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.

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37 responses to “Health Enterprise Zones for Virginia”

  1. Wow, what an interesting idea! I must confess, I’ve never imagined such a thing. It’s definitely worth exploring.

    Would you be OK with the idea of launching a couple of “pilot project” zones to see how they might work and to massage the kinks before going statewide?

    1. Nancy_Naive Avatar

      Why are you asking the Capt’n? I should think the use of the plural “Zones” would mean exactly so.

      Nothing is writ in stone around here except the letters CSA.

    2. sherlockj Avatar

      This is a proven approach. Maryland itself conducted a 4-year trial with astonishing successes reported by Johns Hopkins. The limiting factor will be how many of these a Governor is willing to finance in his 2022 budget and subsequent budgets. If we get the results that Maryland experienced, the more HEZ’s, the more money is saved in the Medicaid budget.

      My only concern is that the program will be run by the Virginia Department of Health, which has shown it could not successfully organize a backyard picnic. The Governor and the GA will just have to watch it like hawks.

      1. LarrytheG Avatar

        So does it pay for itself, save money or not?

        1. sherlockj Avatar

          It does in Maryland, but in the first budget year of the program such savings cannot be assumed when providing the budget impact statement.

          In subsequent budgets, the Virginia savings will be seen and can be used in budget impact statements.

          1. LarrytheG Avatar

            If it truly saves money, it’s a no-brainer.

          2. sherlockj Avatar

            I agree with you Larry. But we need to get the brains of the Governor and the GA engaged on this. We’ll see.

  2. Which key members? I would hate to see this get lost in their shuffle.

    1. sherlockj Avatar

      I sent the draft bill today to every member of the House and Senate health and budget committees.

  3. LarrytheG Avatar

    It’s a comprehensive approach with possibilities. I like the pilot idea.

    1. sherlockj Avatar

      See above. The draft bill I submitted for Virginia is for exactly the same program that was tested for four years and found so successful in Maryland.

  4. Baconator with extra cheese Avatar
    Baconator with extra cheese

    I’m not sure I get it.
    I mean the Dr. Governor and Mayor Stoney tell us the disparities are based on skin color. They aren’t wrong (of even fibbing), right? I’m sure all the holler-dwellers of Appalachia are given world class medical care due to their skin color.
    I was under the impresssion Drs were scared of people of color and wouldn’t/ couldn’t provide them service….
    Besides any civilized person understands all you have to do is make medical care free and force equity in medical school education. Smash the meritocracy, white supremacy, and any profits from the medical industrial complex.

    1. LarrytheG Avatar

      Meanwhile the rest of the developed world has no trouble providing health care for ALL of their citizens regardless of color (or politics) and it results in all of them having longer life expectancies that us.

      And we do what? Argue?

      Here are those countries in rank order (human development index). Yep, we are 15th

      Hong Kong
      New Zealand
      United Kingdom
      United States

      1. Nancy_Naive Avatar

        Just for completeness, #2 Switzerland’s medical system is a mix of public-private healthcare insurance with mandates and subsidies for the working poor, the unemployed, and the terminally ill that is as close to Obamacare as exists in any other country… and they do it at roughly 2/3 the per capita cost.

        Cheaper, faster, better.

        There is no honor code. This isn’t a final exam. Can’t we just for once swallow our innovative pride and copy off of a smart kid’s test?

        Churchill described America perfectly when he said, “You can count on America to do the right thing, but not until they exhaust all other possibilities first.”

        1. sherlockj Avatar

          The difference as you know, Nancy, is that the draft bill I have submitted does not require a leap of faith and will be supported by Republicans. The question in the GA is whether Democrats, historically under the sway of the hospital lobby, can break free long enough to pass a program that has been proven to help the poorest among us.

          1. Nancy_Naive Avatar

            “… will be supported by Republicans.”

            “… but not until they exhaust all other possibilities first.”

            must be getting close to the end of possibilities.

            The greatest differences between the Swiss and the US is there’s just is no quibbling. Unemployed, able bodied or not, are on the equivalent of Medicaid. Period. There are no uninsured persons. It’s mandated and subsidized period. And, they ride roughshod on the prices of drugs.

            Nevertheless, while comparing outcomes between countries with disparate sizes is fraught with error, and normalizing helps, still just adopting the Swiss plan would save 25 to 33%.

            I’m sure following the Swiss would be a hard sell to the right, but how much savings are we expecting ftom HEZ?

            Btw, did I read where Obamacare plan premiums are decreasing again?

          2. LarrytheG Avatar

            “We will get rid of Obamacare but all pre-existing conditions will be “covered”.

            And I have some swampland for you……..and possibly a bridge.

          3. sherlockj Avatar

            I know it will be supported by Republicans because I drafted a similar bill last year with less detail. It was introduced by a Republican House member and supported by every Republican and almost every Democrat on the House Health, Welfare and Institutions Committee and referred to Appropriations.

