COPN strikes again
Medarva’s West Creek medical office building. Image credit: Richmond Times-Dispatch

After two years, a thousand hours of staff time, and more than $300,000 in legal fees and other expenses, Medarva Healthcare has received a Certificate of Public Need (COPN) allowing it to build two new outpatient surgical rooms in Goochland County. But there was a catch: The company had to close two surgical rooms at its existing outpatient center in Stony Point in the west end of Richmond. Net gain: zero operating rooms.

Medarva originally had applied to build the two new operating rooms in addition to its Stony Point facilities south of the James River because activity at the existing center had reached its limit. President and CEO Bruce Kupper indicated that having two locations, though less than what the company wanted, was still beneficial. “We’ll be able to manage the volume in both places,” he said, as quoted in the Richmond Times-Dispatch.

But Kupper was frustrated by the COPN process. “I think the way the COPN process is currently constructed and interpreted, it’s really designed to protect the acute care hospital franchises,” he said. “It does not acknowledge the changing reimbursement insurance models, where patients are now on the hook for a higher portion of their cost.”

The theoretical justification for COPN is that curtailing capital spending on redundant beds, operating rooms and equipment will dampen increases in health care costs. Ironically, Medarva will spend $15 million to $16 million anyway just to relocate operating rooms from the Stony Point office park to the West Creek office park.

As COPN has evolved in practice in Virginia, health care regulators often attach requirements to provide a minimum volume of indigent care. Hospital health care for the uninsured has become part of the state’s medical safety net. However, by bolstering the status quo, COPN inhibits the market’s evolution to more cost-effective medical settings.

Acute care hospitals are incubators of deadly infections that can complicate routine procedures for patients. Curbing hospital-acquired infections is one of the greatest challenges facing the health care sector today. The Centers for Disease Control counted 722,000 incidents of hospital-acquired infections in 2011. By contrast, free-standing surgical centers are far less susceptible to the spread of disease, and outpatients experience a lower rate of such complications. Also, as Kupper noted, free-standing centers also offer higher levels of service.

Now, thanks to COPN, the Richmond medical marketplace will have two fewer free-standing operating rooms than it would have had otherwise, and patients will have fewer choices than they would have.

The entities benefiting from this restriction are not money-losing rural hospitals that desperately need protection from competition. The west end of the Richmond metropolitan area is one of the most affluent parts of the state, and the hospitals serving it are enviably profitable. Bon Secours St. Mary’s Hospital reported $41.8 million in 2014 operating income, while Henrico Doctors Hospital, part of the HCA Healthcare system, earned $59.1 million in profit.

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6 responses to “COPN Strikes Again”

  1. Here’s a recent WP article about COPN in the trucking industry in West Virginia that makes identical points about gross abuse of the State licensing process to favor those with political connections. This is not good government.

  2. LarrytheG Avatar

    the one thing I do not understand – is if the insurance companies set the reimbursements – how does it matter how many facilities there are or are not?

    Isn’t the economics up to the providers? Would they get any more (or less) reimbursement if there were more (or less) facilities?

    how does that work?

  3. TooManyTaxes Avatar

    Requiring government approval for the construction of a relatively expensive capital investment makes sense only in limited circumstances. One is where there is an monopoly and adding more facilities could push down prices to the point where any services might be offered. For example, if an existing hospital in rural market provides adequate service to the community at reasonable prices, it may make sense to protect the hospital from ruinous competition. But in any other market, the requirement to obtain government permission to build a competing facility only adds to the incumbent’s market power.

    Another is where the facilities could put security at risk. For example, a proposal to allow foreign ownership from Iran of a medical testing lab that stores the 1918 flu germs might be appropriate for some level of government review. And that type of review should be the federal government’s, and the state’s.

    All in all, COPN should be repealed, except for extremely rural markets that are not, and cannot be, competitive.

  4. LarrytheG Avatar

    well – still don’t understand if the insurance companies say how much they’re going to reimburse and it don’t matter how many duplicate facilities there are…

    My insurance pays the same reimbursement for a given test where I live – no matter which facility… each facility can set whatever price they want – but the insurance company pays the same reimbursement.

    so I’m missing something in my understanding…

    I would presume that if a hospital builds a new facility that ends up being more than the area needs – that at some point – one of the facilities with the least number of customers will find itself costing more than they are taking in – in insurance reimbursements and it will be up to the hospital if they want to continue to operate it at a loss or close it… or .. I guess subsidize it from their other operations.

    but again – how does COPN affect that because no matter what COPN does – it does not lower prices…. if the insurance companies pay one standard reimbursement per procedure anyhow.

    1. TooManyTaxes Avatar

      If there are more facilities in an area, there is a greater chance that one will agree to a lower reimbursement from insurance companies than its competitors would to get market share and greater revenues to contribute to overhead costs.

      To work in the opposite direction re prices smacks of price fixing – a per se violation of the Sherman Antitrust Law. COPN doesn’t provide public benefit in non-rural markets.

  5. LarrytheG Avatar

    I guess I would like to see – definitive studies and data added to the ideological beliefs and anecdotal examples …. to convince me.

    Intuitively it makes sense – in a real free market that COPN is a bad thing.

    But in a health insurance market – that may not be true.

    so let me give a concrete example.

    In a true free market – you buy long term care insurance and that transaction is solely between the buyer and seller.

    so why is the govt involved and does the involvement of the govt increase costs over what they would have been if the govt had stayed out of the transaction and let the buyer and seller sort things out?

    Isn’t the SCC involvement in insurance – similar to COPN in facilities?

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