COPN Update: Hospital Monopolies Charge 15% More

Image credit: Washington Monthly

Image credit: Washington Monthly

As the General Assembly debates a rollback of the Certificate of Public Need (COPN) process, a new study has found that markets served by monopoly hospitals charge privately insured patients 15.3% more on average for a variety of routine procedures than  hospitals do in competitive markets.

“Hospital market structure stands out as one of the most important factors associated with higher prices, even after controlling for costs and clinical quality,” write the authors of “The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured,” published by the National Bureau of Economic Research.

The study is germane to Virginia’s COPN debate because state regulations impede the entry of new competitors in the medical marketplace. Most metropolitan markets in the state are monopolies or near-monopolies in which a single health care system own a dominant market share and enjoys pricing power in negotiations with private insurers.

If you want to know the premium that employers and patients pay in monopoly markets, 15% is a good rule of thumb. Employers/patients pay a roughly 7% premium in duopoly markets, and a 5% premium in triopoly markets. The price differential for Medicare is smaller because the federal government exercises monopolistic buying power (technically, that’s called a monopsony) and sets take-em-or-leave-em rates.


The Unbearable Whiteness of Being

by James A. Bacon

Henrico County Public Schools are in an uproar again, this time over the showing of a video entitled, “Structural Discrimination: The Unequal Opportunity Race,” during assemblies on American history and a racial discourse for Black History Month.

After widespread complaints by parents, administrators across the district have been instructed not to use the video, reports the Richmond Times-Dispatch. “In our community, while we do encourage open and frank discussions, perpetuating a racial divide, stereotypes or exclusion of an kind is not acceptable,” said School Board Chairwoman Michelle F. Ogburn. “The Henrico School Board and administration consider this to be a matter of grave concern. … It is our goal to prevent the recurrence of this type of event.”

The four-minute video, displayed at Glen Allen High School, depicts a race between a white male, white female, black male and black female. The two black runners encounter all manner of obstacles, while the white male coasts across the finish line on a people-mover track. Blacks, according to the video, are held back by a laundry list of grievances: wealth disparities, discrimination, poor schools, underemployment, standardized tests, the school-to-prison pipeline, housing segregation, racial profiling, shortened lifespans, connections, privilege and old boy networks.

These are the standard grievances emanating from the left end of the ideological spectrum, and there is an element of truth to some of them. The conclusion the video draws from the state of affairs, however, is that “affirmative action helps level the playing field.” Even more disturbing, the video also feeds the narrative, seemingly omnipresent in a school district as politically conservative as Henrico County, of white privilege and white guilt. Many white kids, including my 17-year-old son, have internalized the message.

Now, I have no problem in the abstract with my kid being exposed to this narrative. I want him to be exposed to all points of view, not just those with which I am comfortable, and I want him to develop the critical thinking faculties to dissect the pros and cons of each and make up his own mind. What I don’t want is for my son and his peers, who probably influence my son’s thinking more than I do, to be propagandized with a single point of view.

And there most definitely is a different point of view. While there is no denying the horrendous impact of slavery and Jim Crow segregation on African-Americans, those evils were expunged more than 50 years ago. Civil rights laws have been on the books since the 1960s, and a host of programs costing trillions of dollars over the years have been put into place to alleviate the plight of the poor, to repair inner cities and to compensate blacks specifically for past injustices. While a large number of blacks have risen to the middle class and some have become wealthy, a large segment remains mired in poverty. The welfare state has ameliorated their material condition but has bred social dysfunction so that the lives of many blacks (along with a growing number of whites) are degraded by teen pregnancy, out-of-wedlock births, substance abuse, child neglect, academic underachievement and a host of other interlocking ills that prevent them from rising out of poverty.

