Virginia Should Regulate Healthcare Monopolies as Public Utilities

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If we repealed COPN today, we’d still be left with the monopolies it has created and protected.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.

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11 responses to “Virginia Should Regulate Healthcare Monopolies as Public Utilities”

    1. James C. Sherlock Avatar
      James C. Sherlock

      Why would that be exactly?

      1. I cannot speak for ‘PTBB’, but my first thought upon reading your article was: If Virginia regulates healthcare monopolies as scrupulously as it regulates the public utility known as Dominion then within a couple of years $1.5 billion in excess costs to consumers will look like chicken feed.

        1. Nancy Naive Avatar
          Nancy Naive

          It’s only 2% of the Va medical expenditures (estimated by population * US percapita$)

  1. Nancy Naive Avatar
    Nancy Naive

    “… 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.”

    Long time before that. Sometime in the late 40s if not earlier. Without trustworthy negotiations between the sellers and the buyers representatives, you don’t have anything like a market driven system.

    Don’t take this personally, but have you ever even seen a hospital bill? Say a bill for maternity services? A stroke? Heart attack? Broken arm? How about a bill for major diagnostic services, e.g., MRI, colonoscopy, mammograms?

    We don’t have a free market medical system because just about 10% of the population can afford ONE life saving medical intervention, e.g., stroke, heart attack, etc., and half of those will be busted flat after paying for it. Two percent can afford unlimited medical care. Mitt Romney is one. I pick on him because he said he likes to fire his insurance companies. How much of a medical system would we have if the entire customer base was 36M people? Who would build a hospital in Wise Coounty? Who would build a second hospital in VB with only a 30,000 customer base?

    Let me give you an example. My first introduction to costs was nearly 40 years ago when a young lady I knew was in a traffic collision. Three weeks in a coma, half dozen operations and she made a full recovery. Cost $250,000. When you were 35 years old, what would your life have been like if you were hit with a $250K bill? Well, I’m going to guess. That was bigger than your mortgage.

    Fifty percent of the people in this country cannot afford a trip to a Doc-in-a-Box. Of the other 50% who can, 50 percent of those couldn’t afford the cost of a broken arm. That’ll go you $20K. For people living paycheck to paycheck $20K is bankruptcy invitation.

    Nothing is going to bring those costs down. Nothing. COPN, with or without it, doesn’t effect the round off error in medical costs.

    1. James C. Sherlock Avatar
      James C. Sherlock

      Probably. I haven’t looked back that far.

      COPN created these monopolies, protects them competition and they continue to take advantage with sky high pricing. Virginia does not tax them. The designation of these organizations as regional public utilities seems like the only path to get prices under control. I’d buy a seat to listen to them whine.

      We could tax them, but the monopolies already exist and taxing them does not address prices.

      Having non-profit healthcare corporations sitting with billions of dollars in un-obligated cash and investments brings into question the whole concept of what it means to be a not-for-profit public charity.

      1. Nancy Naive Avatar
        Nancy Naive

        Prices are not set by competition. Haven’t been for more than 70 years. That’s just not how it’s done. Hospitals could build on top of each others like restaurants at the mall and wouldn’t change a thing.

        The price of medical care is set by “negotiations” between the hospitals and the insurers (loose application of the word insurance) who will get their 20% no matter what prices they settle on.

        For all the hate heaped on them, Medicare is the ONLY honest broker in the whole damned mess. They are the only negotiator without a dog in the hunt.

        1. James C. Sherlock Avatar
          James C. Sherlock

          Medicare is budget-driven. Not a good place to start when setting prices for hospitals. I recommend the state be margin-driven in its regulation of regional monopolies in Virginia.

  2. Dick Hall-Sizemore Avatar
    Dick Hall-Sizemore

    Fascinating proposition. Would you include the physicians associated with these hospitals in your regulation? Would for-profit hospitals, such as HCA in the Richmond area be regulated the same way? One more step toward government -provided medical care.

  3. […] I wrote that the state has an obligation to regulate the regional monopoly systems it has created to ensure […]

  4. James McCarthy Avatar
    James McCarthy

    IMO, the GA and state elected officials ought to review the purposes upon which Not-for-Profits are legally permitted to function and require closer adherence to that principle. A simple review of the salaries of executives offers a hint of a purpose gone awry.

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