The purchase and use of medical technology contribute as. The Supply And Use Of Selected Medical Technologies







Full text


The Supply And Use

Of Selected Medical


As hospitals add popular high-tech services to compete, what

are the cost and quality implications? Data from one large

state—Pennsylvania—provide some answers.

by Cindy L. Bryce and Kathryn Ellen Cline

ABSTRACT:Over the years, both government and the private sector have used a mix of regulatory controls and competitive market incentives to reduce the rate of spending and minimize excess capacity in health services. Despite these efforts, this study finds an oversupply of five medical technologies in Pennsylva-nia, which adds costs and raises concern over the quality of care provided by underused facilities. Moreover, as providers compete for network selection, many continue to expand their service capabilities. These findings emphasize the importance of ongoing assessment of the appropriate application, supply, and use of medical services.


he purch ase a nd u se of medical technology contribute as much as 50 percent to the annual increase in health care spending.1 Although costly, technological advances have the

potential for enormous medical, social, and economic benefits. How-ever, it appears that the diffusion of these technologies has outpaced our ability to evaluate their need and to fully realize their benefits. Since the 1970s both public and private health care purchasers have applied a combination of regulatory controls and competitive market incentives to manage the costs associated with new services. Despite these efforts, excess supply exists, which increases costs unnecessar-ily.2 Using Pennsylvania’s experience, this DataWatch explores

trends in the supply and use of five key medical services. It offers some insights into the reasons why regulatory and procompetitive policies failed to efficiently allocate health care services.

nHistorical perspective.In an effort to curb health care infla-tion, Congress passed the National Health Planning and Resources Development Act in 1974. The act required states to evaluate com-munity health needs, establish local planning agencies, and institute

Cindy Bryce is a visiting research assistant professor at the University of Pittsburgh. Kathryn Cline is performance measurement and evaluation director of Highmark Blue Cross Blue Shield in Pittsburgh.



certificate-of-need (CON) review programs. CON regulations were written to control health care spending by limiting service expan-sion. To obtain state approval for a new or expanded service, hospi-tals were required to demonstrate a community need for the service and estimate its costs.

By the early 1980s many considered this regulatory approach to be ineffective in controlling the spread of services, and the act was repealed in 1986. Several states, including Pennsylvania, retained CON programs, but some of the regulations were replaced by com-petitive market incentives to make health care delivery more effi-cient. For example, Pennsylvania’s CON program replaced limits on supply with volume standards to ensure high-quality care. To ob-tain CON approval, a provider had to achieve and mainob-tain these service utilization targets.

Two recent studies raise doubts concerning managed care’s abil-ity to moderate medical technology diffusion and use.3 Our study

considers the effects of both regulatory controls and competitive market incentives on technology acquisition and use. We propose that because of these regulatory and market failures, the growth in supply of medical technologies has exceeded the growth in utiliza-tion, which in turn has created excess capacity. When supply ex-ceeds demand, costs can increase, and some facilities are underused; for certain services, underuse raises concerns about quality of care. Moreover, increasing supply may not necessarily improve access.

Data Sources And Methods

This study examines state and national data on the use of five technologies—extracorporeal shock wave lithotripsy, magnetic resonance imaging (MRI), cardiac catheterization, organ transplan-tation, and neonatal intensive care—between 1987 and 1994. We selected these five primarily because of their financial importance and data availability. These five procedures accounted for an esti-mated $84.2 million in total Blue Cross of Western Pennsylvania charges in southwestern Pennsylvania in 1990.4Also, Pennsylvania’s

regulatory and procompetitive efforts were focused primarily on controlling the spread of these types of high-cost services. Thus, the state has maintained a rich data set on their supply and use.