Compounding the corrosive effect of the welfare state and family breakdown have been catastrophic failures of other efforts endorsed by liberals and progressives to improve the condition of poor people generally and blacks in particular. We could start the list with the urban renewal projects of the 1960s that disrupted the fabric of black neighborhoods, and the public housing projects that perpetuated housing segregation and created crime-ridden hell-holes. We could move on to the grotesque mismanagement of inner-city schools and progressives’ opposition to charters, vouchers and other measures that would give poor black families the freedom to find schooling alternatives. More recently, we could stress the ill-fated initiative to increase black home ownership by lowering lending standards, which culminated with the crash of the housing bubble, massive foreclosures and the obliteration of black homeowner equity. Then we could focus on the current mania that every kid deserves a shot at college, and the government will lend him the money to attend regardless of his academic preparation and chances of success, with the result that hundreds of thousands of blacks are racking up debilitating debt while failing to earn the academic credentials that would enable them to get a job and pay off that debt.

I realize that these ideas are controversial to some. And my point isn’t to insist that I’m right and that others are wrong. The point is that there are competing ways to look at the state of race in America today. My fear is that only one perspective is being taught in our schools — the liberal-progressive view — and that a generation of kids is being indoctrinated with it.

The Times-Dispatch article tells us little about the context in which the video was shown at Glen Allen High School. If the video reflected only one of several diverse viewpoints designed to encourage a meaningful exchange of ideas, then the parents and the school administration should chill out and get over it. If it represented a one-sided effort to guilt-trip kids about their “white privilege,” then it is no more than divisive, leftist agitprop. And it’s not just white kids I’m worried about. What kind of message does it send to black kids that the odds are so stacked against them. What’s the point in even trying?

I tell my son, if he wants to feel guilty about his privilege because he was born to parents who work hard, pay a disproportionate share of taxes, give to charity, maintain an intact nuclear family, and care about him enough to rag his ass every day to get out of bed, eat healthy food, drive safely and be respectful to police officers, never lie, never steal, never resort to physical violence (except in self-defense), treat others (regardless of race) as he would have them treat him, and get off the damn computer so he can get good grades, go to college, and become a productive citizen, then so be it. Just understand where his privilege comes from — it has nothing to do with being white.

Great Inversion Update: CarMax Expands Downtown

lady_byrd_hatCarMax Inc., the retailer of used (er, make that “pre-owned”) cars, was a national leader in 2005 when it built a LEED-certified headquarters building in the West Creek office park in Goochland County west of Richmond. Now, a decade later, the company is leasing space in the historic Lady Byrd Hat building downtown.

The 26,000-foot facility will house between 80 and 120 employees working in the digital, marketing and information-technology departments. “Team members have the opportunity to work in a unique environment similar to a startup, but backed by the support of a large, established company,” said Shamim Mohammad, CarMax chief information officer. “We are looking for a variety of experience levels to develop best-in-class platforms and advance our website, mobile apps and associate platforms.”

Why downtown? It’s where the young IT workers want to be. The company hopes that exposed brick, hardwood floors and location on the Canal Walk of the Lady Byrd Hat building will be cool enough to attract the techies, spokesperson Catherine Gryp told the Richmond Times-Dispatch.

CarMax is hardly turning its back on its suburban campus. In expansion mode, the company is hiring another 80 positions at its headquarters location as well. But the expansion to downtown a sure sign that the many suburban-based businesses in the Richmond region no longer defer automatically to the suburban option. Downtown Richmond is more competitive than it has been in decades, and the same probably holds true for other traditional downtowns across Virginia.


Clean Power Plan Stalled, Green Energy Still Viable

In a five-to-four vote, the U.S. Supreme Court derailed, at least temporarily, President Obama's Clean Power Plan. Regulatory uncertainty ensues.

In a five-to-four vote, the U.S. Supreme Court derailed, at least temporarily, President Obama’s Clean Power Plan. Regulatory uncertainty ensues.

by James A. Bacon

The U.S. Supreme Court has halted implementation of the Clean Power Plan until challenges to its constitutionality can be resolved, creating uncertainty at the state level, including here in Virginia, on how to proceed.

