hospital Management,
  • Professional Nursing,
  • Physicians in Active Practice,
  • Skilled Nursing or Intermediate Care Facility Management, and
  • Ambulatory Surgical Treatment Centers.

The Planning Board provides for its own organization and procedures, including the selection of a Chairman and other officers as deemed necessary. The Director of the Department of Public Health, with concurrence of the Planning Board, names the Executive Secretary of the

Planning Board. The Executive Secretary’s position was vacant for most of the time we were doing this audit. The Department of Public Health also provides administrative and staff support for the Planning Board.

The Planning Board meets at least once each quarter or as often as the Chairman of the Planning Board deems necessary or upon request of a majority of the members. To be approved a project must receive at least eight affirmative votes, regardless of how many members of the Board are present. (Pages 6-7)

Projects Reviewed

The Health Facilities Planning Act details the types of projects requiring review. A transaction is subject to review and requires a permit if the transaction meets one of the following criteria:

  • Requires a total capital expenditure in excess of the capital expenditure minimum ($6 million in June 2000);
  • Substantially changes the scope or changes the functional operation of the facility;
  • Results in the establishment of a health care facility;
  • Changes the bed capacity of a health care facility by increasing the total number of beds or by distributing beds among various categories of service or by relocating beds from one physical facility or site to another by more than ten beds or more than ten percent of total bed capacity over a two year period;
  • Involves a change of ownership; or
  • Results in the discontinuation of an entire health care facility or category of service.

In some instances, a health facility may be granted an exemption which keeps them from going through the CON process. Again, the administrative code details the types of transactions which are eligible for an exemption and the procedural requirement for receiving an exemption.

The Planning Board approved 85 percent of the projects that it reviewed in Fiscal Year 2000. Digest Exhibit 1 shows the number and dollar amount of projects approved during Fiscal Year 2000. (Page 11)

Digest Exhibit 1
PLANNING BOARD PROJECTS
NUMBER PROCESSED AND PERCENT APPROVED

Fiscal Year 2000

 

# of Applications

$ (in millions) of Applications

Total

130

$853

Number Approved

111

$754

Percent Approved

85%

88%

Source: Health Facilities Planning Board Data.

 

 

 

 

 

 

 

 

 

The Review Process

The following section along with the flowchart in Digest Exhibit 2 help to explain how the review process works. The process begins when a health facility applies for a CON permit by submitting an application and paying the initial application fee of $700 to the Department of Public Health. The application is reviewed by Public Health and the application fee is deposited into the Health Facilities Planning Fund. The total application fee is assessed based on the cost of the project and ranges between $700 and $100,000.

Ten working days are allowed for State agency staff at Public Health to perform a completeness review on the health facility’s application. If the application is incomplete, the applicant receives notice from Public Health and is given 90 days to provide additional information to complete the application. If the applicant does not provide the requested information within this timeframe the application becomes void. If the additional information is provided to complete the application, the applicant receives notice and a hearing date is scheduled with the Planning Board.

Once an application is deemed complete and before the project is considered by the Board there is an opportunity for a public hearing. Notice for a possible hearing is published in a general circulation newspaper in the area or community to be affected. Any interested party can request a public hearing. If a hearing is requested, it is held in the area where the proposed project is to occur. Interested parties can present their views or arguments in writing or orally, and a record of the testimony is sent to the Board to be considered before making a decision.

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The CON application review is done by State agency staff at Public Health. A reviewer reads the application and does analysis to determine whether the facility meets or does not meet the various criteria set forth in the State’s administrative rules. Staff prepare an analysis referred to as the State Agency Report which addresses the individual criteria.

After the application review process is completed, a copy of the State Agency Report, complete application, and public hearing information are sent to each of the Planning Board members. At the Planning Board meeting, usually with the applicant present, the Board considers the project and votes on whether it should be approved. A motion is made to approve a project with eight affirmative votes needed to issue a permit. If the project is approved, the CON permit is issued to the applicant. Failure of the project to meet one or more review criteria does not prohibit members of the Board from voting for approval. During the Board consideration process there are provisions to allow consideration of the application to be deferred.

If the project fails to receive eight votes, the applicant receives a notice of intent-to-deny. After the notice, the applicant has 10 working days to request to appear before the Planning Board or submit additional information. If the applicant waives the right to appeal the intent-to-deny or takes no action, the application is considered withdrawn. However, if the applicant elects to appear before the Planning Board, the Board will reconsider the application. If the applicant wants to submit additional information for the Board to consider, they have 60 days to provide the information. Upon receiving the information, Public Health has 60 days to review the information and prepare a supplemental report.

