Lawmakers Coddling Hospital Monopolies

Sen. George Barker (right) and assorted local dignitaries at opening of the Inova Alexandria Hospital in 2012.

by Jim Sherlock

My last essay, “Runaway Costs and Hospital Monopolies,” discussed the fact that Virginians who get their health insurance at work and through the Affordable Care Act website pay the highest premiums in the country. We traced those costs to a number of sources, including the Certificate of Public Need (COPN), Virginia Department of Health (VDH) protection of regional monopolies through its administration of COPN, hospitals acting like monopolies without oversight, and the increasing integration of health insurers and monopoly providers in Virginia’s largest markets.

COPN is the most spectacular example of rent seeking in Virginia history. By the early 1970’s, African-American hospitals had closed because Federal equal-access laws desegregated white hospitals. Black surgeons were looking to open viable practices. The General Assembly enacted COPN in 1973 as a parallel effort by a segregationist Democratic leadership to exclude black doctors and by white hospitals to exclude new competitors of any color. It worked.

The biggest trend in surgery continues to be the migration of surgery from inpatient to outpatient settings. So, if hospitals can’t buy physician practices, they neuter them with a combination of COPN and hyper-aggressive leverage of their regional monopolies and integrated networks, including the ownership of health plans.

Now hospitals want more. Bills introduced in the General Assembly this session would toughen COPN restrictions on competition, drive up costs, reduce access, and negatively impact career opportunities for physicians.

The spreadsheet below shows the worst bills, their sponsors and donations by healthcare interests to their campaigns.

Not shown in the donation numbers are the massive contributions by the same interests to Democratic PACs that passed it on to these campaigns. Hospitals give similar amounts to Republicans, but Republicans in general do not return the favor with such legislation.

Sen. George Barker, D-Alexandria, is on the Senate Commerce (Health Insurance) and Labor Committee, the Education and Health Committee, the Finance and Appropriations Committee and the Joint Commission on Healthcare – a clean sweep for shepherding his legislation. For 30 years he worked for and ran the Health Systems Agency of Northern Virginia, the gatekeeper for COPN applications that makes recommendations to VDH on the disposition of those applications. He is currently a consultant.

Del. Mark Sickles, D-Alexandria, is the new chairman of the House Health, Welfare and Institutions Committee and Vice Chair of the House Appropriations Committee. Sickles’ Senior Advisor for Policy is Donald Harris. Mr. Harris retired from Inova as its chief lobbyist.

Sen. Chap Petersen, D-Fairfax, is on the Senate Education and Health and Finance and Appropriations Committees. His website reports “Chap has consistently supported competition and free enterprise in healthcare, including repeal of the “Certificate of Public Need” requirement for healthcare providers.”  Seriously?

The bills are couched in language that will allow the patrons to claim that they are designed to increase access to intermediate care to poor people by requiring such facilities to care for indigent and Medicaid patients. In truth, they will result in the closing of many of the few existing intermediate care facilities not owned by hospitals and ensure that few independent physicians ever again apply for a certificate. Virginia nation-leading hospital operating margins will expand again as will the costs of government, commercial and workmen’s’ compensation, health insurance and co-pays.

Hospital-owned ambulatory surgery centers (ASCs) and imagery centers get paid far more than independent ones by both government and private insurers. Additional facts:

  • These bills make the charity care requirement apply to ambulatory care facilities, including existing ones. That provision will have no practical effect on hospital-owned facilities.
  • Most of Virginia’s intermediate-care facilities are structured as taxable partnerships or LLCs. Neither of those corporate structures is able to deduct from its taxes charitable services provided to indigent patients or losses incurred in treating Medicaid patients.
  • Many hospital-owned surgery and imagery centers, including Northern Virginia stalwarts Inova Ambulatory Surgery Center at Lorton, Inova Surgery Center at Franconia-Springfield and others, provided no charity care in 2018. They are taxable partnerships owned by a tax exempt health system.
  • Patients can’t report to a secondary care facility without a referral. Many of the doctors in the employ of integrated health systems are expected to refer within those systems and to refer for indigent and government insured patients for ambulatory services and procedures to their hospitals, not their outpatient centers.
  • Barker and Sickles’ bills also
    1. define a new state board to write a multi-year plan for health services facilities dominated by incumbents and
    2. Extend to ASCs a tax that hospitals volunteered to pay to secure the massive additional profits hospitals will get Medicaid expansion.

The outcome: no change for hospital systems and huge new burdens on their secondary-care competitors.

