Another $100 Million for Venture Capital? Who Is Accountable at Inova?

Inova CEO J. Knox Singleton (left) with Governor Terry McAuliffe and George Mason University President Angel Cabrera announcing Inova-GMU strategic partnership. Photo credit: The Connection.

Inova CEO J. Knox Singleton (left) with Governor Terry McAuliffe and George Mason University President Angel Cabrera announcing Inova-GMU strategic partnership. Photo credit: The Connection.

by James A. Bacon

In February Inova Health System announced its intention to create a $100 million venture fund dedicated to precision medicine, an initiative timed to coincide with an Obama administration event highlighting the nascent science, and designed to support Inova’s own $300 million plan for a center for personalized health just outside Tysons Corner.

From an economic development perspective, such a fund is just what the doctor ordered for a Northern Virginia economy overly dependent upon defense, intelligence and homeland security funding. The giant health system has signaled its willingness to spend what it takes to build a nationally recognized medical R&D hub centered on preventing disease by understanding patients’ unique genetic make-up, and there are plenty of interests, from George Mason University and Virginia’s biotech industry to the McAuliffe administration and real estate companies hungry for the next development play, who want to see Inova succeed.

“We think it’s transformational, something that can really propel this region,” Josh Levi, vice president of policy for the Northern Virginia Technology Council told the Washington Business Journal. “It’s not just the money. It’s the acceleration, the incubation of partners. The thing they’re really bringing is the expertise.”

When questioned by the WBJ, Inova officials declined to provide the most basic details about the fund. Who will manage it? What kind of companies will Inova back? Most importantly, where will the money come from? The company says that it will share more information as it becomes available.

From what I’ve seen, it appears that the WBJ is the only Washington-area media entity asking questions. And the scope of its questions are very narrow, befitting the focus of a business publication.

But there are even bigger questions that no one is asking. Is this an appropriate business for Inova to be in? Is it appropriate for a health system to be allocating such a large sum to an enterprise (a) in which it has no experience, and (b) is so divorced from its mandate of delivering health care services to the citizens of Northern Virginia?

I am truly of two minds on this issue. On the one hand, I can see a great future for the Center for Personalized Health as a job and wealth creator. On the other hand, the initiative seems to be barreling ahead with no questions whatsoever. The only skepticism I’ve seen are in the comments section of this blog, when Reed Fawell has asked what massive commercial development in the Merrifield area of Fairfax County implies for traffic along the already congested Interstate 66. I’ll let Reed continue to examine the traffic/land use implications in the comments section. In the meantime, I will continue to ask how appropriate it is for Inova as a not-for-profit entity serving the community to undertake this initiative at all — not because I am adamantly opposed to what Inova is doing but because the enterprises seems to be making multi hundred-million dollar commitments without any pushback whatsoever, and somebody has to ask the questions.

As I observed in December:

The not-for-profit Inova, which exercises near monopoly dominance in the Northern Virginia health care market, generated operating income of $218 million in 2014 on $2.7 billion in operating revenue. That’s a profit margin of about 8%, more than twice the profitability that non-profits normally need to maintain healthy operations. That translates into about $109 million in what one could classify as excess profit.

Unlike a for-profit company, Inova is not obligated to maximize profits. To the contrary, insofar as the company is exempt from taxes and has a community mission, one could argue that it is morally obligated to (a) reduce charges to patients afflicted by ever-escalating medical bills or (b) provide more care to low-income patients not covered by Medicaid.

How has Inova been allowed to morph from a community hospital system into a budding underwriter of Northern Virginia economic development? Perhaps we can find some clues by examining the NoVa board, a Who’s Who of the Northern Virginia business and political establishment. Here is a list of the men and women who are, in Inova’s own words, “responsible for oversight of Inova’s finances, strategic planning and management”:

J. Knox Singleton: Inova CEO
Lydia Waters Thomas, PhD: Inova Treasurer, former CEO of Noblis Healthcare
Wesley Bush: CEO of Northrup Grumman Corp.
Nicholas Carosi III: CEO of Arban & Carosi, Inc., a manufacturer of architectural precast concrete.
Allan Dabbiere: Co-founder and senior vice president, AirWatch
Jack C. Ebeler: Principal at Health Policy Alternatives, member of the National Academy of Sciences
Penelope Gross: Member of the Fairfax County Board of Supervisors, representative of the Mason District
Katherine Hanley: Former chair of the Fairfax County Board of Supervisors
Paul M. Harbolick Jr.: Former CFO of Alliance Bank Corporation
Sudaker Kesavan: CEO of ICF International, a consulting firm with expertise in infrastructure and health programs
Donna Morea: President of CGI Group, a major information technology firm
Tony Nader: CEO of NEW, a provider of buyer protection services
Paul C. Saville: CEO of NVR, Inc., one of the nation’s largest home building firms
Charles H. Smith: Real estate developer (?)
Mark Stavish: President, Evergreen Venture Partners
Joe Travez: Co-owner of boutique manufacturer PPI

There are many prestigious names on the board but none represent the perspective of Inova’s medical professionals, much less Inova’s patients.