On a project’s second consideration, if the Planning Board approves the application, the CON permit is issued to the applicant. If the application is denied a second time, the applicant will be issued a denial of an application for permit. The applicant has 30 days to request an Administrative Hearing at which a Hearing Officer considers the case and issues a recommendation. After the hearing, the Planning Board will vote and issue its final decision. If the Planning Board issues a final denial, the only option left is for the applicant to appeal the decision in the Circuit Court. (Pages 7-10)

BOARD EFFECTIVENESS

Determining whether a certificate of need (CON) program is effective is a difficult task. The Planning Board has done a number of studies and reports that consider elements of effectiveness but has not done an overall evaluation of the program’s effectiveness. The Planning Board should make every effort to analyze its effectiveness and make and seek changes to improve the effect of the Illinois health planning process.

Health care research literature includes many evaluations of health planning and certificate of need programs. Although a few studies show that health planning and CON programs may have some cost saving potential, studies did not consider or showed little evidence that programs have positive effects on access or quality of care. (Page 15)

Cost Savings in Annual Reports

The only tangible cost savings the Health Facilities Planning Board has identified in its annual reports is the difference between dollars proposed and dollars approved. Because some of these projects are not denied by the Board but are withdrawn by the applicant and some applicants reapply and are later approved, the cost savings reported in annual reports may be overstated. However, it should be noted that the requirement for the Board to do an annual report has been eliminated.

The Board defines cost savings as disallowed capital expenditures. This definition gives rise to some concerns about the legitimacy of the cost savings which are discussed below. As shown in Digest Exhibit 3, the Board reported $489 million in disallowed proposed expenditures between Fiscal Years 1996 and 2000. These disallowed expenditures are due to project withdrawals, denials, or cost reductions in approved projects.

 

Digest Exhibit 3
BREAKDOWN OF REPORTED COST SAVINGS
Fiscal Years 1996 to 2000 ($s in millions)

Fiscal Year

Withdrawn Denied

Cost Reductions

Total Amount
Not Approved

1996

$38.2

$26.8

$3.5

$68.5

1997

$53.3

0

$4.3

$57.6

1998

$210.0

0

$11.0

$221.0

1999

$39.3

$ .3

$3.6

$43.2

2000

$78.8

$5.2

$14.9

$98.9

Totals

$419.6

$32.4*

$37.3

$489.2*

Note: * Does not add due to rounding.
Source: Planning Board Data Summarized by OAG.

 

 

 

 

 

 

 

 

 

 

 

 

The Board counts withdrawn projects as costs savings even if an application is submitted but then withdrawn before a State Agency Report is prepared. For example, in FY98 a project for $130 million was submitted but then withdrawn because of the applicant’s pending change in ownership. The project was withdrawn prior to preparation of a State Agency Report and the applicant did not appear before the Board. The Board’s annual report includes this in their total amount disallowed.

The Board’s measure of cost savings also does not account for projects that were withdrawn or denied and then reapply later. Of the reported $489 million savings over five years, $452 million resulted from projects that were withdrawn or denied. Of this $452 million, we identified $126 million (28%) of projects that were withdrawn or were denied and were later approved under a different project number. (Pages 16-18)

Improving Effectiveness

As part of our audit work we met with representatives of the health care industry to get their opinions on the Planning Board and its effectiveness. Some issues raised in those discussions and in our analyses may be important for the Board or the General Assembly to consider. The topical areas are shown in Digest Exhibit 4 and are discussed in more detail in Chapter Two of the report. (Pages 22-29)

 

Digest Exhibit 4
AREAS TO CONSIDER IMPROVING EFFECTIVENESS

Assuring a Level Playing Field
Reviewing Financial Viability
Considering Redundancy with Licensing
Reviewing Discontinuation
Using Permits with Conditions
Assuring Sufficient Volumes
Considering Excess Capacity

Source: OAG Analysis.

 

 

 

 

 

 

 

 

We made two recommendations concerning the effectiveness of the Health Facilities Planning Board. First, we recommended that the Board assure that when conditions are required of applicants, that those conditions relate to the projects being considered and comply with the Health Facilities Planning Act. (Recommendation Number 1, Page 26) Second, we recommended that the Board and State agency staff at Public Health take every effort to analyze their effectiveness and to make changes to improve effectiveness. This may include working with consumers, health care payors, health research groups, health care providers, health care associations, and members of the General Assembly to be certain that the Illinois health planning process serves the needs of the people of Illinois. (Recommendation Number 2, Page 29)

BOARD RULES AND PROCEDURES

State Agency Reports generally provide an objective evaluation of proposed projects by applying administrative rules. However, we identified a few instances when criteria were not applied consistently. While these inconsistencies were by and large minor in nature, State Agency Reports are one of the primary sources that the Board uses in making its decision and all criteria should be applied consistently. A full discussion of the Board’s compliance with rules and procedures is in Chapter Three of the full report. (Pages 36-41)