For national and regional comparisons, we obtained information from the U.S. Bureau of the Census, the American Medical Associa-tion, the American Hospital AssociaAssocia-tion, the National Perinatal In-formation Center, the United Network for Organ Sharing, Health Canada, the Canadian Coordinating Office for Health Technology Assessment, Michigan’s Department of Public Health, and Florida’s Health Care Cost Containment Board. For Pennsylvania and county



data, we used information from the Pennsylvania Department of Health, Blue Cross of Western Pennsylvania, Pennsylvania Blue Shield, the Health Care Financing Administration, the Pennsylvania Department of Public Welfare, the Pittsburgh Transplant Founda-tion, the Delaware Valley Transplant Program, the Hospital Council of Western Pennsylvania, the Pennsylvania Health Care Cost Con-tainment Council, the Pennsylvania State Data Center, and inter-views with providers.

Our cost analyses were based on information obtained from the Blue Cross and Blue Shield Association (BCBSA) and Pennsylvania’s Department of Health. The BCBSA’s technology assessments pro-jected capital expenditures and both fixed and variable operating costs for establishing new high-technology services. Also, Pennsyl-vania routinely received projections of capital and operating ex-penses from providers that applied for a CON. In the analysis we assumed that eliminating excess capacity would not adversely affect access because many low-volume providers are located in urban areas or use mobile equipment. Thus, the total volume of procedures was held constant and “allocated” to the remaining providers until these services were operating at recommended utilization targets. The study estimated the total capital (based on five-year deprecia-tion) and fixed annual operating costs that would have been saved if the services had operated at these recommended levels.

Trends In Technology Use: Five Examples

Extracorporeal shock wave lithotripsy. Lithotripsy was first introduced in the United States in 1984 as a cost-effective alternative to the surgical treatment of kidney stones. Because it is noninvasive, lithotripsy is safer for the patient. Also, it is less costly than surgery because hospital stays are shorter, and more procedures are being conducted on an outpatient basis. Providers across the country quickly acquired lithotripters to treat the estimated 125,000 cases annually. Annual machine capacity ranges between 1,000 and 2,000 procedures.5 For example, Canada’s lithotripters averaged more

than 1,700 procedures in 1991.6

Prior to 1986, Pennsylvania’s CON program restricted the supply of lithotripters to five units based on its projected need. The state also prohibited additional machines until all existing units com-pleted at least 1,000 procedures annually.7 Following the repeal of

the National Health Planning and Resources Development Act, Pennsylvania lifted these restrictions. As a result, between 1988 and 1994, although the volume of procedures increased only 40 percent, the supply of machines more than doubled.8Average machine

utili-zation fell from 773 to 489 procedures per machine (Exhibit 1). Two


of six operating lithotripters completed more than the state’s rec-ommended target of 1,000 procedures in 1988; only one machine completed fewer than 500 procedures. By 1994 none of the thirteen lithotripters exceeded 1,000 procedures, and seven lithotripters completed fewer than 500 procedures.9

Based on state data, approved lithotripters were expected to each cost $1.1–$2.8 million between 1985 and 1991. Using these costs, the eleven operating lithotripters averaged $2,107 per procedure in 1991. The analysis estimates that only six lithotripters were needed in the state to achieve an average annual machine utilization rate of 1,000 procedures. Eliminating five lithotripters would reduce average cost per procedure to $1,331, for a total savings of more than $4.4 million, including $2.5 million in annual operating costs.

Magnetic resonance imaging.MRI was introduced in 1983 as a cheaper, less risky diagnostic alternative to exploratory surgery. The spread of MRI was influenced by several factors: (1) CON regula-tions once applied only to hospital-based units; in Pennsylvania most MRI units were introduced on an outpatient basis, thus cir-cumventing the CON process.10(2) MRI is applicable to a wide range

of medical conditions. (3) Many MRI facilities are owned by private businesses or physicians. Studies have shown that such privately owned MRIs typically perform scans more often than hospital-based units do, which raises concerns over potential inappropriate use.11


(4) Many manufacturers encourage MRI purchase by offering finan-cial aid or lending equipment.12

Pennsylvania’s MRI supply more than doubled between 1988 and 1993, from seventy-eight units to an estimated 187 machines.13 Many

of these machines are underused. The state’s fixed MRI units aver-aged between 60 percent and 75 percent of the state’s targeted volume of 3,500 procedures between 1987 and 1994 (Exhibit 1).14In

1994 the state required that MRI units operate at 85 percent of this targeted capacity before it would approve any additional units in a community. Analyzing 1992 state cost data, we estimate that if ex-cess capacity were eliminated to generate an average utilization rate of 2,975 scans, the cost per scan would be reduced by $54, for a total savings of more than $16 million.