At the risk of sounding like a populist, you couldn’t have hand-picked a better cross-section of a regional business-political elite that would be more likely to get enthused about a money-making mega-project like the Center for Personalized Medicine that puts Northern Virginia on the biomedical map. Nor could you have picked a body more divorced from the concerns of everyday Northern Virginians who, I dare say, would love to see a reduction in their health care bills.

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20 responses to “Another $100 Million for Venture Capital? Who Is Accountable at Inova?

  1. An old joke goes; “There a lot of money to be made in non-profits.”

    But, seriously, what if the venture goes badly or completely fails? A lot of “non-profit” people and their business friends will make a lot of money until it runs out. And then the losses will come out of sick people paying higher medical bills.

  2. not quite understanding the criticism – it looks to be a significant entrepreneurial success and it actually does benefit their charity care costs and they also discount charges to low income people.

    are we using a double standard here?

    for instance, Jim seems to think predatory loan companies should be left alone because they “serve a need”…

    and he seems to have no problem with VCU and other Richmond entities getting involved in building a Childrens’ Hospital system so is this some kind of weird Richmond-centric NoVa “envy”..

    and he fawns all over non-profits in Richmond doing urban gardening for food deserts and similar..

    what gives?

    where has Jim gone after other business ventures in NoVa because “they cause traffic”??

    jeeeeusususu H keeeerist…

  3. As much as I’d like more manufacturing/business in Virginia, we’d be blind to not recognize that Medical is THE booming business in America these days.

  4. yep… and the thought occurred to me as I sat watching one commercial after another inviting me to go on a CRUISE or VISIT Disney World or dozens of other places… that if things are so DANG BAD – what are these commercials about? and no, they’re not for the 1% – they’re saying $599 and free airfare!!

    oh… and the other thing – the AVERAGE credit card balance in the USA – $5000.. What the….????

  5. Jim, you make the point (two different ways, in fact) that Inova’s first duty ought to be to return any “non-profit” profit to the customer by reducing charges:

    “[I]nsofar as [Inova] is exempt from taxes and has a community mission, one could argue that it is morally obligated to (a) reduce charges to patients afflicted by ever-escalating medical bills or (b) provide more care to low-income patients not covered by Medicaid.”
    “Nor could you have picked a [Board of Directors] more divorced from the concerns of everyday Northern Virginians who, I dare say, would love to see a reduction in their health care bills.”

    Interestingly, the PBS Newshour ran a segment yesterday on the decline of smaller community hospitals around the country, but how one was bucking the trend by providing outstanding patient care — and attracting a reputation for it and more patients because of it — all with the maximum patient insurance reimbursement. The PBS feature mentioned, but didn’t emphasize, hospital cost-efficiency.

    The lesson I took from this is, don’t worry about costs as much as about patient satisfaction. Insurance will pay the cost of high quality patient care if it isn’t out of line with the competition — in the case of a community hospital, not grossly higher than those efficient medical centers in the big city.

    Inova will continue to attract patients if it has a high level of patient satisfaction. And they’ve thrown another element into the mix: that “center for personalized health just outside Tysons Corner”: convenience plus! And they propose to reinvest the extra cash “to build a nationally recognized medical R&D hub centered on preventing disease by understanding patients’ unique genetic make-up.”

    So what? The extra cash is what the insurance companies will allow a hospital complex like Inova to generate and reinvest, provided the hospital and the insurance company can keep a high level of patient satisfaction.

    What’s missing? Any concern whatsoever for those potential patients who have no medical insurance. After all, if some of them show up at Inova’s emergency room, they will get free medical care, and the cost of that community health outreach will be spread over all the insured patients at Inova who will pay what amounts to an “uninsured community patient” surcharge, and the insurance companies by tacit agreement will pay that surcharge.

    So, Jim, don’t blame the Inova Board. They are doing what the insurance companies have induced them to do. As well as, acting in their own best interests. Makes perfect sense to me; except for that little bit about medical insurance costs going up, and up.

  6. Innova is building an top-notch reputation for QUALITY … and I have a hard time dinging them for that achievement and the data does show that they do recycle at least some of their gains to the folks needing help.

    Jim seems to be saying that anyone connected with the healthcare industry should not be allowed to prosper because they are “non-profit”.

    I’d argue the opposite. Innova is showing getting non-profit status – they can excel at providing high quality services to the community -rich and poor.

    why is this not a model to emulate?

    it sort of beckons to the idea that some hospitals use profitable medical imaging services to offset their charity care costs – and the naysayers want to ding them for being allowed to operate outside the “free market” and those naysayers don’t give a rats behind what happens to the charity care people – if COPN is the goal.

