A Broad Healthcare Agenda for the 2021 General Assembly

Towards a Better, Freer, Less Expensive and More Accessible Healthcare System in Virginia

Image credit: Gordon Johnson

by James C. Sherlock

COVID-19 exposed weaknesses in Virginia’s healthcare delivery system in both readiness and equity of access.

Even before COVID, we have been dealing for decades with the costs of all kinds imposed by Virginia’s unregulated regional healthcare monopolies. The General Assembly has an opportunity, even in this upcoming non-budget year, to deal with them in ways that also save money in Medicaid.

The Certificate of Public Need (COPN) law passed in 1973 gave the Virginia Department of Health (VDH) control over the construction and expansion of new hospitals, ambulatory care and diagnostic imagery centers and of the equipment necessary to operate them. Every effort to break the monopolies it has created or repeal the law has failed. 

We see the results of nearly 50 years of this law in the extraordinarily high costs of healthcare in Virginia, the profound unreadiness of the Virginia healthcare system for COVID and the disproportionate impact of COVID on Virginia’s poor.

It is time to stop pursuing COPN repeal and move forward with reform. 

I will offer here a broad program to update Virginia law to control costs and improve access without repeal of COPN. Each of the reforms start with the assumptions that we have regional healthcare monopolies and they are not going away and that COPN is not going to be repealed. Reform will have to work around those facts.

The changes recommended here will lower costs for everyone and improve access to primary medical and dental care to poor Virginians of every race in both Democratic and Republican districts.   

If that sounds like the reforms will draw broad bipartisan support, my answer is maybe. Each one will be fiercely resisted by the hospital lobby that has dominated the General Assembly on healthcare matters for decades.  

I think, however, that based upon the major flaws in our system and the deadly outcomes uncovered by COVID, we have a chance for reform in 2021.

Background

VDH in its administration of COPN has destroyed any semblance of a free market in healthcare delivery 

  • by choosing to create hospital-centric healthcare delivery monopolies in nearly every area of Virginia but Richmond; and 
  • by severely restricting the creation of independent ambulatory facilities as competitors to those hospitals.

Having granted that market power, Virginia does nothing to reign it in. The state regulates the business practices of insurers, but not providers. 

Monopolies have consequences, including control of prices and suppression of competitors. Hospital inpatient prices in Virginia between 2013 and 2017 for those who get their insurance through work increased 15.2%, a rate 62% faster than the national average and three times broader inflation in the economy. In those same years hospital utilization increased only 1%. 

All insurers including Medicare and Medicaid pay about twice as much for ambulatory services and procedures in hospitals here as they do for the same services and procedures from the same physicians in independent ambulatory care centers.  

VDH has severely restricted ambulatory care access by awarding only 71 certificates for ambulatory surgical centers (ASCs), about half of them to hospitals. Maryland, a certificate-of-need-state with a population smaller than Virginia, has more than seven times as many ASCs as Virginia, the vast majority physician-owned.  

Hospital systems in Virginia’s five largest metro areas either own their own health plans and insurers or have joined exclusive partnerships with one.  

To make that worse, the state has awarded $5 billion in annual Medicaid managed care contracts to two hospital-owned health plans — Sentara’s Optima and VCU’s Virginia Premier.  Sentara then bought Virginia Premier. Together the combined insurer manages the care of nearly half of Virginia’s Medicaid patients.  

Sentara’s Optima leveraged Sentara provider networks and charged the highest prices in the nation in 2018 for ACA policies in regions in which it was without ACA competition.

The results of unregulated monopolies are predictable. Virginia acute care hospitals as a group realized an operating margin of 8%, three times the national average in 2017, resulting in a billion dollars in extra patient revenue before Medicaid expansion and the accompanying reimbursement increases offer to add another billion dollars in profits in 2019 and beyond.  

Regionally dominant, self-declared non-profit public charity systems in South Hampton Roads, Northern Virginia, Roanoke and Lynchburg averaged operating margins of 9.3%. VCU Health Authority’s flagship Richmond hospital had a 14.9% operating margin.  

We want profitable hospitals, but not due to exploitation of government-granted control of markets.  