Cardiac catheterization. A national report released by the American College of Cardiology (ACC) and the American Heart Association (AHA) in 1991 highlighted concerns that competition, combined with a lack of clearly defined practice guidelines, may have created an oversupply of cardiac catheterization labs.15 This

report advised against greater expansion of labs, concluding that “further development of [cardiac catheterization] services cannot be endorsed at this time. In addition, there is reason for major concern that such proliferation in catheterization services may contribute to increasing costs and troubling ethical questions.”

Despite these recommendations, Pennsylvania’s cardiac cathe-terization labs increased by 90 percent between 1988 and 1994, while utilization grew only 41 percent. By 1994 the supply of labs in the state was twice the U.S. per capita average.16This growth can be

explained in part by the extension of this technology to the out-patient setting. Cardiac catheterization was first restricted to inpa-tient use because of potential risks. Accordingly, Pennsylvania per-mitted labs to be located only at hospitals with open-heart surgery capabilities. As the technology developed, outpatient diagnostic catheterizations became feasible. Pennsylvania changed its regula-tions in 1990, allowing hospitals without open-heart surgery units to own labs for treating low-risk patients.17 Following this policy

change, the rate of CON approvals for new labs increased from ap-proximately three to eleven labs per year. More than three-quarters of the fifty-six labs added between 1990 and 1994 were located at hospitals without open-heart surgery backup (Exhibit 2). Average volume per lab declined from a high of 1,034 procedures in 1989 to 758 procedures per lab by 1994 (Exhibit 3). Maximum volume for a single lab in the state peaked in 1989 at more than 3,500 procedures; by 1994 the maximum volume performed by any one lab fell to 1,539.

Underuse of some cardiac catheterization labs and its


tions for quality of care has also been of concern. The Inter-Society Commission on Heart Disease (ICHD) recommended a minimum of 300 procedures annually as a volume standard for adult diagnostic catheterizations to ensure the proficiency of services.18These

stan-dards were confirmed by the ACC/AHA task force. Although the state included this guideline in its regulations, twenty-nine labs (15 percent) performed fewer than 300 procedures annually in 1994.19

Based on the CON applications submitted by hospitals, the esti-mated cost of the new labs exceeded $75 million.20

Organ transplantation.Organ transplant programs, once avail-able at only the most advanced research centers, have now been established in many communities. Transplant supply and use rates increased by 38 percent and 29 percent, respectively, between 1988 and 1993.21Nationwide, a shortage of donated organs created

wait-ing lists, which increased 50 percent between 1988 and 1991.22The


Supply And Use Of Cardiac Catheterization Labs In Pennsylvania, 1987–1994

Number of labs Total numberof procedures Averagevolume per lab

1987 1988 1989 1990 102 99 107 112 77,255 102,000 110,649 109,574 757 1,030 1,034 978 1991 1992 1993 1994 130 156 174 190 124,332 131,711 141,627 143,943 956 844 814 758

SOURCE:Pennsylvania Department of Health.



shortage of donated organs has raised concern over the possible underuse of some programs. Between half and three-quarters of all transplant programs nationally operated below minimum volume guidelines established in 1991 by the United Network for Organ Sharing (UNOS).23

To address these concerns, UNOS established regional “organ procurement organizations” (OPOs), which give transplant pro-grams in their respective regions first priority for donated organs.24