The majority of FY00 projects that we analyzed complied with the timeliness standards in the Planning Board’s administrative rules. However, Illinois’ review period was the 8th lengthiest compared to the 33 other states for which data were available. In addition, the rules include elements that can lengthen the process. During FY00, it took an average of 141 days from application submission until the Board’s final action. The State Agency completeness review took an average of 16 days. From the time the application was deemed complete by the State Agency to the Board’s final action was 125 days. (Pages 33-36)

To address the inconsistencies that we identified, we recommended that State agency staff at the Department of Public Health assure that evaluation criteria are applied consistently in the projects that they review and the State Agency Reports that they prepare. (Recommendation Number 3, Page 40)

The Domino Effect

Several review criteria in the administrative rules relate closely to one another. If one section receives a negative in the State Agency Report, the negative may carry over into other criteria causing them to be negative. This generally results when there is a failure to establish need for the project. The opposite effect also occurs when the applicant establishes need for the project. This domino effect occurs regularly and can make the State Agency Report look better or worse than it really is. We recommended that the Board examine their review criteria and make adjustments to the existing criteria or eliminate duplicative criteria to minimize the domino effect. (Recommendation Number 4, Page 43)

Project Deferrals

The Board did not consistently follow the administrative rules related to deferrals. Our testing identified several examples of projects being deferred beyond what was allowable in the rules. The Board has also voted to defer projects even though nothing in the rules specifically allows them to do so. If the Board does not offer these deferrals to all projects, it could be viewed as giving one project an unfair advantage over other projects. We recommended that the Board assure that deferrals are used consistently by assuring that the administrative rules are followed and that applicants are given consistent and fair consideration. (Recommendation Number 5, Page 45)

CONSISTENCY OF BOARD DECISIONS

We identified some instances where we questioned the consistency of the Board’s actions. Because the Board approves the vast majority of projects it considers, there are relatively few denied projects that we could identify and compare to other similar approved projects to consider consistency. We analyzed projects in several ways and identified six instances for which we questioned the consistency. One of the instances involved three similar projects that we believed were treated inconsistently but were all eventually approved. These raise particular concern for two reasons. First, the approval process was long and difficult for the involved applicants and second, all the projects were approved and capital construction was not limited. A full discussion of Board consistency is in Chapter Four of the full report.

In our review of projects that come before the Board, we questioned whether the Board was always consistent in awarding and denying certificates of need. We identified similar projects that received different outcomes from the Board. We defined similar projects as those in the same category of service with most being in the same planning area or in an adjacent geographic location. After examining the State Agency Reports and the Board meeting transcripts, it was unclear why some projects were denied while other similar projects were approved. The Board does not issue a summary statement that details their findings or reasons for awarding or denying certificates of need. (Pages 47-60)

We tested the Board’s consistency in awarding and denying CON applications in four ways. We examined litigated cases to see if any of the plaintiffs contesting the issuance of a permit had a similar project denied by the Board. Second, we examined projects that came before the Board in FY00 and were not approved. For these projects, we examined similar projects that were approved to see if the denied projects were treated consistently. Third, we performed this same type of analysis looking at projects that received a final denial during FY96-FY99. Finally, we looked at FY00 projects to see if the Board’s decision conflicted with the findings in the State Agency Report. For the projects that we identified as conflicted, we assessed whether there was sufficient documentation to support the Board’s decision. We recommended that the Board assure that all applications are treated consistently and noted that this may require reviewing how similar projects were treated and may require comparing similar projects to choose the best one. (Recommendation Number 6, Page 56)

Documentation of Board Decisions

Because the Board does not issue a statement of findings that documents why they approve or deny a project it is sometimes difficult to see why a decision was made. We identified instances where the reason for the Board’s action was not clear. Issuing a statement of findings could help applicants and potential applicants to understand the Board’s decision making process. For approved projects, a statement of findings could be helpful for future applicants so they could see the Board’s reasoning in approving projects that do not meet all of the applicable criteria. For denied projects, a statement of findings could provide guidance to the applicant on what they need to do to gain approval from the Board. (Pages 60-64)

We recommended that the Board consider issuing a statement of findings for why a project is approved or denied. This should be done for all projects approved as well as projects receiving an intent-to-deny, an initial denial, and a final denial. For denials, this statement should not just reiterate the criteria not met in the State Agency Report since most projects are approved without meeting all criteria. (Recommendation Number 7, Page 64)

AUDIT RECOMMENDATIONS

The Audit contains seven recommendations which are all detailed in this digest. The Health Facilities Planning Board and the Department of Public Health generally agreed with the recommendations. The Planning Board’s comments included general comments about a variety of issues in the report as well as responses to each of the audit’s recommendations. Planning Board and Public Health’s responses to recommendations have been incorporated into the report and the full comments are included in Appendix H.

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WILLIAM G. HOLLAND

Auditor General

 

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