The business activities of those corporations and their relationships with state agencies demand investigation. Yet the Justice Department has been blocked from enforcing federal antitrust laws because the monopolies are granted by the state. Virginia’s Attorney General shows no interest in enforcing the Virginia Antitrust Act.  

The General Assembly must act.  

Reduce the scarcity and monopoly of outpatient facilities

We require legislation to reduce the scarcity of outpatient facilities by reducing regulation. Virginia should emulate Maryland to offer COPN exemptions to small physician-owned surgical centers (POSCs). Again, Virginia currently has about 75 licensed ambulatory surgical centers. Maryland has something like 570. Identical procedures cost roughly twice as much in a hospital outpatient department as in an ambulatory surgical center or a doctor’s office.

One hundred additional POSC facilities with $5 million in patient revenue each can save Virginians $500 million annually. A Virginia Ambulatory Surgery Act of 2021 can require the newly exempted facilities to accept government insurance as well as private insurance to serve all Virginians. 

Healthcare services in rural communities must be modernized in the face of declining populations. The same Act should have provisions for COPN exemptions for such efforts.

Control Hospital Inpatient Price Increases

The General Assembly should commit to stopping the state-enabled runaway inpatient price increases by regional monopoly hospital systems.  

There is currently no effective limiting factor in markets or legislation. We even have a state law that bars insurers from steering their patients to less expensive, high-quality options.  

The General Assembly must therefore control runaway increases. One thought is to link rates of increases in hospital prices to the increases of Medicare allowances for identical procedures and services.

Increase access of the poor to primary medical and dental care while saving Medicaid money

The disproportionate effect of COVID on the poor shows we must increase access to primary medical and dental care for Virginia’s poorest communities. The market, strangled by COPN, hasn’t worked in this case, and the regional monopolies have chosen not to do so, so the General Assembly should support the combination of federal, state and local partnerships to create incentives to fill the need.  

This approach has worked very successfully in Maryland while simultaneously reducing Medicaid costs by providing alternatives to hospital emergency rooms.  

A bill to accomplish that objective modeled on a successful Maryland program was introduced in the Virginia General Assembly as the Health Enterprise Zones Act of 2020. It passed overwhelmingly in committee but failed in the budget committee.  

That of course made no sense because the bill on which it was modeled saved Maryland’s Medicaid agency $93 million in a very limited trial by reductions in hospital visits by Medicaid recipients. It was in turn the demonstrated reduction in hospital revenue that made the 2020 bill a successful target for the powerful hospital lobby in Richmond.

Improve Physician control of the practice of medicine

Virginia’s regional hospital-centric delivery monopolies control not only ambulatory facilities, but also large networks of physician practices. 

The General Assembly should return to physicians some of the control over the practice of medicine that they have lost to hospital system administrators, especially in referrals.  

That lack of control over the practice of medicine and lack of ability to create their own secondary care facilities are certainly among the reasons that Virginia has 263 physicians per 100,000 people and Maryland 386. 

Reshape government oversight

We must reshape state oversight responsibilities to better leverage existing state expertise. I support oversight 

  • of the business of healthcare, both providers and insurers, by the State Corporation Commission; and 
  • of the practice of medicine by the Virginia Department of Health.  

The current system makes no sense for either agency or the public.  The SCC can’t effectively oversee health insurance while it is fully integrated with the businesses of healthcare providers that effectively have no regulator.

Ban ownership or control of health insurers and health plans by regional monopoly healthcare providers

We should ban the ownership or control of (or exclusive partnership between) healthcare delivery systems on the one hand and health insurers and health plans on the other. These are de facto combinations in restraint of trade.  

It is necessary: 

  • to restore to insurers and health plans now controlled by hospitals the freedom to fulfill their obligations to their clients unconflicted by considerations of hospital-system-provider profit margins;  
  • to provide competing providers equal access to insurance networks at fair prices; and
  • to provide competing insurance providers fair access to regional providers at fair prices.

Summary

This is the time of the year when legislation is being drafted. The bills I propose are by design bipartisan. 

They offer both huge cost savings and better access to healthcare from: 

  • freer markets; 
  • government intervention to ease the plight of the poor that has been ignored by existing monopoly providers.