The intent of this policy is to assist smaller transplant centers with relatively low-risk patients in obtaining at least some of the avail-able donated organs, which a criterion such as patient severity might not achieve. Allowing new programs to establish proficiency was intended to improve access to transplant services at smaller centers.25 However, larger transplant centers have argued that the

regional allocation system for donated organs combined with an oversupply of transplant programs nationally have contributed to a decreased volume of transplants performed at these larger, more es-tablished centers. These issues have received a good deal of publicity. Larger centers have suggested that the local supply of donated organs is inadequate and have been unable to obtain sufficient supply from other regional OPOs.26Other studies suggest that patients treated at

larger centers, many of whom are among the most critically ill, expe-rience longer waiting periods and poorer outcomes.27

Waiting lists for donated organs in Pennsylvania have grown for each of the major transplant services, despite the fact that Pennsyl-vania has been a major provider of transplant services in the United States for many years. As both the supply and the use of transplant programs increased nationally, Pennsylvania’s programs experi-enced a decline in volume; its share of the national total dropped from 11 percent to less than 9 percent. At the same time, between 1988 and 1993, at least eleven new transplant programs opened in Pennsylvania. Some of these programs were unable to meet the mini-mum volume standards adopted by the state for ensuring quality of care.28 In 1993 nearly one-third of all of Pennsylvania’s transplant

programs operated below recommended volumes (Exhibit 4).29

Neonatal intensive care. Despite the relatively high costs and low utilization rates of services in neonatal intensive care units (NICUs), NICU bed supply in the United States increased to three times the level recommended by the American Academy of Pediat-rics (AAP) between 1987 and 1992.30 In Pennsylvania seventy-four

new NICU beds were added between 1987 and 1994, an increase of 16.5 percent.31Patient days increased only 6 percent during the same

period. One factor possibly contributing to the supply increase was a regulation permitting hospitals to increase capacity by ten beds or


10 percent without filing a CON application.32A 1992 audit of the

state’s CON program found that approximately one-third of all beds added between 1987 and 1992 were approved without a formal CON review. Although the audit recommended that this exemption be eliminated from Pennsylvania’s CON process, it still remained at the time of this study.33 Also, the new beds were added to existing

NICUs; no new units were established in other communities. It is suggested that NICUs maintain occupancy rates of 65–70 percent to be financially viable, but rates of 80 percent or more were recommended to ensure quality.34Pennsylvania’s average occupancy

rate declined from 92 percent in 1989 to 76 percent in 1994. By 1994 more than half of the twenty-eight NICUs operated below 80 per-cent occupancy; nearly one-third operated below 70 perper-cent (Ex-hibit 5). More than 40 percent of the seventy-four new beds were added to NICUs with occupancy rates below 80 percent, raising concern over the quality of care provided at these units. Recent research shows a higher risk-adjusted mortality for infants born in low-volume NICUs.35Sixteen of the twenty-eight Level 3 NICUs in

Pennsylvania averaged fewer than fifteen patients per day in 1994.36

An eight-bed unit handling 300–400 cases per year requires an estimated $3.85 million annually.37 The study estimates that the

excess capacity created by the addition of beds to low-occupancy NICUs since 1987 represented more than $2.6 million in purchase and staffing costs.


Pennsylvania’s experience with these five services suggests that neither procompetitive policies nor regulation has dealt effectively with an oversupply of high-technology services. Regulatory loop-EXHIBIT 4

Percentage Of Transplant Facilities Operating Below Recommended Volume In Pennsylvania, 1993

Type of facility Volumerecommendation Numberbelow Percentbelow

Kidney centers Liver centers Heart centers 30 20 15 4 2 3 29% 22 33 Pancreas centers Lung centers Heart/lung centers 8 15 15 3 1 1 50 25 50

SOURCES:Pittsburgh Transplant Foundation; and Delaware Valley Transplant Program.

