By Dick Hall-Sizemore
James Sherlock has been a welcome addition to this blog. He has brought new insights into the area of health care policy. I appreciate his obviously thorough research and arguments.
I am a person that likes to look at issues from different perspectives. I think doing so sharpens one’s understanding. Unfortunately, there have not been any countervailing arguments in the COPN discussion. Therefore, I have elected to step into the breach and play devil’s advocate, primarily for the sake of generating some more discussion.
As the result of some internet research, I ran across a paper that seems to do a nice job of summarizing the positions of both the opponents and proponents of COPN. The author is Megan Italiano, whose paper was an award-winner in the William and Mary Law School student publication series. Another source I used was an article in the Virginia Mercury last year. The links are at the end of this post.
Virginia is not alone among states having a COPN program. We are one of about 35 states and territories that require some certificate of need issuance before a health care entity can construct or expand a facility, offer a new service, or purchase certain equipment, although Virginia’s program is one of the more comprehensive programs in the country. Another factor to keep in mind is that the Virginia program has been the subject of numerous studies, workgroups, and debates since its inception in 1973.
There are several arguments swirling around the COPN. Some of these are overlapping and the evidence is inconclusive for some. The most important seem to be (i) the effect on availability, and access to, health care and (ii) the desirability to have competition in the health care market.
Health care availability and access
The COPN program attempts to distribute health care resources. Opponents of the system argue that, by definition, it thereby restricts supply and consequently reduces access. Indeed, there are studies that demonstrate that states with certificate of need laws have 13 percent fewer hospital beds per 100,000 people than states without such laws, as well as fewer CT-scanners and MRI machines.
On the other hand, supporters of COPN argue that the program enhances access for all Virginians by distributing resources based on citizens’ needs (i.e. the public need), rather than provider profitability. It was the experience in at least two states, Ohio and South Carolina, that health care services in rural, inner city, and other areas with high or special needs were reduced and services in affluent areas or profitable specialties dramatically increased following repeal of their certificate of need laws.
Related to this argument is the issue of indigent care. Virginia’s COPN law authorizes the Commissioner of Health to condition the approval of a certificate upon agreement by the applicant to provide medical care to indigents at a reduced rate and that condition is often made a part of any approval.
Competition in health care market
Mr. Sherlock and other critics of COPN contend that the program helps to insulate hospitals from competition, thereby creating an imbalance in the market.
However, as has been often noted, health care is not a free market driven by competition in which consumers are able to make informed decisions on the quality and cost of the product. Models of competition do not always fit health care services.
A general hospital is an invaluable resource for a community. It provides a wide range of services for that community that are not always used, but need to be available. These include trauma care, burn care, and obstetrics, among others, that hospitals offer regardless of their profitability. In addition, federal law requires hospitals to treat people who enter an emergency room regardless of their ability to pay. Finally, hospitals have to accept Medicaid and Medicare patients and those programs reimburse hospitals at lower rates.
Hospitals contend that they must protect their more profitable services, such as cardiology, orthopedics, and ambulatory surgery in order to offset the revenue loss from other departments. As the CEO of Bon Secours explained it:
Any investor can come in and decide they’re going to build a freestanding surgery center or freestanding radiology center, and never have to take a non-paying patient or a Medicaid patient or Medicare patient. … They can really take the best payers or take cash or whatever scenario they set up. Whereas hospitals have to take every patient that comes through their emergency department.
Another way of characterizing this argument would be to say that the freestanding facilities skim the cream and leave the hospitals with the charity cases.
Discretion of Health Commissioner
A lot of our recent discussion of COPN has dealt with the role of the Commissioner of Health, who is charged under Virginia law with acting on applications for certificates of public need. Extensive data on COPN decisions for the Hampton Roads area has been presented, which purportedly shows the entirely discretionary manner in which these decisions are made. It has been argued that these decisions have contributed to hospital bed shortages and to the reluctance of doctors to locate in Virginia because they are unlikely to be able to set up their own separate health care facilities.
The Commissioner of Health does not have complete discretion to administer the COPN law. The statutes governing COPN set out the criteria the Commissioner is to use in evaluating COPN applications. Furthermore, the decisions of the Commissioner can be appealed to the courts, which happen fairly often. However, the courts will “give deference to the commissioner’s decisions unless they are ‘arbitrary and capricious.’” (Tidewater Psychiatric, Inc. v. Buttery, 8 Va. App. 380,386)
The setting out of data on the numbers of applications approved and not approved by the Commissioner and whether those decisions were in line with staff recommendations is not sufficient to demonstrate that COPN is “badly administered” or “corrupt.” One would need to examine the cases in depth to evaluate whether the decisions, over time, were consistent, unfairly benefited one health care provider, and were supported by law and the facts of the case.
The COPN case files available on line at the DOH website contain the Commissioner’s letter to the applicant stating whether the application was approved, along with a copy of the recommendation of the adjudication officer setting out some details supporting the recommendation. From these documents, it is possible to determine why some applications were denied. For example, one major priority of the program is the provision of accepting charity cases or serving underserved populations. Here is an example of a recent decision approving the establishment of an outpatient surgical hospital in Woodbridge by Kaiser Permanente. It is obvious from the documentation that Kaiser had to agree to accept some charity or low-income cases as a condition of the permit. How many of those decisions cited by Mr. Sherlock were denied because the applicants would not accept such conditions? The data cited do not tell us.
There is a level of subjectivity in implementing the COPN statutes, as there is in most areas of law. It is thus the responsibility of the official implementing the law to demonstrate that there are rational bases for the decisions and they are not arbitrary.