As a political matter, it offers these benefits in both Republican and Democratic districts.

Those surprised that these proposals come from a conservative must start with the understanding that we have unregulated monopolies in healthcare delivery and they are too powerful to be broken up. But little attention has been paid to the unethical use of the business leverage of the insurance arms of these corporations. And virtually no attention has been paid to the enormous costs to Virginians of this vertically integrated provider-insurer system.  

We can and should deal with those issues without beating our collective heads against the brick wall that is COPN repeal.

Now we will see what truly motivates the General Assembly, the campaign donations and political power of the hospital lobby or the improving the quality and accessibility and lowering the costs of healthcare.

There are currently no comments highlighted.

33 responses to “A Broad Healthcare Agenda for the 2021 General Assembly

  1. James Wyatt Whitehead V

    I like your ideas Captain! This is not my area of expertise. But your solutions seem to be common sense based and patient/client oriented. Maybe some traction can be gained this winter in Richmond.

  2. Why not trade chickens for transplants?

    All nice ideas, but not until you break the insurance companies. Good luck.

    But answer one question. Who is the honest broker?

    • There are no insurance companies in Maryland? You know, the state with a lesser population than Virginia but 7X the number of ambulatory surgery centers.

      We need to break the General Assembly at least as muh as we need insurance reform.

  3. I don’t see it as a problem with the insurance companies, but rather, the producers. My wife is a retired federal employee. We have Medicare Part A because it’s required, but don’t have Medicare Part B because just keeping the Federal Employee Blue Cross-Blue Shield is more cost-effective. They negotiate rates that regularly save us money as preferred providers cannot bill above the negotiated rate. The co-pays are still reasonable, as are most of the out-of-pocket payments. We have coverage nationwide, as well as overseas coverage. We don’t need to worry if we are traveling and need to go to an emergency room in another state that we would not have coverage.

    Every financial planner we ever talked with has urged us to stay the same.

    The certificate of need is appropriate only in a market where prices are set on a utility model basis. Here, they restrict competition and should be repealed.

  4. The basic problem is you don’t kill what we have right now and promise better.

    The GOP and Conservatives are totally disengenous on that aspect.

    Next – there is no free market for a lot of existing insurance such as employer-provided, Medicaid and Medicare.

    Who, over the age of 65 gets quality health insurance for $145 a month?

    How many over age 45 or with pre-existing conditions would qualify for employer-provided – at the same premiums as younger and healthier people if insurance companies were allowed to use medical underwriting for setting individual premiums on a per person basis – based on their age and health status?

    For anyone serious about this – they need to acknowledge that employer-provide and Medicare are not “market” insurance. They are government sanctioned and subsidized insurance and the real question is why does the government subsidize and guarantee coverage for some people but not others. Why don’t we have a fair and equitable system where everyone gets the same benefits from the government – or everyone does not? We’re talking about millions of people who work in service occupations and as independent contractors who do not get to buy their insurance without pre-tax dollars nor are guaranteed coverage much less get subsidized and guaranteed coverage for $145 a month.

    • Larry, you will read in my essay that none of my recommendations “kill what we have right now”. And you will read that I acknowledge that we have not had a free market for healthcare in Virginia for five decades because of state intervention.

      Pick one of my recommendations and tell us all why it is not a good idea and I’ll discuss it with you.

      • Jim – the big thing to remember on healtcare costs is that Medicare sets the scale and all insurance determines the level of reimbursement no matter what the hospitals and health care providers charge. They only will get what Medicare determines is the fair price and almost all of the other insurances set their reimbursements according to Medicare. Some of them are more generous that Medicare but “shopping around” is really not that much of an option unless they have out-of-pocket and even then the problem is that there is no Consumers Reports of local providers in terms of price and quality.

        I am conflicted and a skeptic on COPN in a world where those who have insurance are 3rd party with the insurance setting the reimbursement to the provider. If someone was going to pay out of pocket AND they could see a list of providers ranked by quality and price then maybe.

        I’ll give a personal example. I had to get a prostate biopsy. (turned out good), but from the point where the urologist recommended it, I had limited information on how to proceed. I did ask the providers and the hospital to provide a price – and to assure me that all providers would accept my insurance. The hospital was shocked. They said they did not provide such information prior to the procedure because each procedure was more or less unique depending on what happened during the procedure.

