Health Enterprise Zones for Virginia

by James C. Sherlock

Image credit: Gordon Johnson

COVID-19 exposed what many already knew: Poor people suffer broad disparities in health outcomes when compared to their wealthier counterparts. 

In my original post on health care legislative initiatives in the 2021 General Assembly Session, I recommended the establishment of Health Enterprise Zones.

That initiative seeks reduction of health disparities among Virginia’s poor and among geographic areas, improvements health care access and health outcomes in underserved communities and reductions of health care costs and hospital admissions and re-admissions.

The Health Enterprise Zone (HEZ) initiative has been proven to work in Maryland and New Jersey.  

The Maryland results have been spectacular. And  in Maryland the zones have proven net positive for the state budget.

On October 1, 2018, Johns Hopkins Bloomberg School of Public Health posted a news release that provided the results of a study of Maryland’s HEZ law. It found that in Maryland, the rate of inpatient stays per 1,000 residents declined in both populations during the 4-year study period — but declined more in the population served by the five small Zones that were established for the trial period in that state. 

The analysis linked the Zones to relative declines of 13.73 inpatient stays per 1,000 residents in 2013, 18.03 in 2014, 16.76 in 2015 and 17.47 in 2016. For the four-year study period, there were a total of 18,562 fewer inpatient stays than would otherwise have been expected — in five small zones. 

Relative declines were even greater for the chronic, often lifestyle-related conditions such as diabetes, hypertension and chronic obstructive pulmonary disorder that the Zones initiative was specifically meant to reduce. 

Virginia’s Governor and General Assembly are seeking ways to address the Commonwealth’s disparities.

In support of that need, I have combined the Maryland HEZ law and Suggested State Legislation 2007, Health Enterprise Zones, Counsel of State Governments  into a draft bill tailored to the Commonwealth.  

This bill was originally submitted in 2020.

My draft bill takes into account that 2021 is not a budget year and is executable as written to reduce health disparities in Virginia.

The purpose of the act is to target planning and resources to reduce health disparities, improve health outcomes and reduce health costs and hospital admissions and readmissions in specific areas of the state that shall be designated Health Enterprise Zones.

The elements of this bill will be carried out in two phases:

  1. Phase 1 – 2021, a non-budget year
  2. Phase 2 – 2022, a budget year, and subsequent years

In this bill the following words have the meanings indicated: 

“Area” means contiguous geographic area that: 

  1. demonstrates measurable and documented health disparities and poor health outcomes in reference to Code of Virginia § 32.1-122.5. Criteria to identify underserved areas; and
  2. is small enough to allow for the incentives offered under this subtitle to have a significant impact on improving health outcomes and reducing health disparities, including racial, ethnic, class and geographic health disparities.

“Health Enterprise Zone” means a contiguous geographic area that is designated by the Health Commissioner in accordance with the provisions of this subtitle.

“Health Enterprise Zone Practitioner means a healthcare practitioner who is licensed or certified under Code of Virginia § 54.1-100. Regulations of professions and occupations  and who provides: Primary care, including obstetrics, gynecological services, pediatric services, internal medicine services or geriatric services; or dental services

An HEZ is defined as a community or a cluster of contiguous communities that is composed of one or more zip codes. In order to be designated an HEZ, the proposed zip code(s) within a potential HEZ area must apply for that designation. To be eligible to apply, an area must meet each of the following four criteria:

  1. An HEZ must be a community, or contiguous cluster of communities, defined by zip codes boundaries (one or more multiple zip codes);
  2. An HEZ must have a resident population of at least 5,000 individuals*;
  3. An HEZ must demonstrate economic disadvantage by having either:
    • A Medicaid enrollment rate above the median value for all Virginia zip codes; or
    • A WIC participation rate above the media value for all Virginia zip codes; and

4. An HEZ must demonstrate poor health outcomes by having either:

    • Life expectancy below the media value for all Virginia zip codes; or
    • A percentage of low birth weight infants above the median value for all Virginia zip codes.

The Bill requires the Commissioner to issue a for Call for Proposals in May of 2021 with proposals due for consideration in the budget of 2022 – 2023 no later than September 30, 2021. Submissions for subsequent budgets will be due on September 30 of the year preceding each legislative budget year.

In order for an area to receive designation as a Health Enterprise Zone, a non-profit community-based organization or a local government agency shall apply to the Commissioner on behalf of the area to receive designation.

