That's the idea. In reality other hospitals in the area get to have a significant say in new facilities to ensure that they are not either operating empty beds

That's the idea. In reality other hospitals in the area get to have a significant say in new facilities to ensure that they are not either operating empty beds (non-maximal revenue) or filling them with delayed discharges. Remember that hospitals and hospital owners lobbied the Nixon administration heavily to get this process put into law, and it becomes a bit clearer.