The high court gave no explanation for its stay, but foes of the plan, which would compel electric power companies to make major cuts to CO2 emissions by 2030, argued that it would “force massive … changes in terms of state policies and resources, power plant shutdowns, and investments in wind and solar power,” which could not be reversed if it were later declared unconstitutional.

As a practical matter, the decision will delay implementation of the plan until the next administration. A federal appeals court is not expected to hear the case until June. If the case were appealed again, the Supreme Court likely could not render a decision until 2017, reports the Washington Post. While a Democratic president probably would press on with the plan, a Republican president likely would reverse it even if the Supreme Court ruled it to be constitutional.

The stay could create a dilemma for the McAuliffe administration, which supports the plan and has been working to implement it. Under the Clean Power Plan, Virginia’s Department of Environmental Quality is required to submit a state plan by June 2016, with the possibility of an extension until June 2017, or June 2018 if it adopts a multistate plan.

The response here in Virginia is mixed.

“Today’s unfortunate decision by the Supreme Court hits pause on the country’s strongest action to lower harmful carbon pollution, but it won’t stop the massive shift to cleaner, cheaper energy already underway in the Southeast and across the nation,” says Frank Rambo, senior Attorney and clean energy leader for the Southern Environmental Law Center. “The goals of the Clean Power Plan reflect this energy shift: we’re embracing cleaner energy options that would be happening with or without this plan. ”

“This comes as no real surprise,” says Dominion Virginia Power spokesman David Botkins. “It continues to be a legal and policy cloud of uncertainty for the country and the energy industry.” But Dominion will continue to move forward with the Clean Power Plan. “We will work constructively with the Commonwealth and other stakeholders on a compliance plan that has our customers as the first priority, ensures reliability, and maintains a diverse mix of electric generation.  We continue to prepare for implementation (of CPP) unless we are notified that Virginia is delaying or halting their development process.”

What does this mean for green energy in Virginia?

While a stay of the Clean Power Plan will slow the transition of Virginia’s electric grid to cleaner energy sources, it will not halt it. Dominion still is planning to shut down two aging, coal-fired units at its Yorktown Power Station, and its long-term investment plan calls for more gas-fired electric power, which emits less CO2 per unit of electricity than coal, and more solar. Indeed, Dominion announced plans two days ago to partner in a 20 megawatt solar facility in Chesapeake that will produce the energy equivalent needed to power 5,000 homes. (Substantial reliance on offshore wind energy still seems to be a distant prospect.)

The economics of wind and solar continue to improve, and many energy consumers — ranging from Amazon Web Services to the Norfolk Naval Station here in Virginia — are willing to pay a premium for renewable energy. Meanwhile, expansion of the electric transmission grid may make it realistic for Virginia power companies to import cheap wind-powered electricity from the Midwest.

Update: I have updated the Dominion quote to reflect company’s assertion that it will continue to move forward with the Clean Power Plan.

Update: A statement from Governor Terry McAuliffe: “Over the last several months my administration has been working with a diverse group of Virginia stakeholders that includes members of the environmental, business, and energy communities to develop a strong, viable path forward to comply with the Clean Power Plan. As this court case moves forward, we will stay on course and continue to develop the elements for a Virginia plan to reduce carbon emissions and stimulate our clean energy economy.”

A quote from John Shepelwich, spokesman for Appalachian Power Co.:  “The Supreme Court’s decision confirms that the legal justification for the Clean Power Plan should be examined by the courts before scarce state and private resources are used to develop state plans. The accelerated schedule for briefing and argument in the lower court assures that the case will be heard promptly.”

Another Useless Educational Metric

local_pass_vs_SOL2by James A. Bacon

We have documented in previous posts that there is only a weak correlation between the amount of money a Virginia school district spends per pupil and educational achievement as measured by the pass rates on Standards of Learning tests. But there are other ways to make the same point.

Our Lynchburg correspondent Jim Weigand has brought to my attention the publication of a report  based on 2015 data comparing the Required Local Effort (RLE) for Virginia’s localities and what the school districts actually spend on K-12 education.