        At that point the urologists was saying it needed to be done and the longer the delay, the greater the risk. What was I going to do? Go “shopping”? Start calling up other urologists and hospitals to see what they charged?

        This is the practical reality to this.

        Yes, I shop around for eye glasses and I go get my “free” flu shots. Some of my dental is reimbursement but I pay most of it. I’d have to switch from my dentist of 25 years who has all my records to find a cheaper dentist my insurance covers and I have no idea of their qualifications or quality of work. I actually did try to shop around for an implant tooth. One guy wanted $500 to do an examination and give an estimate. Another did the examination for free but wanted several thousand dollars and was not in my insurance provider. The nearest provider in network is 45 miles away.

        And I’m LUCKY – my insurance paid in full for the prostate biopsy – 13K!

        I get blood work – and have done so at Quest, LabCorp and the local Hosptial. No out of pocket for any so what do I discriminate on? In my case, the hospital results go on a electronic database my doctor can see right away. So that’s my choice. That database has all my labs on it and the doctor can pull up the history and see for a given item how it compares to prior measures. So even if others would be cheaper – they generate paper – and paper goes into a folder and no doctor is going to pull out all the paper for your prior tests…

        I WILL compliment you. You do spend a lot of time and effort in your essays. They are well thought out and fairly meticulous in their constructs. You do your homework!

        But…the way health care actually “works” makes it very difficult to truly “shop” much less pay less…

        Right now, you may or may not have noticed – it’s open season for Medicare Advantage and they’re selling it. They cover the 20% co-pay that original Medicare doesn’t pay and they provide things Medicare does not like optical, dental and hearing. The catch is that most of them are HMOs… you use their doctors. The up-side is that most of their doctors are on the same database… so your care is coordinated.

        Health care is complicated and most folks when they get to 65 are very lucky. They not only get quality insurance, unless you are a high dollar earner, most pay about $145 a month and with Advantage, zero.

        Basically shopping and saving money is out of the hands of most seniors… It’s a non-starter.

        • Your assumption that all other health insurance programs set their reimbursements according to Medicare is dead wrong. Don’t know where you got it.
          We ask our elected representatives to deal with healthcare and health insurance law and policy in Virginia.

          This post is to them.

          • ” In the Shadow of a Giant: Medicare’s Influence on Private Physician Payments”

            ” VIII. Conclusion
            We show that Medicare exerts widespread and quantitatively substantial influence over the rates that private insurers pay. A $1 change in Medicare’s payments for one service relative to another, or in one geographic region relative to another, drives a change of just over $1 in private payments. These payment changes reorient billions of public- and private-sector health dollars across locations and types of care. In aggregate, our estimates imply that Medicare’s pricing decisions can appreciably move both health sector and overall inflation ”

            https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5509075/#:~:text=We%20analyze%20Medicare's%20influence%20on,corresponding%20private%20prices%20by%20%241.16.

          • Larry, I want you to go first to http://www.vhi.org/healthcarepricing/about_healthcarepricing.asp and read about how vhi.org under contract to the Commonwealth aggregates allowable payment information from providers.

            Then go to https://www.vhi.org/HealthcarePricing/default.asp and look at the results. You will find that insurers paid between $2140 and $3802 for colonoscopies in hospital outpatient departments and between $895 and $1950 for that same procedure in a physician’s office. You can check out the spread of payments for a long list of other procedures on that same page.

            Medicare also pays more for that procedure in a hospital outpatient department, but with not nearly this spread of payments.

            It is those figures against which co-payments are calculated. If we looked at the details of the data, we would find the regional monopoly hospitals and the ASCs they control getting the high end of that range and their competitors the low end.

            That is how it happens that, for example, Sentara hospitals in South Hampton Roads make double digit operating margins and competing hospitals here lose money on an operating basis.

  5. “The basic problem is you don’t kill what we have right now and promise better.”

    Slight correction; The basic problem is you don’t kill what we have right now and promise better sometime, oh say, in a year or two. Aka, Repeal and Replace.