The application shall contain and effective and sustainable plan to reduce health discrepancies, reduce costs or produce savings to the health care system, and improve health outcomes, including:

  1. a description of the plan of the nonprofit community-based organization or local government agency to utilize funding available under this subtitle to address health care provider capacity, improve health services delivery, effectuate community improvements, or conduct outreach and education efforts; and 
  2. a proposal to use funding available under this subtitle to provide for loan repayment incentives to induce health enterprise zone practitioners to practice in the area. 
  3. a proposal to encourage residents to use the Health Enterprise Zone practitioners instead of hospital emergency rooms for continuing or minor complaints.

The application may also contain a plan to utilize other benefits, including

  1. tax credits available under this subtitle to encourage health enterprise zone practitioners to establish of expand health care practices in the area; and this subtitle
  2. a proposal to use innovative public health strategies to reduce health disparities in the area, such as the use of community health workers, health coaches, registered dietitians, optometrists, peer learning, and community-based disease management activities, that could be supported by grants awarded under this subtitle; and
  3. a proposal to use other incentives or mechanisms to address health disparities that focus on ways to expand access to fresh produce through grocery stores and farmer’s markets, promote hiring, and reduce costs to the health care system. 

The Commissioner shall give priority to applications that demonstrate the following: 

  1. support from and participation of key stakeholders in the public and private sectors, including residents of the area and local government; 
  2. a plan for long-term funding and sustainability; 
  3. inclusion of supporting funds from the private sector; 
  4. a plan for evaluation of the impact of designation of the proposed area as a Health Enterprise Zone; and 
  5. other factors that the Commissioner determines are appropriate to demonstrate a commitment to reduce disparities and improve health outcomes.

The bill requires that the Commissioner consider geographic diversity, among other factors when designating areas as Health Enterprise Zones and may conduct outreach efforts to facilitate a geographically diverse pool of applicants, including promoting applications from rural areas. 

Designated practitioners and their practices are designated office-based practices and are exempt from the restrictions of the Certificate of Public Need (COPN) law applicable to such practices.

The bill contains several possible incentives that can be utilized to address disparities within the HEZ including:

  • income tax deduction for qualified receipts of practitioners;
  • low-interest loans for medical and dental offices in Health Enterprise Zones; 
  • income tax credits;
  • tenant rebate of property taxes to medical or dental practices;
  • loan repayment assistance; and 
  • priority for receiving funds for establishing an electronic health records program.

In addition, state institutions of higher education that train health care professionals will be required to report to the Governor and General Assembly on their actions aimed at reducing health care disparities.

Potential funding sources other than state

There may be program start-up costs in the non-budget year of 2021. Non-state sources will continue to be appropriate after 2021.

There are at least six potential funding sources that will not impact the state budget directly.

  1. Medicare/Medicaid. This program has proven in New Jersey and Maryland to result in enormous cost savings to Medicare and Medicaid from reduced hospital admissions. A representation to the Centers for Medicare/Medicaid Services (CMS) for federal funding of this initiative in Virginia should receive a good reception.
  2. Non-for-Profit Charitable Contributions from Hospital Systems. The requirements of 501c3 not-for profit healthcare systems and their foundations to fund charitable initiatives to justify their tax exemptions are ongoing. In Virginia, Sentara, Inova, Carilion, Centra, VCU Health, the University of Virginia Medical Center and the Carilion/Virginia Tech Medical Center and their foundations have continuing needs to invest in charitable enterprises. The amount of money needed for this initiative is well within their joint budgets.
  3. Local government contributions. The municipalities in which HEZ are located can fund their local enterprise zone during the demonstration phase on the promise that permanent funding will be provided by the state. In-kind contributions such as municipality-owned facilities, security for the operations and relief from property taxes should occur regardless of the funding source.
  4. Foundation grants. Such initiates as HEZ are directly within the mission of the Bill and Melinda Gates foundation for example.
  5. Federal COVID relief funding. Since the disparity in health outcomes was revealed by COVID, this program to address it can be appropriately funded by that money.
  6. Schools of Medicine, Dentistry and Nursing in Virginia can contribute either direct or in-kind support. The in-kind support should continue every year.

I will forward the draft bill tomorrow to the Governor, the Secretary of Health and Human Resources, the Commissioner and key members of the General Assembly.

I hope they can adapt it as necessary to their needs.