EVERY TIME a hospital spends capital dollars to add inpatient beds or ambulatory sites to its footprint, the Department of Public Health is tasked with conducting an analysis to determine whether new expenditures are actually needed, and whether the expenditure promotes competition.  The goal is to keep the supply of hospital beds or clinic sites in line with the demand so that total spending by consumers and businesses can stay in check, rather than increase to cover either redundant costs or higher prices that are often sought to help pay for these investments.

While the attention at the moment is on the proposed ambulatory site expansion by Mass General Brigham, and in a few months another one coming from Boston Children’s Hospital, I have a threshold concern about the Department of Public Health’s expertise and staff resources to handle the regulatory role given to it under the determination of need statute and accompanying regulations.  With a review as important as this one, we need our government agencies to approach their task working at the top of their game.

If past performance is any guide, DPH is way too lenient in reviewing mergers and other expansions. A case in point is the 2016 approval of the determination of need application of Children’s, which was seeking permission to rebuild its main Longwood hospital while adding 67 new ICU beds and four mental health beds.

At the time, Children’s said that its only justification for ICU bed expansion was to care for greater numbers of out-of-state and international patients.  The required consultant’s report predicted that by next year, when the new Longwood campus opens, Children’s would experience about a 70 percent net growth (or 8.6 percent a year) of all bedded discharges (inpatient admissions and observation stays) by non-Massachusetts patients over an eight-year period starting in 2014.

“The assumptions underlying the project’s volume and financial analysis do not include market share changes related to Massachusetts residents,” the report said. “Growth will occur based on increased global, national, and regional market share.”

The Health Policy Commission’s own analysis took a different view, predicting Children’s would need to take in additional Massachusetts patients to fill the new beds, spurring a rise in health care spending of millions of dollars annually.

Notwithstanding the concerns of the Health Policy Commission, the Department of Public Health blessed the project, allowing Children’s to add the 67 new ICU beds and the four mental health beds.

But new data from the Center for Health Information and Analysis suggests Children’s will have a hard time keeping its promise. From 2016 to 2019, total inpatient admissions of patients under 18 at Children’s declined steadily, and by 2019 was 12.5 percent below the 2016 level. If only non-Massachusetts patients are considered – the group used to justify the addition of 67 ICU beds—the numbers also trended down such that the 2019 level of out-of-state patients was about 6 percent lower than the 2016 level.

If you include 2020, when COVID arrived, the net decline of all Children’s inpatients under 18 since 2016 is 20.5 percent. For non-Massachusetts patients, the 2020 level was a whopping 23 percent less than the number admitted in 2016.

This is a frightening reality for Children’s, so frightening that the hospital recently proposed an ambulatory care expansion project in the suburbs, presumably to try to gain some new patients and revenues when those sites open in a few years to help cover the over $100 million in incremental annual operating costs projected to accompany the new hospital when it opens next year.

In sum, the picture at Children’s since the project was approved is both a drop of total admissions of all patients as well as a drop in total numbers of non-Massachusetts patients.

In light of this reality, what should the Department of Public Health do?

If Children’s wants to open up its new ICU beds next summer, I would give the hospital no more than six months to show there is sufficient demand from out of state for their use. If there is insufficient out-of-state demand for new beds, DPH should mandate that those beds be taken out of service – unless somehow COVID is raging such that pediatric hospitalizations are soaring at that time. To do otherwise would be to threaten the agency’s credibility by ignoring false promises made by providers to justify their capital projects and leave Massachusetts premium payers to pick up the tab.

Another option—requiring legislative action – would be to pay the hospital a fixed, Maryland-style global budget for its Massachusetts patients. The budget could be developed based on pre-COVID patient volumes and prices paid for Massachusetts patients, which seems fair. The wisdom of such an approach would be that the hospital would be free to open up any and all of the 67 approved ICU beds but state taxpayers and premium payers would be off the hook for paying any more, no matter who occupies them.

A third approach would help address the incredible shortage of mental health beds for children. DPH could cut a deal with Children’s that for every three additional mental health beds the hospital opens beyond the previously approved four, they could open one ICU bed, up to a maximum of 15 ICU beds.  Though those 15 beds, if filled with Massachusetts children, would increase spending—the cost would be well worth it to get as many as 45 new, badly needed mental health beds.

Finally, I would tell Children’s that its recently filed submission for a new ambulatory care project should be withdrawn or put on hold until there is a public and transparent agreement worked out with the state on what is going to happen with these new hospital beds.

Any of these options would be better than what I fear DPH, given its track record, may likely do: Ignore the reality of Children’s not being on track to grow its out-of-state patient volume and look the other way as Children’s simply opens its new hospital next year with the added ICU beds.

Such an act of government failure would not give us much hope about DPH’s ability to come to the right decision on other determination of need issues. Nor would it create a sense of confidence that the agency has an ability to continuously oversee and enforce conditions that are part of a project’s approval. In particular, the three ambulatory care site expansions and the addition of hospital beds at Mass General Brigham and Brigham and Women’s-Faulkner deserve to be reviewed by an agency that is fully capable of carrying out all necessary oversight roles needed to protect us from unnecessary spending or additional market failure. The Legislature may want to consider a revamp of the department’s responsibilities, or shift them to the Health Policy Commission, if it cannot do the job.

Paul A. Hattis is a senior fellow at the Lown Institute and a former commissioner of the Health Policy Commission.