For those of you not conversant with educratese, RLE represents the minimum expenditure required to meet the state’s “Standards of Quality,” an assessment of inputs such as the ratio of teachers and staff to the number of students. By comparing RLE to actual local expenditures, the VDOE report calculates the amount of a jurisdiction’s own tax dollars (as opposed to state and federal dollars) that it spends above and beyond the minimum requirement.

As the chart above shows, school districts vary widely in how much fiscal effort they devote to funding their schools — from 7% above the rock-bottom minimum in Patrick County to 284% of the minimum for the town of West Point. And what is the payoff for that extra spending? We compared the RLE percentage with average SOL scores for the 2014-2015 school year for each school district.


As can be seen in the scatter graph above, there is almost no correlation at all. The R² measure of correlation is less than 5%.

Does that mean the extra money is wasted? Not necessarily. Some school districts may be spending more money because they have a higher percentage of students who are handicapped, economically disadvantaged or speak English as a second language. But the graph is a pretty good sign that dumping more money into schools to meet or exceed the Standards of Quality is not an effective strategy.

Instead of blindly plowing more money into Standards of Quality, perhaps money should be steered to schools with more at-risk students. Or perhaps we could study what the successful schools are doing differently from the less successful schools and try to replicate the secret sauce. Or perhaps we could do almost anything but what we’re doing now.

To see the numbers for all localities in Virginia, click here.

Update: Over at Cranky’s Blog, John Butcher makes some adjustments to the data that I should have made, breaks down performance by SOL subject matter, and offers his own unsurpassed commentary.

Domenech Claims about Clean Power Plan Detract from Serious Debate


Doug Domenech

by James A. Bacon

There is a principled conservative-libertarian argument to be made against the Obama administration’s Clean Power Plan (CPP), which would compel Virginia’s electric utilities to cut CO2 emissions by 32% from 2005 levels by 2030. Unfortunately, Doug Domenech, Secretary of Conservation and Natural Resources during the McDonnell administration, didn’t make it in a Sunday column in the Richmond Times-Dispatch. Indeed, by building his argument around at least three propositions that are either unsubstantiated or just plain wrong, he may have damaged the credibility of Clean Power Plan critics.

In the spirit of charity, let’s start with what Domenech gets right. He argues that the Clean Power Plan might be unconstitutional. I agree. A serious argument can be made that the Environmental Protection Agency (EPA) usurped Congressional authority by classifying  carbon-dioxide, a chemical essential to life, as a pollutant that can be regulated under the Clean Air Act. Twenty-seven states are suing the EPA on those grounds in a case that will be decided by the U.S. Supreme Court. Until the high court rules, the constitutionality remains in limbo.

Domenech also argues that the Clean Power Plan will do little to effect climate change. Implementation of the plan will reduce projected global temperature increases by 0.018 degrees Celsius by the year 2100 and slow the rise in sea levels by the thickness of two sheets of paper. That’s for the entire U.S. The impact of Virginia’s adherence to the plan will be too small to measure. Even the EPA has conceded this reality, but argues that the U.S. cannot persuade other countries to restructure their energy economies unless the U.S. moves aggressively to decarbonize its own.

Domenech also raises a legitimate question: How much will the Clean Power Plan cost rate payers? Given that the plan calls for phasing out coal-fired power plants, the cost of which is already built into the rate base, and replacing them with gas, nuclear, wind or solar, which must be paid for anew, there are reasonable grounds to believe that the plan will drive up electricity costs here in Virginia.

However, he cites (without naming the source) a study by the American Coalition for Clean Coal Electricity which concludes that electricity rates will increase annually by 14% annually, or roughly 150% over 11 years. That forecast is an extreme outlier. The State Corporation Commission has estimated that Dominion Virginia Power electric rates could increase 20%, while environmentalists have argued, on the implausibly low side, that electric rate increases will be so negligible that, when combined with energy-conservation measures, Virginians will actually pay lower electric bills. Perhaps the most disinterested and credible source, PJM Interconnection, says that the final cost will depend on the particular regulatory regime Virginia chooses and, thus, is impossible to determine at this time.

