Courtesy AP
by James C. Sherlock
I am a capitalist, but we haven’t had capitalism in the healthcare market in Virginia since the Certificate of Public Need (COPN) made its way into the Code of Virginia in 1968.
If we repealed COPN today, we’d still be left with the monopolies it has created and protected.
All that Virginians have gotten from that terrible law are a lack of competition, a lack of hospital capacity (exposed by COVID), few lower-cost ambulatory surgical and imaging centers, exorbitant hospital prices, monopoly control over healthcare labor and scandalously profitable non-profit regional healthcare monopolies.
As a direct result, Virginians paid over $1.5 billion dollars to hospitals in 2020 in excess of what they would have paid if Virginia hospitals had realized national median operating margins. That, of course drove up insurance payouts, on which the insurers based rates to make their own profits.
What the government giveth, the government can taketh away. The best way to lower prices is to lower prices.
Designate Virginia’s COPN-created regional healthcare monopolies as public utilities. Regulate their prices and margins as with the largest electric utilities.
The not-so-small differences between the electric utilities and the healthcare monopolies are that the vast majority (all but SOVAH Health hospitals in Danville and Martinsville) of the healthcare monopolies are non-profits. They have no owners (thus pay no dividends), their boards work for no one, and they pay no taxes.
The median operating margin for U.S. hospitals in 2020 was 2.7%. Virginia’s nonprofit public charity (the box they check for the IRS) monopolies won’t need more than 3%.
Those changes in turn will enable the Insurance Commission to regulate health insurers far more effectively.
Other options. The monopolies will not be successfully broken up other than by successful antitrust prosecution for anticompetitive activities.
Virginia also can ban vertically integrated healthcare and health insurance companies for creating corporate architectures that frustrate regulation.
I have been recommending both for years. I still hope they will happen. But hope is not a strategy.
Hospital monopolies as public utilities. Public utilities were historically regarded as natural monopolies because the infrastructure required to produce and deliver a product such as electricity or water is very expensive to build and maintain. The term public utility means that the services are declared public necessities, and, consequently, should be regulated by the government.
Hospitals are public necessities but not natural monopolies. Yet Virginia has created and protects artificial regional monopolies of non-profit hospital systems.
Just as we have regulated and unregulated energy markets, the other privately-owned hospitals can continue to be regulated as they are now to assure the quality of their facilities and services.
If one or more of our state-created non-profit monopolies should take the state to court, they have a great deal to lose in discovery.
On consideration, that would be fun to watch.
Action. This is a big step that needs to be carefully considered.
I recommend that this General Assembly direct the Joint Commission on Healthcare and the Health Insurance Reform Commission each to report separately by 31 October 2022 on its findings and recommendations on designating regional healthcare monopolies as public utilities.
The Secretary of Health and Human Resources and the State Corporation Commission should conduct parallel assessments and provide findings and recommendations to the Governor.
But please get it done.