    • Yes. It’s Alice in Wonderland. KILL Obamacare and ” we’ll come up with something better sometime”.

      Who does this?

      All those “good” ideas that Conservatives have – why not implement them now and if they are better then people will switch.

      “innovative and affordable” are the blather words – as if they will help people who cannot get insurance to start with because of age or pre-existing conditions”. Insurance companies – like auto, home, life work off of claims experience and actuarial statistics.

      So if you are age 50 or 60 and have a bypass, your premiums would go through the roof – except they can’t for things like employer-provided or Medicare because the government prohibits it.

      If the Government truly allowed health insurance to be “free market” – insurance premiums for older people based on claims experience would be out-of-sight. The same thing would happen to younger people that have high blood pressure or diabetes or other comorbities.

      The fact that employer-provided cannot do this – just flies over the head of most people – even as those folks argue that others should get “free market” health insurance.

    • What part of this don’t you understand …

      Hospital inpatient prices in Virginia between 2013 and 2017 for those who get their insurance through work increased 15.2%, a rate 62% faster than the national average and three times broader inflation in the economy. In those same years hospital utilization increased only 1%.

      Maryland is hardly a GOP stronghold. However, they understand the cost of state empowered monopolies and refuse to allow an intentionally broken COPN law (like the one in Virginia) to push up health care costs. Of course, they also have limits on campaign contributions to state politicians.

  6. All good ideas. My problem is that market economics don’t necessarily deal with with strict with the needs for health care. They go with where they can make profits. That means richer people.

    • Wal-Mart Automotive Service and Colonoscopy Center?

      “We’ll run a hose in it one end or the other!”

    • My ideas in general do not assume market economics, Peter. They note that there hasn’t been a free market for healthcare in Virginia since 1973 and admit there will never be.

      They are instead a series of targeted interventions that try to fix the worst effects of:
      – a series of regional monopolies awarded by the state actions,
      – a horrible law that preserves them,
      – business activities by those monopolies that clearly break both Virginia and federal antitrust laws, and
      – a series of Virginia Attorneys General who want to be Governor and look the other way.

      There is not one of these recommendations that Democrats should not support, even if they eventually seek single-payer, and therefore state-run healthcare.

      The dark player in this is, as it long has been, the hospital lobby. They oppose:
      – lower prices;
      – reduction in hospital visits by the poor;
      – fair negotiations between providers and insurance plans;
      – the banning of vertical integration of healthcare and health insurers;
      – oversight by the SCC that might actually conduct it instead of the Department of Health, which has been captured by the hospital lobby for decades;
      – independence of physician referrals;
      – oversight by the state Department of Taxation of their not-for-profit status; and
      – competition for outpatient visits by independent actors.

      The hospital lobby is utterly malevolent in this matter. If that lobby disagrees with that assessment, let them support publicly even one of these initiatives. They won’t.

      So who is on your side? Can the GA face up to the pressure the hospital lobby will bring, even after COVID exposed the lack of readiness of the state health system and the disparate impact of COVID on the poor?

      We’ll see.

  7. At the hospital level, there is no fair pricing. You cannot shop for an appendectomy. You get wheeled in, and when it’s done, you get billed, including $20 for an Advil.

    Then, the magic happens.

    Sentara and Aetna negotiate how much you pay. Of course, this assumes that somebody wants to save you money… HAHAHAHA.

    • In Hampton roads, Sentara hospitals and Sentara Optima negotiate how much most pay. How do you expect that works out. Thus the recommendation to ban the ownership of insurers and HMOs by hospitals.

      • Trying to understand what role you want for govt. If they do things like “ban” , aren’t they picking winners and losers then?

        • Good question. Our problem in Virginia is that the state has already picked winners – regional monopoly hospital systems – and losers – everyone else including their competitor providers and their patients.

          All of my recommendations above are meant to ameliorate the results of long term state interference in the markets.

          The AG could fix a lot of it by suing the monopolies for regional combinations in restraint of trade and getting these concessions as part of a settlement. He won’t.

      • Like I said, “No honest brokers.” It’s even worse for eyewear. One company owns 80% of the manufactuers and outlets as well as the two largest insurers. Who’s minding the purse?

        Luxottica.