    I simply do not understand people like that.

    it’s as if they don’t care about people – as long as the market works to ideological purity.

    no solutions.. just ideology… and if you have no insurance, then die an die quick because that “free market” sees you as a “taker” that the market considers a drag on …

  7. Just outside of Tysons Corner? Are we talking about the former ExxonMobil offices in Fairfax near INOVA Fairfax? As far as traffic, it should be studied, but it’s replacing a pretty big workplace that was already part of the traffic mix until last June or so.

  8. March 10, 2016 – Mark the date. The first time I agreed with literally 100% of what LarryG wrote. Bacon is in a jealous rage. He gloated when Exxon-Mobile closed up shop in NoVa by moving the employees at the former Mobil’s HQ to Houston. Now the community is turning that site into a next generation genetic medicine facility. Not a brew pub, not a meat pastie shop. Poor Jim – this is just eating him up! You know what’s going to happen Jimbo? The new facility is going to kick ass. The venture fund will reap handsome returns and Innova will buy every hospital and medical clinic in Richmond. When Jim needs his cateracts fixed or his hip replaced it will be done by a NoVa concern that had the foresight and courage to act decisively when an opportunity presented itself. Don’t worry Jim – you’ll be able to get a hot meat pie and a cold beer as soon as you are discharged!

    • Dude, it is absurd to say that I’m in a jealous rage, and no reasonable person could construe that in my post. I stated explicitly that I can see the economic development justification for the project. What astounds me is that the initiative is barreling through without any dissent or even debate.

      Perhaps you think there is nothing to debate. I can understand that to you, a successful business executive, the $50 to $60 per person per year that Inova extracts from the Northern Virginia population in excess profit is utterly trivial. But it may not be trivial to a working class stiff in a family of four ($200 to $240 annual tribute to Inova)… who also is paying hundreds of dollars in tolls to the Dulles Toll Road to pay for a Silver Line that will enable swells like you to ride the Metro to Dulles for your overseas airline travel.

      Given the seeming inevitability that the personalized medicine initiative will go forward, I hope it is successful and creates lots of jobs and wealth for the region. (As an aside, there should be another debate over whether that vision is a realistic one or not.) But let’s just be honest how the initiative is being financed. Let’s be honest at who’s paying and who’s benefiting. And then let’s not be surprised when the working/middle class of Northern Virginians gravitate to grotesques like Donald Trump or economic ignorami like Bernie Sanders to express their frustration with how the system is rigged against them.

      • You start with a misunderstanding of what non-profit means. It does not mean that the entity can make no money. Most well run non-profits take in more revenue than they put out in expenses. They remain non-profits so long as the money is used for non-profit purposes.

        You move to a misunderstanding of monopoly. INOVA does not have a monopoly on healthcare in Northern Virginia. For one thing – Northern Virginia isn’t a logical geographic area for discussion of health care monopolies. You would have to consider the entire Washington, DC Metropolitan area.

        You never consider the quality or cost per procedure of the medicine practiced at INOVA. You can do the basic math on the costs but not the more sophisticated analysis of the outcomes.

        You seem to thing that the Metro extension goes directly to Dulles. It doesn’t. Dulles is the end point. There are many stops along the way. The Metro will create improved human settlement patterns at each of those stops.

        Do you believe that Richmond’s VCU Medical Center is subsidized in any way? Do you think it makes a profit?

        • Don, do you seriously think I don’t understand the role of “profits” in non-profit companies? Here’s what I wrote previously and then included again in this post (emphasis added for your benefit):

          The not-for-profit Inova, which exercises near monopoly dominance in the Northern Virginia health care market, generated operating income of $218 million in 2014 on $2.7 billion in operating revenue. That’s a profit margin of about 8%, more than twice the profitability that non-profit [hospitals] normally need to maintain healthy operations. That translates into about $109 million in what one could classify as excess profit.

          Regarding Inova’s “monopoly” on health care: Fair point. Sort of. Inova may face some competition from D.C. hospitals. I would be interested in seeing numbers on how strong that competitive effect is. Without data, though, you can’t say that Inova is NOT a monopoly any more than I can insist that it is. In any case, the point is entirely peripheral to my main argument, which is not whether or not Inova is a monopoly but its accumulation of excess profit.

          Regarding the quality of medical procedures performed by Inova: Quality of outcomes certainly is one valid indicator of the health care value provided by Inova. I’ve never made any claims about the quality of its service one way or the other. I’m not dissing Inova as a health care provider. I’m questioning — not attacking, just questioning, but I guess you prefer everyone to move in lockstep with Inova without questioning anything — the health system’s policy of charging more than it needs to in order to run a reasonably profitable (4% profit margin) operation and provide what appears to be a quality service. Again, your point is tangential to my main line of argument.

