Fix the Virginia Department of Health

Credit: PBS Healthcare Management

by James C. Sherlock

Governor Youngkin and his new administration have an opportunity to fix crucial problems in the Department of Health that have been festering for decades.

The issues:

• How can Virginia regulate effectively its state-created healthcare monopolies?
• In a directly related matter, how can we fix the failures, famously demonstrated during COVID, of the Virginia Department of Health (VDH) in its other missions ?

The power of Virginia’s Certificate of Public Need (COPN) to control the business of healthcare in Virginia was the original sin.  Giving that power to the Department of Health made it worse.

From that point VDH was the agent of its own corruption. Never charged by the General Assembly to create regional monopolies in its administration of Virginia’s Certificate of Public Need (COPN) law, VDH did so anyway.

Actions have consequences.

Now those regional healthcare monopolies are each the largest private business in their regions, have achieved political dominance in Richmond, and effectively control VDH.

• With state-provided economic power they have become so strong politically that they have effectively captured both VDH and much of the General Assembly. So there has been no legislative relief.
• Virginia’s Attorneys General, who also must get elected, have largely avoided the fight. So there has been no judicial relief.
• Governor Northam was very publicly brushed off and cowed by the monopolies. His predecessors did not take them on.

I have written and documented the cultural and mission dissonance and feelings of helplessness within VDH created by this historic mistake. The hospital monopolies now thoroughly dominate the agency. Doctors and nurses have lost influence there. I consider that the source of the VDH incompetence was demonstrated to the nation during COVID.

VDH must be divorced from the role of the regulator of those monopoly businesses if it is ever to focus effectively on its twin responsibilities as regulator of the practice of medicine and guardian of the public health.

Some examples prove the point:

1. The very public failures of VDH from the very beginning of the COVID emergency were a national embarrassment. Consider Virginia’s last-in-the-nation rankings in the early stages, first in testing and then later in vaccination rate. Capacity shortages in Virginia’s hospitals, directly traceable to COPN, showed the consequences of those mistakes. The nursing homes scandal is a shameful record that we can’t let happen next time;
2. Virginia’s primary care shortages have apparently escaped the notice of VDH;
3. The Board of Health was an embarrassment under Governors McAuliffe and Northam;
4. Virginia’s health-related regulations were allowed to fall behind and become non-compliant with federal requirements;
5. The ongoing failures of VDH in its responsibilities to inspect medical facilities at all levels of care from hospitals to nursing homes and home care agencies are due to massive, long-standing and purposeful under-authorization and underfunding of inspection staff. It is not a coincidence that the regional healthcare monopolies do not like to be inspected.
6. To demonstrate the unchecked power of those monopolies, Governor Northam with some fanfare a few years ago called a formal series of meetings of “stakeholders” in the COPN program in an attempt to get them to agree on reforms. It was led by a highly qualified professional negotiator. Hospital leaders showed up to the first meeting. The governor personally kicked it off. A couple of sessions later, they walked out, showing Dr. Northam who was who and what was what in the business of healthcare in Virginia. The governor never commented. One can lead by being respected or by being feared.  Governor Northam was neither to this cabal. My read on Governor Youngkin is that he would have found a way to disabuse them of the notion that they could dismiss him in that manner.
7. The General Assembly initially tasked the SCC to solve the hospital/physician/insurer “balance billing” issue. The hospital monopolies told the SCC to drop dead, that VDH was their regulator. The General Assembly took it. Are you seeing a trend here as the monopolies thumbed their noses at both the Governor and the General Assembly without consequence?
8. The most powerful of those monopolies have somehow avoided prosecution under the Virginia Antitrust Act for their business activities. The only Attorney General ever to take them on was Bob McDonnell and that was in a civil suit in federal court. Civil suits meet some novel issues in court.
9. As reported here many times, Virginia’s not-for-profit regional healthcare monopolies have proven to be some of the most profitable hospital systems in America. The profits come from their uses of their market dominance to charge insurers hundreds of millions of dollars in excess payments annually that are then charged back to insured Virginians as higher rates.
10. With Medicaid expansion, the claim of those monopolies to invest their profits in charitable care and the public health, always questionable in practice, has evaporated. Public health in some of the regions “served” by the richest monopolies is utterly abysmal.
11. The public schools are moving aggressively into health care of all types. The Department of Health has no position that I can find on how it will oversee the quality of that care.

There are dozens of such examples. It is time to say “enough.” Admit that VDH will never be able to regulate the monopolies it created and relieve it of the responsibility.

What to do? The SCC option. The regulation of the businesses of other state-sponsored monopolies in Virginia is the role of the State Corporation Commission (SCC). It is long past time for that organization to be assigned to administer the COPN program and regulate the businesses of Virginia’s healthcare monopolies.

The SCC already regulates health insurers. The recommended change thus also represents the only way a single Virginia regulator will be able to address the vertically integrated businesses of Sentara. Sentara Health controls under the same corporate structure the most dominant regional healthcare monopoly in America in Hampton Roads and that region’s most dominant HMO.

SCC is charged to regulate Sentara’s HMO while VDH is charged to regulate its healthcare business. Both are frustrated in those attempts by Sentara’s business model that enables internal collaboration between providers and insurers that would be illegal if they were separate businesses.

Sentara Healthcare will deny such collaboration happens. Noted.

But such claims would have more credence if it had not chosen its current corporate governance structure. The only board with independent members (sort of) oversees the holding company. There are no independent directors on the boards of its major component businesses such as hospitals and health insurance entities. All of those directors are Sentara executives.

I have investigated and reported on both VDH and Virginia’s regional healthcare monopolies for more than 15 years.

In my view, the transfer of healthcare business regulation, including administration of COPN, to the SCC is the only way that VDH has a reasonable chance to carry out capably its other, more important responsibilities.

That will take a change in the law. It is a battle that needs to be fought. The Governor will have to lead it and bring public scrutiny on the predictable opponents.

There will be political blood, but it is worth shedding.

It will be interesting to see how the monopolists’ lobbyists craft an argument against such a law. But oppose it they will. Why would they want a change? Right now they control their regulator. It does not get any better than that from their perspective.

Controlling the SCC will take an entire new campaign against a much more formidable opponent.

But at least VDH will be relatively more free to carry out its more important missions.