  8. Government once again choosing Winners and Losers…..
    If it isn’t Dominion Energy, then it’s healthcare..
    As a side note insurance isn’t insurance if it covers pre existing conditions… annnnd,,, Federal involvement in Healthcare and insurance is UnConstitutional,,, I challenge any of you to find any authorization in our Constitution for government to be involved ,, just name the Article and Section..
    Absolutely,, get rid of COPN and let the free market reign,,, brings down prices every time it’s tried….

  9. Does something have to be “authorized” in the Constitution to be legal?

    I can think of dozens of Federal Agencies and hundreds of laws about things not in the Constituion, right?

    But the thing about Federally sanctioned health insurance picking winners and losers, I agree with you. Some folks get it and others do not.

    And I agree with you about pre-existing conditions. Once the govt requires insurane to cover them – it’s no longer insurance but it’s also true about govt-required guaranteed issue and community rated premiums.

    Now we could “undo” all of this and end up doing health care like 3rd world countries do but I suspect it would not be supported by most Americans.

    Has anyone ever brought a case that challenges the Government’s role in health care?

  10. Pingback: A Broad Healthcare Agenda for the 2021 General Assembly - Bacon's Rebellion - Health Insurance

  11. Jim, I agree that COPN encourages monopolies but I wonder how well the free market would serve poor, rural people in places like Appalachia. Many can’t even get broadband because it doesn’t make enough money for for-profit providers. You suggest that government intervention to help the poor with help. How would that work?

    • Peter, my next column will offer the details of the Maryland HEZ program and its applicability in Virginia.

      It is both liberal and conservative, an iteration of the Jack Kemp idea, offering incentives to physicians and dentists to set up shop in communities of urban and rural poor. It is not race based, but rather class based. Based on Maryland results, it offers to simultaneously lower Medicaid costs and improve the health of those communities.

      It will directly address the issues of the poor health of poor people demonstrated in COVID and attributable to lack of primary care.

      But it is not radical.

      You and I might normally consider it a can’t-miss proposition with Democrats and Republicans in Richmond. The Republicans will back it 100% as they did last year.

      If it get’s introduced, makes it through committees and is allowed to the floor, it will get nearly 100% backing in both houses. But you and I know the Speaker can send it to her Rules Committee, never to emerge.

  12. “Now we will see what truly motivates the General Assembly, the campaign donations and political power of the hospital lobby or the improving the quality and accessibility and lowering the costs of healthcare.”

    The Never Ending Story in the most corrupt state in America. Virginia’s legislature is bought and paid for. This will remain the case until campaign contribution limits are imposed in Virginia as they have been imposed in the vast majority of other US states.

    This is not hard to understand.

    • I think (perhaps it’s a delusion) that the people of Virginia would support these recommendations if they were widely broadcast. Not sure we’ll find out.

  13. Some of the posters here seem to argue that there is no place for market based solutions in healthcare. While I appreciate your arguments that systems in other countries are working better, I’d point out that they still have better functioning markets around healthcare that contributes to their success. I think Mr. Sherlock reflects that in his proposals.

    I’ll set aside COPN and give another example. The U.S. has the highest paid doctors in the world but the lowest number of doctors per capita among OECD countries. It would be easy to argue we have a shortage of doctors on a comparative basis. If markets were functioning properly, why would that be the case? The high potential earnings should attract more people to become doctors. But the market failure here is not due to the system (the doctor shortage would still exist if we had a single payer system), but due to supply-side constraints due to the influence of the medical lobby (AMA). There are fewer spots on a per capita basis in medical schools in the U.S. compared to other countries because of this influence.

    Back to COPN, I believe Mr. Sherlock has made a good case that it is market distorting as applied in Virginia. All the research has shown that average costs are higher in markets (a metropolitan area) where there is a higher concentration of service providers. (This happens regardless of whether the providers are for profit or not-for-profit.) Most of the consolidations driving increased consolidation have actually come from not-for-profit systems, which have financial advantages . In some cities, like Pittsburgh, these systems (UPMC) have been sued for not being worthy of non-profit status and for concentrating supplier power.

  14. Pingback: Health Enterprise Zones for Virginia | Bacon's Rebellion

Leave a Reply