NOTES:The volume recommendations listed are for adult facilities. Pediatric transplant centers have other specified recommendations, and pancreas, lung, and heart/lung programs are permitted three years of operation to meet their volume standard. In tallying the number of facilities that fell below volume standards, we did not include pediatric facilities that satisfied the special pediatric volume standard, nor did we include pancreas, lung, or heart/lung facilities under three years old.



holes exempted certain MRI providers and NICU hospitals from CON review before expanding capacity. Also, volume standards governing cardiac catheterization labs and organ transplantation programs do not appear to have been fully enforced. The state lifted its supply limits and, instead, relied on competition for determining an efficient allocation of lithotripters.

Market-based incentives to rationally distribute health care serv-ices seem to have failed as well. Hospitals have competed, in part, by acquiring technologies to attract and retain physicians and their patients. Moreover, the potential financial losses usually associated with an oversupply of services may have been mitigated by cost-based reimbursement used by payers and possible cost-shifting practices of providers to maximize reimbursement. Also, there is evidence that financial incentives, such as those associated with physician ownership of medical technologies and physician self-referrals, may have generated additional unnecessary capacity and potentially inappropriate utilization.38The failures of regulatory and

procompetitive policies have led to growth in supply in excess of growth in demand, resulting in excess capacity in all five services.

The implications of unused capacity vary. Costs have risen for services such as lithotripsy, MRI, and cardiac catheterization be-cause of the large equipment expenditures involved. Capital cost is not the main consideration of unused capacity associated with the provision of transplant services, which relies primarily on physician expertise and a supply of donated organs to provide services. Rather, quality of care becomes a concern because low volumes can undermine staff proficiency. Despite Pennsylvania’s adoption of vol-ume standards for organ transplantation and cardiac catheteriza-tion, many of these programs have been permitted to operate at substandard volumes. Moreover, the financial pressure of unused capacity also may affect quality when it leads to unnecessary use of some services, as suggested by the case of MRI.


Variability In Neonatal Intensive Care Unit (NICU) Occupancy Rates In Pennsylvania, 1987 And 1994

Number of hospitals with NICUs

Occupancy rate 1987 1994 < 60% 60–70% 70–80% 3 3 6 7 2 7 80–90% 90–100% > 100% 6 1 7 6 3 3

SOURCES:Pennsylvania Department of Health; and Blue Cross of Western Pennsylvania.


The state has argued that increasing the supply of services may be necessary to broaden geographic access; however, access may not be always improved. For example, NICU beds were added to existing units, and almost half of the additions occurred at facilities with relatively low volume. No new NICU programs were established to expand geographic access.

The critical question raised by these trends is, how should the diffusion of new medical technologies be managed? Both private industry and government are conducting technology assessments and outcomes research to help clarify the most appropriate, cost-effective applications of new technologies and to standardize their management.39 However, these studies are limited in scope, and

producing useful results may take years. Thus, in the near term, both the public and private sectors must continue monitoring the de-mand for and the supply and use of medical technologies.

The private health care industry has begun a significant transfor-mation in recent years by creating integrated delivery systems. These systems are expected to provide additional efficiencies through financial and care-management arrangements. However, the long-term effects of full service integration are unknown. Early indications in Pennsylvania are that some providers are making sig-nificant investments in expanding or acquiring new services in or-der to be competitive or to qualify for network selection as a full-service provider. Therefore, it will be important for the government, in collaboration with the private sector, to collect information and evaluate the impact of these system changes on the trends in the supply and use of medical technology.

The authors thank the reviewers of earlier versions of this manuscript. They also thank Gus Georgiadis and Kenneth Melani for their comments; Darren Macioce for systems support; and Linda Deutsch for her assistance in report generation. NOTES

1. “Federal Efforts at Reducing Health Care Costs: The Effect of Technology, Part 2,”Biomedical Instrumentation and Technology(July/August 1990): 249–253; and J.P. Newhouse, “Medical Care Costs: How Much Welfare Loss?”Journal of Economic Perspectives6 (1992): 13–21.

2. H.D. Banta, “The Regulation of Medical Devices,” Preventive Medicine

(November 1990): 693–699.