      • I am also a bit surprised by your continuing distaste for Donald Trump. The guy gets things done! There are a lot of US billionaires. How many ended up with their own TV Show? When was the last time a person who has never even run for office was the candidate of a major party for president? Aren’t you starting to wonder whether he had a plan all along? What if his inflammatory statements were just what was needed to beat the established segment? Could they be lies? All politicians lie. Maybe he’s one of those people who can see the way to go forward where others can’t. He’s already tempering his rhetoric. I’m seeing more and more clever disguised as smarm. I’m not ready to support The Donald but I’m not quite ready to declare him a joke either.

  9. Good point about traffic Tbill — and underlines the points made by Don!

    Clearly – it’s NoVa-ENVY on the part of BACON!!!

    this article – ” Inova Offers 35 Percent Rate Cut to Uninsured Patients
    Sunday, July 25, 2004;

    shows that not only does Innova take Charity care patients but they discount the fees so – at least on the face of it – they do serve the community – both rich and poor and even those of limited means prize the quality reputation of Innova.

    surely this has to be viewed as a model to emulate . I would support the calls for transparency and accountability – for ALL hospitals in Va with special attention given to their charity care costs – and how they – and the State goes about paying.

    The irony here is that the State has reneged on funds to pay for charity care. They’ve refused the MedicAid Expansion , THEN THEY ALSO tried to take away the few profitable services that hospitals use to fund the care the state has disavowed – leaving 400,000 people in Va to essentially hope that in the absence of the State taking responsibility that hopefully the hospitals have figured out a way to pay for it.

    then Mr.. Bacon comes along after he has supported COPN with no alternatives for how the hospitals would pay for charity care – and he chews on Innova for being successful in an area where many hospitals are not and are near closing.

    too much ideology – not enough working on solutions and I hope Don takes that message to the bank also.

    the bottom line – here is that Virginia itself is being irresponsible about this issue – and letting hospitals twist in the wind on Charity Care ….. simple truth …

    • Yet despite all those “discounts” (from inflated nominal charges) and all of its charity care, Inova still generated an 8% profit margin, double what the Virginia Hospital and Health Care Association says what non-profit hospitals need to maintain healthy ongoing operations.

  10. I think the issue turns out in how much of this truly is going to go into poorer people’s pockets so that those with insurance aren’t subsidizing the profit schemes of these guys, nor is it pouring $$$ into their bank accounts for the executives.

  11. total bullfeathers.. more conspiracy theories and double standards depending on one’s politics…

    where are the calls for this kind of scrutiny for other non-profits in Va?

    if you want to do apples-to-apples for all in the same category but this silly thing of requiring that standard selectively according to one’s politics is … well.. it’s worse than silly…

    and REALLY – is we SERIOUSLY wanted to know we’d collect charity care data from ALL hospitals and disclose it publicly AND we’d THEN KNOW how much taxpayer money is ALSO going to prop up charity care hospitals and people could then make up their mind about whether INNOVA or other hospitals are doing their “fair share” and what their total executive salaries are, etc.

    I would point out that unlike our own feckless General Assembly – that the Feds Medicare folks actually do far more in that regard towards rating hospitals .

    ya’ll can’t have it both ways.

    advocate for one standard for all – AND – show WHO in the Va GA won’t support requirements for that reporting – and accountability be done.

    this hit and run selective “sniping” on issues like this – serves no good purpose in my view.. it actually reflects on those who are doing it.

  12. I also want to point this JLARC study out:

    Funding of Indigent Hospital Care in Virginia

    so Virginia actually DID report on this but look at the last time
    they did:

    1993

    http://jlarc.virginia.gov/pdfs/reports/Rpt149.pdf

    The following recommendations are
    made in response to these findings:

    • The General Assembly should clarify
    its intent concerning the funding of
    unreimbursed Medicaid costs through
    the indigent care appropriations.

    so where are the calls for the State to collect this data today?

  13. There are good arguments on both sides of the issue with respect to taxpayer funding of this project. What should not be disputed, however, is that it is wrong to socialize costs and privatize benefits. The Commonwealth should not be involved in the management of the business or be a partner, but taxpayers do forgo the money funding the project. Why not give the Commonwealth 25% of patent royalties generated by the project?

  14. re: geeze TMT – isn’t this really little different than the tobacco fund and governor “opportunity” fund , coal tax credit, etc that’s been going on forever?

    nor any different than what Nova and many other jurisdictions do to essentially bribe companies with lower fees and taxes to locate to their area?

    Seems like if we were truly serious about it – we’d have ONE policy – instead of continuing to do various forms of it then having folks chew on the ones they are politically unhappy with.

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