Indiana county's hospital construction ban overturned

Local governments want to regulate the building of facilities that might threaten public hospitals, but a judge ruled that it's a state power.

By Katherine Vogt, AMNews staff. Dec. 5, 2005.

A court case considered to be an indication of whether local governments are able to dictate the terms of hospital competition resulted in a ruling showing that, so far, local governments may not.

In a Nov. 2 ruling, U.S. District Judge David F. Hamilton in Indianapolis ruled against one county's attempt to protect its community hospital from encroaching competition, saying that state law "explicitly grants the Indiana State Dept. of Health the right to license and regulate hospitals" -- not counties.

The ruling came in a challenge to ordinances that were passed in Morgan County. The ordinances imposed first a limited moratorium and then a county approval requirement on hospital construction. St. Francis Hospital-Mooresville and its parent company sued, arguing that the ordinance unfairly restricted it from moving forward with plans for a $40 million expansion project.

The case was closely watched by other hospitals and at least four other Indiana counties that have imposed similar ordinances in the last year. Observers say similar efforts by local government entities could become more widespread as increasing competition and financial pressures bear down on community hospitals.

Recent competition has come largely from private, limited-service hospitals that don't have the same responsibilities as community hospitals, said Thomas Laux, president and chief executive of Morgan Hospital & Medical Center, the community hospital involved in the case.

"Our purpose in seeking the ordinance was ... to foster a fair, competitive environment," said Laux, who said the county was considering appealing the ruling. That decision may be influenced by the outcome of a legal challenge to a similar ordinance in another Indiana county, he said.