3. M. Chernew, A.M. Fendrick, and R.A. Hirth, “Managed Care and Medical Technology: Implications for Cost Growth,”Health Affairs(March/April 1997): 196–206; and M. Chernew, R. Hayward, and D. Scanlon, “Managed Care and Open-Heart Surgery Facilities in California,” Health Affairs(Spring 1996): 191–201.

4. In 1997 Blue Cross of Western Pennsylvania and Pennsylvania Blue Shield merged to form Highmark Blue Cross Blue Shield.

5. Healthcare Knowledge Systems, cited in theWall Street Journal, 9 February



1990; and Blue Cross and Blue Shield Association, “Extracorporeal Shock Wave Lithotripsy: Clinical Assessment, Utilization, and Cost Projections,”

Technology Evaluation and Coverage Reports(Chicago: BCBSA, May 1985). 6. Volume information was provided by Health and Welfare Canada. Machine

supply data were obtained from Canadian Coordinating Office for Health Technology Assessment.

7. Statewide Health Coordinating Council,Amendment to the 1982–1987 State Health Plan(Commonwealth of Pennsylvania, Department of Health, June 1986). 8. Pennsylvania Department of Health, special report request; and Pennsylvania

Department of Health, Division of Need Review.

9. One of these machines was new, and its 1994 volumes may not represent a full year of operation.

10. Pennsylvania Law 1602, no. 179. The law is not limited to MRI scans. Any provider, regardless of setting, that wishes to establish a new service that is considered “reviewable” must first obtain CON approval.

11. J. Mitchell and J. Sunshine, “Consequences of Physicians’ Ownership of Health Care Facilities—Joint Ventures in Radiation Therapy,”New England Journal of Medicine(19 November 1992): 1497–1501.

12. L. Cowley et al., “Magnetic Resonance Imaging Marketing and Investment: Tensions between the Forces of Business and the Practice of Medicine,”

CHEST (March 1994): 920–928; B. Hillman et al., “Frequency and Costs of Diagnostic Imaging in Office Practice—A Comparison of Self-Referring and Radiologist-Referring Physicians,”New England Journal of Medicine(6 December 1990): 1604–1608; and Health Care Cost Containment Board, Joint Ventures among Health Care Providers in Florida(State of Florida, January 1991).

13. Blue Cross of Western Pennsylvania and Pennsylvania Blue Shield surveys. 14. Commonwealth of Pennsylvania, Department of Health,The Pennsylvania State

Health Services Plan—PROPOSED(April 1994).

15. C. Pepine et al., “ACC/AHA Guidelines for Cardiac Catheterization and Car-diac Catheterization Laboratories: American College of Cardiology/American Heart Association Ad Hoc Task Force on Cardiac Catheterization,”Circulation

(November 1991): 2213–2247.

16. P. Scanlon, “Society for Cardiac Angiography and Interventions List of U.S. Cardiac Catheterization Laboratories,”Catheterization and Cardiovascular Diag-nosis(January 1989): 39–77.

17. Pennsylvania Statewide Health Coordinating Council, “Cardiovascular Spe-cial Services—Cardiac Catheterization,” in1990–91 Amendments to the Pennsylva-nia State Health Plan, 1982–87(Pennsylvania Department of Health, February 1990), chap. 25. The definition of “low risk” requires that the patient be “an adult with stable symptoms, and who has no active congestive heart failure, no significant arrhythmias, and no significant comorbid conditions. . . . [Comor-bid conditions] include . . . patients with hypertension, diabetes, or renal insufficiency.” The current proposal for the 1994 version of the Pennsylvania State Health Services Plan retains these contraindications of low risk and adds others. Therapeutic labs are still required to have on-site surgical facilities. 18. Inter-Society Commission on Heart Disease, “Guidelines for the Performance

of Percutaneous Transluminary Coronary Angioplasty,”Circulation(October 1982): 693–694.

19. Some volumes may be low because of facilities operating for less than a year. 20. Pennsylvania Department of Health, Division of Need Review.