            It was then defeated in Appropriations by some of the same Democrats who voted for it in Health, Welfare and Institutions. The hospital lobby worked furiously to get it defeated.

            This year I provided more detail and made the bill executable in the program planning and application year of 2021 without a state appropriation. The Governor’s 2022 – 2023 budget can pick it up.

      2. Baconator with extra cheese Avatar
        Baconator with extra cheese

        I agree. We should pull our NATO funding back to the levels equal to the average of the other NATO countries, only pay our share to WHO, and World Bank. Call back our debts owed by other countries. Then use that money for healthcare.
        I mean these other countries are “civilized” and don’t feel they need to provide services to the world so why should we? It seems to me people would be upset if the US was as “civilized” to the world as other countries in areas outside of healthcare….
        Famine and catastrophe relief…. intervening in conflcits, etc… border sercurity….
        I am all in for becoming a much more isolationist country if it benefits Americans. Let the South Koreans, Germans, Japanese, etc defend for their own citizens.

        1. LarrytheG Avatar

          We have to pull out of NATA and become isolationists in order to provide health care to our citizens?


          None of the other 15 had to do that.

          As NN pointed out, some of those countries actually have private systems…

          The point is they can figure this out and we apparently cannot and we have to find someone to blame for this failure also.

          that’s the state of our politics these days

          1. Atlas Rand Avatar
            Atlas Rand

            I think what he’s getting at here is the fact that we spend so much money playing world police, while everyone else rides for free. If we re-allocated our military budget to social programs as all these Europeans do we could have a more robust social welfare state as well. The result would be they in turn would probably lose some quality of life since they’d actually have to have a military and would have to reduce their welfare spending. Seems fair to me. The only reason they can afford all of that is because we find all the drug and medical research as well as military.

          2. Baconator with extra cheese Avatar
            Baconator with extra cheese

            Yep… if we ended playing world police we’d have plenty of civilized money for healthcare. Although if we did that most of the countries on that list would be speaking Russian or Chinese in about 2 years.
            And I’m fine with that.

  5. I think we should give it a try.

    1. Nancy_Naive Avatar

      Well, that just killed it.

      Unless you can show the insurance companies and their lobbyists they won’t lose money…

      1. sherlockj Avatar

        The insurance companies will be in favor of HEZs, as they have been in Maryland. They favor anything that reduces hospital admissions. It is the hospital lobbyists that will try to kill it.

        1. Nancy_Naive Avatar

          The lobbyists are one in the same. So, one way or the other someone will lobby against it.

          1. sherlockj Avatar

            You are correct. See my response to Larry above. It will be the hospital lobbyists who try again to kill it.

        2. Nancy_Naive Avatar

          Good luck with it Bubba. Anything that changes for the better the nightmare that is the US healthcare system is a plus, unless it adds two more ball drops, a blowtorch, a pad of matches and six more dominoes.

      2. “Well, that just killed it.”

        What the hell is that supposed to mean?

        1. Nancy_Naive Avatar

          I thought you had a sense d’humor.

          1. Sorry. My patience and geniality have been worn thin recently by — let’s just say, “others” on this site.

            I shouldn’t take it out on you, though. Please accept my apology.

          2. Nancy_Naive Avatar

            Having a sense of humor means never having to say… well, whatever

  6. Peter Galuszka Avatar
    Peter Galuszka

    Very interesting although I need to read it over a few times. A couple questions: is there any relief from malpractice premiums? Is that addressed? What does this do for mental health. What role will community service boards play? What about ambulance costs in remote areas?

    1. sherlockj Avatar

      No relief from malpractice premiums is included because that would be a poison pill.

      Mental health is not addressed, though it could be if the sponsors wish it to be. The problem in that field in Virginia has proven to be qualified providers, ask the HMOs that are required to provide that service.

      Community Service Boards are not addressed, other than they qualify as one of the government or non-profit organizations that can organize and submit a proposal.

  7. djrippert Avatar

    As a part-time resident of Maryland I see one big difference between Maryland and Virginia ….

    Individuals, state parties, PACs, corporations and unions all have the following campaign contribution limits:

    $24,000 aggregate to all

    Amounts are per a four year election cycle.

    ** The aggregate limit is no longer enforced based on the ruling in McCutcheon vs FEC

    How different would our state be if Dominion, the hospital lobby, the teachers’ associations, etc could only donate $6,000 to any candidate in any four year cycle?

    How would Virginia governors pick the UVa Board of Visitors? By merit? Oh, heaven forbid.

  8. […] Zones (HEZ) initiative modeled after Maryland’s hugely successful program.  I wrote about it here. The Virginia Hospital and Healthcare Association (VHHA) reportedly supported the bill.  It passed […]

  9. […] have written here and in newspapers across the state with a recommendation that Virginia emulate Maryland in the […]

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