Inside (another) failed attempt to reform health care facility approvals in Virginia

On a June day in 2019, a familiar cast of characters assembled in the East Reading Room of the Patrick Henry Building in Richmond. There was Michael McDermott, CEO of Mary Washington Healthcare in Fredericksburg. Mike Gentry, COO for Sentara Healthcare, was there, too, representing a sprawling network of 12 hospitals and dozens of health centers stretched across southern Virginia and northeastern North Carolina.

The Medical Society of Virginia sent its executive vice president. Dr. Clairborne Irby, an orthopedic surgeon in Richmond, was included on the list of decision-makers. Minutes from the June 11 meeting list a group of more than two dozen health and policy experts, from legislative analysts to physicians to Dr. Daniel Carey, Virginia’s secretary of health.

They were there to discuss the state’s Certificate of Public Need Program, often abbreviated as COPN: a perennial flashpoint for legislators, policy makers and health care professionals. In a nutshell, COPN is meant to control the number of medical facilities in Virginia, reducing the likelihood that facilities will increase prices “to compensate for unused services or excess bed capacity,” according to a policy brief from Virginia Commonwealth University School of Medicine.

In practice, going through the COPN process can take years and thousands of dollars to complete, often requiring health care professionals to hire lawyers familiar with navigating the system. The vast majority of medical facilities in Virginia are required to petition the state to open new locations or add new services, a process that allows competitors to weigh in on their applications. Often, it ends in denial, with state regulators ruling that the proposed project wouldn’t offer new benefits that aren’t available through existing facilities.

It was far from the first workgroup on the subject. The state assembled its last task force in 2015 and an earlier one in 1996. The debate spans 47 years, since the program was first established in 1973 under a federal mandate. 

“There were folks there who have been fighting on this issue for more than 30 years,” said Freddy Mejia, a policy analyst for The Commonwealth Institute for Fiscal Analysis. This workgroup, though, was supposed to be different. For one thing, people like Freddy were there — consumer advocates invited to represent everyday Virginians. And this particular group had been assembled under the direction of Gov. Ralph Northam, a pediatrician, who made COPN reform a major priority of his administration.

“The governor wanted a different approach, and one of the things we thought of was an interest-based negotiation process from the beginning,” Carey said. The governor’s office spent $70,300 to hire professional mediator Mark Rubin, a long-time political operative who served as the legal counselor for former Gov. Tim Kaine and who has helped hash out legislation on contentious issues in the past.

Northam was the latest leader to tackle a lofty goal — convincing Virginia’s doctors, hospitals and health care plans to agree on what Carey described as “commonsense reforms” to the COPN program. Opponents argue that the system has gone too far, protecting hospitals that — in many cases — have become monopolistic health care systems, while squeezing out practices that could offer lower-cost services to patients. The problem is that none of the parties have ever been able to agree on what “commonsense reforms” actually look like.

Carey said that he and the governor were interested in streamlining the application process and adding language that would require the state to update its state medical facilities plan — a document that projects the need and availability of services — at least once every two years. Participants in the 2019 mediation said there’s generally broad consensus on those changes, which are thought to benefit all providers affected by the COPN process.

This time, though, Carey and Northam were hoping to ease some of the stringency within the COPN process, something Carey likened to opening the aperture of a camera. For years, the essential debate on COPN in Virginia has boiled down to imaging and ambulatory surgery centers, and whether those services should be regulated under the program.

“In 2015, they never really got to the sticky issues, with the stickiest issue being those areas where there’s lots of interest in expansion,” Carey said. Many doctors in Virginia have advocated for allowing at least some imaging and surgery centers to be removed from the COPN program, allowing providers to open facilities without applying through the state. In Maryland, for instance, physician-owned outpatient surgery centers can be opened without going through the process.

Hospitals are steadfastly against the change, arguing that it would undercut the high-margin services they depend on to subsidize the cost of providing charity care. “From our perspective, this process was supposed to be about reforming COPN, and where there may have been differences was when it came to the deregulation of certain services,” said Julian Walker, vice president of communications for the Virginia Hospital and Healthcare Association. 