In one recent case, the Commissioner was considering applications from both Bon Secours and HCA Hospitals to purchase additional CT equipment in the Richmond area. In approving the Bon Secours application and denying the HCA application, the Commissioner and the adjudication officer were careful to distinguish between the two applications on objective grounds.
In another recent case, a private health care provider applied to establish a MRI center in Suffolk. Sentara opposed the application. In denying the application, the Commissioner gave several objective reasons, including the existence of other low-cost MRI centers in the area and the detrimental effect that the proposal would have on them. Lacking any additional documentation (and expertise), I am not prepared to say whether these decisions were “right” or not, but, on their face, they seem to be rational and objective. A lot more extensive analysis needs to be demonstrated on this complex subject before declaring it irreparably broken.
Mitigating developments
There have been at least two major developments since the enactment of COPN in 1973 that undermine the original case for it. The first is the expansion of Medicaid; the second is the rise of integrated medical care systems with strong hospitals at the center of such systems.
Medicaid expansion
One of the primary justifications given by hospitals for COPN has been the burden they bear from having to provide uncompensated charity care. With the expansion of Medicaid, a large number of those indigent patients have been taken off their books. However, as Italiano points out in her William and Mary Law School paper, there are still over 300,000 Virginians without insurance, who will still rely on hospital emergency centers for care. In addition, the Medicaid reimbursement rates are low, sometimes lower than actual costs. Therefore, there is still a role for COPN, although the charity guidelines should be reviewed for all conditioned certificates to ensure that charity care conditions are consistent following Medicaid expansion.
Integrated medical care systems
When the COPN program was first adopted, hospitals were just that—hospitals. Now, the hospital environment is dominated by large integrated systems. Those entities operate not only hospitals, but physician groups, satellite clinics, ambulatory surgical and other centers, and insurance plans. They consist of not just one hospital, but a major one, along with “feeder” hospitals. It is in this area that Mr. Sherlock makes his strongest argument and contribution to this discussion.
Many hospitals are not struggling financially as they would have the world believe. As Mr. Sherlock has amply documented, the operating margins of most hospitals in the state are above the sustainability level; for some, they are significantly above that level. And that is for the “non-profit” hospitals.
He makes a convincing case that Sentara has used COPN to strengthen its dominant position in the Hampton Roads area. He is not alone in that assertion. However, the situation may be changing. The Commissioner of Health recently approved the application of Bon Secours to build a new hospital in Suffolk, while turning down Sentara’s application.
It seems to me, however, that COPN is not the main factor (culprit?) in Sentara’s rise. Rather, it is vertical integration that has enabled Sentara and others to become so dominant in their markets. Without that integration, COPN alone would not have led to the rise of such strong systems.
Remedies
Mr. Sherlock strongly urges the Virginia Attorney General to take action against Sentara, and perhaps others, under Virginia’s anti-trust laws. However, it could very well be that the state’s anti-trust laws are not applicable to COPN. The anti-trust laws exempt any “bona fide charitable activities of any nonprofit corporation or organization” from its provisions. Furthermore, they exempt any “conduct authorized or regulated by Virginia statute” or by an administrative agency having “authority to consider the anticompetitive effect, if any, of such conduct.”(Emphasis added). One of the statutory conditions to be considered in analyzing a COPN application is “the extent to which the proposed service or facility fosters institutional competition that benefits the area to be served while improving access to essential health care services for all persons in the area to be served.” The law requires the Commissioner of Health to balance competitive factors and ensuring access for all residents, including the indigent.
Furthermore, it does not appear that any laws have been broken. The state code clearly gives the Commissioner of Health the authority to issue or deny applications for a COPN. Federal courts have held the law to be constitutional. Unless there is evidence of bribery or other illegal influence affecting the Commissioner’s decision, it would seem that there is little room for action by the Attorney General.
Because there is a need to encourage the efficient use of medical care resources and facilities and to prevent the concentration of medical facilities and services in affluent areas to the detriment of rural or less affluent areas and residents, there is still a role for a COPN program. But the current program needs an overhaul. The forum for making any reform in the COPN program is the legislature. Before undertaking that task, the General Assembly should direct JLARC to conduct a study of the program and its implementation and make recommendations. The last time JLARC looked at the program was in 1979; it is time for another examination.
The following actions should be included for consideration, either as part of the JLARC study or in addition to it:
- Breaking up or limiting the vertical integration of health care systems. The hospitals will fight such a proposal furiously and, given their political and financial power as documented by Mr. Sherlock, they will prove to be a formidable obstacle to any such move. However, the integrity and justification of the COPN program is dependent on limiting the dominance of hospitals in their areas.
- If vertical integration is considered to be in the best interests of the residents of an area, then the Commissioner of Health should be empowered explicitly to consider the financial position of hospitals in an area when considering applications for competing facilities. That consideration may be implicit in the current law, but it should be made explicit.
- Some more objective metrics should be included in the COPN evaluation. Such areas as service quality and cost-reduction could be given preferential treatment and measured in an objective fashion.
Sources:
Italiano, Megan E., “Does VA Medicaid Expansion Change the Landscape for COPN?” (2019). Student Award Winning Papers. 11. https://scholarship.law.wm.edu/awardwinning/11
O’Connor, Katie, “The Story behind the certificate of need: What it is, why it exists, and why it has been a thorn in Virginia’s side for decades”, Virginia Mercury, January 8, 2019. https://www.virginiamercury.com/2019/01/08/the-story-behind-the-certificate-of-need-what-it-is-why-it-exists-and-why-it-has-been-a-thorn-in-virginias-side-for-decades/