21. United Network for Organ Sharing,Monthly Data Packet(November 1993). 22. U.S. General Accounting Office,Organ Transplants: Increased Effort Needed to Boost

Supply and Ensure Equitable Distribution of Organs, GAO/HRD-93–56 (Washing-ton: GAO, April 1993). The size of the waiting list reported by UNOS


proached 28,000 in 1991; however, the actual number of persons in need of transplant services is lower because this figure “double-counts” those who are wait-listed by more than one hospital. The size of the list also may be inflated by cases of low urgency for which alternatives to transplants may be better. Estimates of the number of people included in this category are not available. O. Bronsther et al., “Prioritization and Organ Distribution for Liver Transplan-tation,”Journal of American Medical Association(12 January 1994): 140–143. 23. UNOS,Annual Report of the U.S. Scientific Registry for Organ Transplantation and the

Organ Procurement and Transplantation Network, 1993(Richmond, Va.: UNOS, and Bethesda, Md.: Division of Organ Transplantation, Health Resources and Services Administration, 1993).

24. GAO,Organ Transplants.

25. S. McCartney, “Agonizing Choices: People Most Needing Transplantable Liv-ers Now Often Miss Out,”Wall Street Journal, 1 April 1993, A1, A7; and Bronsther et al., “Prioritization and Organ Distribution.”

26. Pittsburgh Transplant Foundation; and S. Twedt, “Few Heart Transplants Done Here as Donations Dwindle,”Pittsburgh Press, 22 March 1992, A1, A6. 27. Bronsther et al., “Prioritization and Organ Distribution.”

28. Statewide Health Coordinating Council, “Vital Organ and Transplantation Services,” chapter 42(b) of the State Health Plan (September 1992).

29. Delaware Valley Transplant Program and Pittsburgh Transplant Foundation. Pediatric hospitals have special volume requirements; they were only counted among Pennsylvania’s “low-volume” hospitals when they did not satisfy the pediatric volume standard.

30. U.S. Congress Office of Technology Assessment,Neonatal Intensive Care for Low Birthweight Infants: Costs and Effectiveness, OTA-HCS-38 (Washington: OTA, De-cember 1987); and American Academy of Pediatrics and the American College of Obstetricians and Gynecologists,Guidelines of Perinatal Care, 2d ed. (Elk Grove Village, Ill.: AAP/ACOG, 1988).

31. Pennsylvania Department of Health, American Hospital Association, and Na-tional Perinatal Information Center.

32. This exemption holds as long as the beds are added to a service already offered at the hospital and associated costs do not exceed $2 million.

33. J. Arnold and D. Mendelson, Evaluation of the Pennsylvania Certificate of Need Program(Lewin-ICF, submitted to the Pennsylvania Legislative Budget and Finance Committee, Harrisburg, Pennsylvania, April 1992).

34. Directors of the neonatal intensive care units at Western Pennsylvania Hospi-tal and Magee Women’s HospiHospi-tal, Pittsburgh, Pennsylvania, personal commu-nication, January 1993 and April 1994.

35. C. Phibbs et al., “The Effects of Patient Volume and Level of Care at the Hospital of Birth on Neonatal Mortality,”Journal of the American Medical Associa-tion(2 October 1996): 13.

36. Level 3 refers to neonatal intensive care; level 2 refers to neonatal intermediate care. Pennsylvania Department of Health,1995 Health Planning Databook. 37. A 1983 estimate of $2.6 million was calculated by the Committee on Perinatal

Health and reported inPennsylvania State Health Plan, 1982–1987.This figure is equivalent to $3.85 million when converted to 1994 dollars.

38. Hillman at al., “Frequency and Costs of Diagnostic Imaging in Office Practice;” and Health Care Cost Containment Board, Joint Ventures among Health Care Providers in Florida.

39. B. Weisbrod, “The Health Care Quadrilemma: An Essay on Technological Change, Insurance, Quality of Care, and Cost Containment,”Journal of Economic Literature(June 1991): 523–552.






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