But that’s nothing compared to two claims that are utterly unsupportable. As Virginia’s chief environmental regulator, Domenech should know better.

First, he gives DEQ and the private sector credit for reducing Virginia’s emissions of sulfur dioxide by 66%, nitrogen dioxide by 43% and carbon dioxide by 27% during the McDonnell administration between 2010 and 2014. “This was largely due to the efforts of the professionals at the Department of Environmental Quality and the actions of Virginia’s corporate citizens. … We were able to reduce CO2 27% without the heavy hand of the EPA.”

In truth, the hand of the EPA was very heavy indeed. In December 2011, about halfway through the McDonnell administration, the EPA finalized its Mercury and Air Toxics Standards, which regulated mercury and other toxic chemicals released into the air by coal combustion. The EPA rules cracked down on dirty coal emissions, forcing electric utilities to switch to other power sources, particularly natural gas, which emits roughly half the CO2 per unit of energy as coal. Much of the pollution reductions cited by Domenech came about as the power industry either anticipated and/or responded to the new standards by installing scrubbers or converting from coal to gas. For instance, Dominion converted two units at its Possum Point from coal to gas in 2013, and its entire Bremo plant from coal to gas in June 2014.

I was not covering the electric power industry back then, so I acknowledge the limitations of my knowledge. But if the EPA’s air toxic standards were not the driving force behind the decline in pollutants, what DEQ initiative was? Domenech provides no alternative explanation.

Secondly, Virginia’s former environmental chief blames the woes of Virginia’s coal industry on the Clean Power Plan: “With this EPA rule, we see the impacts on Virginia’s coal communities. Coal mines are being shut down, miners are losing their jobs, the dreams of coal families are being shattered, coal companies are filing for bankruptcy.” Even CSX and Norfolk Southern railroad profits are plummeting due to drops in coal volume.

That is stupefyingly, breath-takingly wrong. If he wants to blame government regulation, Domenech could plausibly cite the impact of the Mercury and Air Toxics Standards, which with the fracking revolution and low price of natural gas pushed electric utilities to scrap dozens of coal-fired power plants around the country or convert them to gas. No question, that wave of regulation sharply reduced demand for steam coal. On top of that, export markets for steam and metallurgical coal (used in steel making) also have collapsed. But to blame the Clean Power Plan, which hasn’t resulted yet in the shut-down of a single coal-fired plant, for the current condition of the coal industry just isn’t credible. If Domenech wants to make a connection between the Clean Power Plan and the coal industry, he could plausibly argue that the plan will demolish future demand for coal, that it will destroy any hope of a coal industry recovery, and that the economic woes we see in the coalfields today will become even more widespread. But that’s not the argument he makes.

Over and above questions about its constitutionality, the Clean Power Plan raises important issues for Virginians. The plan will engender complex trade-offs between costs to rate payers, the reliability of the electric grid and the environmental benefit of shifting to low-carbon or zero-carbon power sources. To what extent should we diversify our fuel sources? How rapidly will demand for electric power increase, how much new capacity should we build, and who will pay for that capacity if we build too much? To what extent should we purchase electricity in wholesale energy markets, and can we build enough electric transmission lines (which nobody likes) to accommodate the large-scale wheeling of power across state lines? What kind of grid is more resilient in the face of cyber-sabotage, terrorist attacks or natural calamities — the Big Grid vision of large power plants and large transmission lines, or a small-is-beautiful vision in which householders and businesses generate much of their own roof-top power?

These are the kinds of questions I’m asking at Bacon’s Rebellion. Conservatives and Republicans can either be part of a serious discussion or they can throw dust  in the air to distract the electorate. Sadly, the misinformation in Domenech’s op-ed is so easily debunked that it’s hard to take him seriously. Republican legislators would be well advised not to fall into the same trap.

