Outdated Virginia Law Reduces Healthcare Competition

David Williams

January 7, 2016

Just before the holidays, three Republican Members of the Virginia House of Delegates introduced multiple pieces of legislation that would repeal Virginia’s Certificate of Public Need (COPN).  In place since the early 1970’s, COPN is an old top down healthcare regulation that stifles innovation. The law was created to ensure access to care and curb rising healthcare costs. But, if a healthcare provider or hospital in Virginia wants to add beds or equipment or even offer a new service such as an MRI machine, they must first go through a lengthy application process seeking approval from state regulators.

According to the Federal Trade Commission (FTC) and the Department of Justice (DOJ), COPN laws create barriers to entry and expansion, limit consumer choice and stifle innovation.

“…it is now apparent that [Certificate of Public Need] laws can prevent the efficient functioning of health care markets in several ways that may undermine those goals.  First, [Certificate of Public Need] 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 [Certificate of Public Need] laws to achieve that end. Third, as illustrated by the FTC’s recent experience in the Phoebe Putney case, [Certificate of Public Need]  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 [Certificate of Public Need] laws have generally succeeded in controlling costs or improving quality.”

The InovaHealth System is an excellent example of a hospital system taking advantage of Virginia’s COPN program.  Inova has become a dominant player in Northern Virginia because they have used this law to block out any real competition, creating a virtual monopoly in Northern Virginia

Even though Inova is technically a non-profit, their revenue numbers are staggering.  According to Virginiabusiness.com, in 2014, Inova had $2.7 billion in operating revenue, up from $2.5 billion from 2013.  Its operating income was up 65 percent last year to $217.7 million. On top of that, Inova is sitting on $4 billion in unrestricted cash and investments. And the company’s IRS reports show that over 100 additional not-for-profit hospital executives with Virginia connections were awarded between $500,000 and 1,000,000 in total compensation.

A key element of Virginia’s Certificate of Public Need program allows competing hospitals to lobby against and block a potential competitor from offering a new service. This has enabled them to achieve revenues of $2.5 billion, all as a non-profit.

It’s been reported that Inova spent at least $1,123,793 in lobbying between 2010 and 2013.  Two of their lobbyists spent almost $3,000 on dinners with Virginia lawmakers and gave $1,775 in gifts/entertainment to legislative and executive officials in 2014.  But to be fair,  that’s a drop from the $4,761 on gifts/entertainment for lawmakers it spent the year before.

It comes as no surprise that Inova says the legislative proposals introduced recently by three Members of Virginia’s House of Delegates would not work saying, that they oppose “piecemeal deregulation of the commonwealth’s long-standing COPN program.”  This is obviously a ploy to protect their turf and not allow competition.

Leaders in Richmond should take the advice of the FTC and DOJ and repeal this law. Doing so will foster greater innovations, increase consumer choice and lower barriers to entry for expansion of services and care for patients across the Commonwealth. Laws that limit competition and enable health systems to game the system to fight off competition don’t belong in Virginia.

Virginia’s taxpayers deserve better.

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