by James C. Sherlock
Readers of this blog have indicated an unquenchable appetite for information about and discussion of Virginia’s Certificate of Public Need (COPN) law and its administration.
This essay informs on the negative impacts of the COPN law and the Virginia Antitrust Act (the Act) itself on the enforcement of antitrust laws against Virginia’s regional hospital monopolies.
First, know that the business activities that some of Virginia’s hospital monopolies exhibit can already be deemed illegal under both federal and state antitrust laws. But the Act gives them a special dispensation, complicates both state and federal antitrust enforcement and results directly in the in-your-face anticompetitive activities we see every day.
The federal government (and once even Bob McDonnell as Virginia Attorney General) occasionally have intervened to block interstate mergers or in-state acquisitions before they occur, but always within the federal administrative and court systems, and they have never challenged COPN decisions.
But no government agency has ever sued over the business activities of Virginia’s COPN-constructed monopolies.
The COPN decisions are state actions. That answers the obvious question about suing over COPN decisions. Federalism. Virginia and Tennessee even coordinated parallel laws to protect the merger that created Ballad Health by saying they would provide joint state oversight. Federalism again shields the merger from federal oversight.
But it is very useful to view the legal impediments Virginia has put in place to prevent antitrust suits against business activities of its hospital monopolies and the effects of those impediments on both state and federal enforcement of antitrust laws.
The story is a scandal. But if you are into cost-benefit analyses, it shows the measurable value and efficiency of buying influence in the Virginia government when it can provide protection against federal law as well. Cheap at twice the price.
The Virginia Antitrust Act (the Act), passed the year after COPN became law, includes a get-out-of-jail-free provision for COPN-constructed monopolies:
Nothing contained in this chapter shall make unlawful conduct that is authorized, regulated or approved (i) by a statute of the Commonwealth or (ii) by an administrative or constitutionally established agency of the Commonwealth or of the United States having jurisdiction of the subject matter and having authority to consider the anticompetitive effect, if any, of such conduct.
No one can think it was an accident that the Virginia Antitrust Act of 1974 contains a provision that protects the conduct of monopolies assembled by decisions made under the COPN law of 1973. Nor do I think anyone not in the employ of the hospitals will argue that the provision above is somehow in the public interest, but we’ll see.
It represents successful rent-seeking stuck as an intercellular parasite into a public law that consumes it, rendering it un-actionable. There was no public purpose to write state antitrust legislation and exempt the activities of those by far most likely to violate it.
The language of the Act purposely made it virtually impossible for plaintiffs to win a suit under that act if the defendant is a hospital system. All of them are regulated “by an administrative or constitutionally established agency of the Commonwealth,” the COPN system.
I am not a legal historian, but the Virginia Antitrust Act appears to have lain unused for 47 years, since Virginia’s only prominent monopolies are by that same statute beyond its reach. I have been unable to find any case law in the history of that Act. Perhaps a reader knows better.
So, the refuge for Virginians from conduct of otherwise illegal activities by its regional monopoly hospital systems (or any other monopoly) realistically lies in federal law and federal courts.
The best thing to do with the worse-than-useless Virginia Antitrust Act is to repeal it.
The Federal Government
The federal Department of Justice and Federal Trade Commission share responsibility for enforcement of federal antitrust laws. Those laws are broader and less compromised than the Act. State Attorneys General, Commonwealth Attorneys and private citizens can sue in federal court.
Those federal agencies would love to stop antitrust violations that they see more clearly than any of us, but face their own significant obstacles. I refer readers to the 2015
Joint Statement of the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice to the Virginia Certificate of Public Need Work Group.
Please see that statement here.
The letter came from the Obama administration, but the position the letter asserts has been bipartisan. Similar letters were sent earlier from the same organizations under President Bush.
The statement explains the issues with COPN and its outcomes from a federal perspective better than I ever could. I will tease its contents by offering the second paragraph of the statement.
CON laws, when enacted, had the laudable goals of reducing health care costs and improving access to care. However, it is now apparent that CON laws can prevent the efficient functioning of health care markets in several ways that may undermine those goals.
First, CON laws create barriers to entry and expansion, limit consumer choice, and stifle innovation.
Second, incumbent firms seeking to thwart or delay entry by new competitors may use CON laws to achieve that end.
Third, as illustrated by the FTC’s recent experience in the Phoebe Putney case, CON laws can deny consumers the benefit of an effective remedy following the consummation of an anticompetitive merger.
Finally, the evidence to date does not suggest that CON laws have generally succeeded in controlling costs or improving quality.
For these reasons, explained more fully below, the Agencies historically have suggested that states consider repeal or retrenchment of their CON laws and, in this case, respectfully suggest that the Work Group and the General Assembly consider whether repeal or retrenchment of Virginia’s COPN laws would best serve its citizens.
So perhaps reading the statement will help satisfy the great appetite shown on this blog for information on the consequences of CON laws in general and COPN in particular.
I offer it for your consideration. I have offered here as well as another example of the legendary corruption of Virginia’s government.