A Book Review for an Election Year

Along with income inequality, one of the most-discussed issues in the Presidential election year is the role of money in political campaigns.  Following the Roberts Court’s ruling in the Citizens United Case, which basically equated money with free speech, large numbers of Political Action Committees masquerading as charities, such as the Americans for Progress, were supported by wealthy donors to funnel money to selected candidates.  These so-called super-PACs could raise unlimited amounts as long as they were not “coordinated” with the candidate’s campaign.  This process and it after-math are the heart of Jane Mayer’s new book, “Dark Money.”

According to the book, Ed Gillespie, currently the front-runner for the Republican nomination for Governor of Virginia, was one of the first political operatives to realize the potential surrounding the Supreme Court’s decision, and began to organize attacks on regulation having to do with environmental protection and tax policy.

The perception that business is under attack and a response must be begun dates back to the early 1970’s.  Lewis Powell, a Richmond lawyer who served as a distinguished member of the Supreme Court, outlined a type of response that included an organized to roll back regulations and other government policies that, he perceived, were undermining the American private Enterprise System. (see reclaim Powell served on many corporate boards including tobacco giant Phillip Morris.  His ideas were taken up by several individuals of significant wealth.

The book indicates that those who found the dark side of American politics are mindful in operations that have significant impact on the environment.

The Olin Corporation is an example.  Olin was a significant polluter.  It was the largest manufacturer of DDT, which was eventual banned by the government in 1972.  In the town of Saltville, Va., Olin’s Chlorine production spilled significant amount of mercury into the Holston River.  The company ceased operations shortly after it was reported from Japan that large exposure to mercury in water caused birth defects.  Members of the Olin family are significant contributors to conservative think tanks such as the Heritage Foundation and the American Enterprise Institute

The most significant of the “dirty money” fraternity are the Koch brothers (No relation to former mayor of NY Ed Koch).  Their oil refining and pipeline business if one of the largest privately-held pipeline companies in the United States.  The family has a very interesting history. Earlier generations did business with both Nazi Germany and Stalinist Russia. Family members were members of the John Birch Society. This is the same group that believed that President Eisenhower was a Communist.

In her research, Jane Mayer discusses many legal problems that Koch industries has had under the current leadership of Davis and Charles Koch, some involving outright theft of oil from Native Americans’ reservations, significant instances of pollution. One particularly disturbing case involved the death of an employee named Donald Carson who died of Leukemia in 1997.  Doctors believe that his cancer was the result of exposure to benzene, a chemical involved in refining crude oil. The Kochs refused to pay him Workmen’s Compensation even though a company-sponsored blood test indicated five years before his death that his blood was poisoned. The employee was subsequently terminated from the company.  Charles Koch believes that government regulations are “socialistic.” Employees within the company that brought up potential health issues to OSHA were fired. In one case, involving a pipeline explosion, resulting in the death of an employee, a jury found that the Koch’s not only negligent but malicious, ordering them to pay a settlement three times the hundred million Dollars that was originally requested.

Ms. Mayer does acknowledge that the Koch Brothers have given significantly to “real charities” such as Lincoln Center in New York and several medical research institutes. According to the author, these contributions served to soften their image and make their political activities seem less threatening and less self-serving.

Following the plan, laid out many years ago by Lewis Powell, American Universities are the fountainhead of anti-business attitudes in the United States. The theories of the Austrian school of economics was believed to provide an intellectual basis for the type of free-for-all capitalism advocated by the Koch brothers.  In 1981, the Mercatus Center was established at the George Mason University in George Mason University.  The Center claimed that it “bridged the gap between academic ideas and real world problems.”  Records obtained by Jane Myer indicate that the brothers have contributed $30 million to the Institute. One historian on the faculty describes the institute as a “lobbying group for corporate interests.”

Whether you agree with the author,  Jane Mayer, the current rise of “outsider politicians” in both parties shows that much of the public perceives that the system is rigged in favor of the ultra wealthy.

— D. Leslie Schreiber