The General Assembly, if it cares about either the appearance of internal corruption or the budgets of their constituents, will legislate that:

  • All bills will be be subject to an assessment of the financial impact on their constituents, not just the Virginia budget.
  • No members serving on any committee including appropriations can accept donations either directly or through party PACs from interests benefiting financially from bills brought before those committees.

Seems simple enough. Don’t hold your breath.

This annotated version of the Sickles/Barker bill below will offer readers a glimpse into how complex, restrictive and utterly subjective COPN law is. I hope my footnote commentary proves a useful guide.

James C. Sherlock, a Virginia Beach resident, is a retired Navy Captain and a certified enterprise architect. As a private citizen, he has researched and written about the business of healthcare in Virginia. 

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6 responses to “Lawmakers Coddling Hospital Monopolies

  1. My only experience with COPN came many years ago when I observed an attorney, who had been the lead attorney in the Office of the Attorney General on the original COPN legislation, proceed to make a very good living as a private attorney representing hospitals applying for a COPN and lobbying for changes in the law.

    The author makes a good case and I appreciate his explanations. My fear is that there will not be any legislators at the General Assembly making these points. The hospital association is a strong one and, as the author points out, is a major campaign contributor. This is a complex issue and it takes time to master the details. Few, if any, legislators have the background to understand it and, as a result, they will listen to the lobbyists who seem to have credibility. As is the case in many instances, there is not a strong voice for consumers.

  2. “COPN is the most spectacular example of rent seeking in Virginia history.” Now that’s quite a statement given Virginia’s long and deep history of political corruption. You may be right but that’s akin to declaring somebody the most vicious mafia man – lots of candidates.

    Another under-reported aspect of health care in general and Virginia in particular is the mad race of hospitals to buy up primary care practices. I’m hard pressed to understand how further vertical integration in an oligopolistic industry like regional health care is in the public’s interest. However, it seems that neither our ever vigilant main stream media nor our sanctified General Assembly has much to say about this. At least, they have little to say about the probably future implications of this trend.

    Thoughts, Capt Sherlock?

    • I don’t like hospitals buying up private practices. For many years, my primary care provider was either a single practitioner or had one partner. Then he joined a group affiliated with a hospital. When I asked him about it, he replied, “I’m making more money that I thought I ever would.” After a few years, however, he quit. I think he became disillusioned. After he joined the group, it was obvious that he was on a quota system. When I went in for my annual physical, he listened to me, but I got the feeling that he had one foot out the door. Also, in general, I felt like I was on an assembly line in that group. My current primary doctor is also in a group affiliated with a megahospital organization (Bon Secours), but it is not as bad.

      As much as I dislike the idea of hospitals buying up private practices, I am not sure what government could or should do about it. Of course, government could, in the name of anti-monopoly, prohibit such practices. But, do we want such government intervention into what is, nominally, the private sector? I would be interested in the opinions of conservatives/liberterians on this blog on this issue. (I realize this is a diversion from the main topic of this post, COPN, and I apologize for that.)

      • I hope you repeat this question/challenge-to-readers in the context of a germane post that illustrates the problem. My working premise: It used to be that a good GP was a gatekeeper, a diagnostician who knew the specialists by reputation and referred you to the ones he would seek for himself if the need arose. Now he’s become an entry-point to an integrated corporate network of individual and hospital affiliates and dares not recommend you stray from it. What’s the evidence for or against this? Not that our Virginia DPH would publish the stats that might enlighten us.

        [BTW, I’m old-fashioned enough to intend “she” along with “he” here.]

      • There is a big difference between “free markets” and “pro-business”. COPN and other government regulations are not free market. As such, the current state of affairs in the medical industry is not a result of a “free market;” it is the result of government interference.

        Pro-business conservatives may be fine with COPN and other monopoly inducing regulations. But, many libertarians will argue that unnatural monopolies are the result of government interference. In fact, you will find argument within the libertarian community that all monopolies are the result of government interference in the market (I don’t 100% agree, but do think that natural monopolies will tend to break down on thier own as markets evolve over the long run.)

        Its is not a question of “What the governement should do about it”. Its more like, here’s an example of what happens when the government gets involved.

  3. I agree with every comment above. Just about everything is anti-patient and anti-doctor in vertically integrated health care. In addition to the comments above, consider that Sentara, VCU Health and Centra own their own health plans. What could go wrong there? Always word-limited in an essay like this. I have enough research to support a book, and that may happen, but in time-sensitive matters op-eds are a valuable tool. Thanks for the comments.

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