by James C. Sherlock
Virginians have been assured forever by the hospital lobby that the non-profit regional monopolies established and protected by COPN nearly everywhere but Richmond:
- are benign public servants with a charitable mission;
- certainly don’t drive up costs;
- that competition does not matter;
- that the State Medical Facilities Plan on which COPN is based, like government 5-year industrial plans everywhere, is both well- managed and prescient; and
- that limiting capacity is the key to cost containment. (It turned out that limiting capacity was also the key to hospitals being overwhelmed by COVID. Clearly disaster preparedness is not among COPN criteria.)
Well. The median operating margin for Virginia’s 106 hospitals in 2020, the latest year for which data are available, was 9.2%. Nationally, that margin was 2.7%.
Virginians paid over $1.5 billion more for hospital visits than they would have if our hospitals had cumulatively posted a 3% operating margin, which has been at or near the national median for years.
I checked COPN’s Guiding Principles to see how they are working out for us. I’ll give you two of them:
The COPN program is based on the understanding that excess capacity or underutilization of medical facilities are detrimental to both cost effectiveness and quality of medical services in Virginia.
The COPN program discourages the proliferation of services that would undermine the ability of essential community providers to maintain their financial viability.
Cost effective services; financial viability of providers. Seems we have met one out of two. And we overshot more than a bit on financial viability.
Sentara. Those of us here in South Hampton Roads certainly did our part. We note with thin wallets that we paid Sentara’s hospitals in Norfolk, Virginia Beach and Suffolk over $271 million more in operating revenue than we would have if those hospitals had realized the national median margins. So the rest of the state only disgorged an extra $1.2 billion. You are welcome.
That averages over $250 for every man, woman and child in South Hampton Roads. In one year. Just in hospital payments in excess of the national median. Just to those five Sentara hospitals. Think how much you paid if you actually went to one of them.
In case you think Sentara is just a great manager of hospitals, please see if you spot a trend in Sentara hospitals’ median operating margins by geography:
- Five hospitals in South Hampton Roads: 13.9%;
- Sentara Careplex Hospital across the tunnel in Hampton : 9.2%;
- Four Virginia hospitals outside of Hampton Roads : 2.9%
That monopoly is a strong force-field that lapses with distance from the center.
And you thought “not-for-profit public charity” healthcare monopolies were charities. Remember, their boards work for no one.
Richmond. Then there is Richmond. Huge margins. No regional monopoly, but COPN capacity and competition limits apply there as well. The regional monopolies everywhere else in the state set the pricing expectations and Richmond hospitals gratefully ride the wave.
Who pays? We paid the massive operating revenue bonuses in higher insurance premiums, deductibles, and co-pays. Please don’t think of government program payments as someone else’s money, but those with commercial insurance pay the bulk of the above median payments.
We have not gotten even a thank you note, much less dinner. I’ll leave the obvious General Assembly sentence unwritten.
What to do? The last Virginia Attorney General to threaten antitrust action was Bob McDonnell. He threatened to go to court to stop a planned Inova expansion. It worked. Sort of. Inova is the best-governed and most community-invested of the monopolies.
But our problem now is not just mergers and acquisitions. The federal government is on that case. Virginia just needs to stop making it worse with COPN decisions and interstate compacts that the feds won’t fight.
The issues to be examined in addition to M&A by both the federal and state Attorneys General include:
- whether any existing monopolies are guilty of anticompetitive business activities under federal and state antitrust laws.
- whether all of Virginia’s enormous not-for-profit healthcare systems are being operated within the tax rules for non-profits. Specifically (a) are they properly governed by independent and effective boards ; (b) are the compensation packages of their senior executives within a competitive range or are they overpaid; and (c) do they spend an acceptable percentage of their massive profits on charitable pursuits or instead put them in the bank as fuel for acquisitions?
- Virginia’s regulatory structure does not have the scope to oversee vertically integrated healthcare/health insurance conglomerates. VDH regulates hospitals. The SCC regulates health insurers. Neither can see what happens between them. The surest fix for that is to ban vertically integrated systems in Virginia.
If anyone has any other reason why Virginians are paying $1.5 billion dollars a year in above-national-median hospital costs, bring it forward.
Mine are centered on COPN restriction of supply, the anticompetitive actions of the monopolies COPN has created and protects, some rogue non-profits, and ineffective regulation.
Updated Feb 06 at 10:50 AM
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