Northam’s administration was attempting something that had eluded policymakers for decades: finding a way to move past those fundamental differences and end the mediation process with proposed legislation endorsed by the powerful interests on each side.

They failed.

While Carey said most participants were open to the idea of small changes, such as exempting one-room ambulatory surgery centers attached to existing medical practices, hospitals remained staunchly opposed to any form of deregulation. 

On Nov. 11, VHHA sent a four-page letter to Northam, writing that any move to exempt imaging or ambulatory surgery centers would undermine the work group’s stated goal of lowering health care costs in Virginia. A closed-door meeting between the doctors and hospitals in late October failed to resolve the dispute, and on Dec. 9, Carey sent out a letter canceling the mediation process.

“Based on the statements made to me by the hospital representatives and in the letter to the governor, I have concluded that reaching a consensus in the Decision Maker Group on how to meet these goals is simply not going to happen,” he wrote. Instead of sweeping changes, the 2020 General Assembly session ended with a bill that doctors argued would do nothing to fundamentally reform the COPN process in Virginia.

“One of my surgeons described it as a faster way to get to ‘no,’” said Cal Whitehead, a lobbyist for physician groups including the Virginia Orthopaedic Society and Virginia Society of Eye Physicians and Surgeons. The bill, sponsored by Sen. George Barker, D-Fairfax, removes a handful of medical services from the COPN process — treatments that are noncontroversial because they’re rarely performed, said Doug Gray, executive director of the Virginia Association of Health Plans — but mostly directs the Virginia Department of Health to issue recommendations on reducing the review cycle for applications.

“I haven’t even been following it,” Gray said. “That’s how superficial it is.”

Northam has also declined to take a policy stance on the bill, which still requires his signature to take effect.

“He thought it was inappropriate to take a stance on it because it did not come from his process,” Carey said.

Nearly 50 years of disagreement

Longtime observers of the COPN system in Virginia say it’s an issue where consensus seems nearly impossible. During the 2019 mediation, most of the blame fell on hospitals, which Carey said were ultimately unwilling to discuss the option of removing certain services from the program.

“When the health systems say they won’t discuss that topic, which was the main impediment to agreements in the past, then yes — we felt that moving forward was simply unfeasible,” he added. “To take away that thorny issue undermined the goals we set for the group.”

VHHA, the hospital group, on the other hand, has continually argued that it’s impossible to exempt high-margin services from the COPN system without addressing how hospitals are reimbursed for other forms of care. It’s an argument that Virginia hospitals have been pushing for years, said Matt Mitchell, a senior research fellow with the Mercatus Center at George Mason University who has done extensive research on COPN.

“They’ve always taken the position that they need COPN to survive,” he added. The basic argument is that while doctors and physician groups can choose which forms of insurance to take (and whether to accept insurance at all), hospitals are required to treat every patient who comes through their emergency room.

“Some of the folks opposed to COPN, they don’t want to function like a hospital and operate 24/7,” Walker said. “They don’t want to have to accept everyone, or serve less economically well-to-do areas. But hospitals provide all those services.”

In exchange, they argue, hospitals need protection from free-market competition. COPN applications in Virginia are often denied on the premise that they would negatively affect existing health care systems. By retaining access over services with high profit margins, such as MRIs and surgeries, hospitals say they’re able to make up the cost of providing care to uninsured patients and treating lower-paying conditions like asthma or pneumonia, Carey said.

Opponents to COPN are increasingly skeptical of that argument. Whitehead said it fails to account for the fact that many hospitals in Virginia are transforming into massive health systems with outpatient clinics of their own.

“Hospitals expand aggressively into outpatient settings because they know that’s where patients want to receive care and that’s where it’s more efficient to provide care,” he added. “They just don’t want anyone doing it but them.”

‘Don’t even bother with Virginia’

Health systems are often some of the most frequent victims of the COPN system, critics point out, when competing hospitals block their efforts to expand into new areas. But while hospitals often hold the upper hand in finances (Inova Fairfax made approximately $127.2 million in fiscal 2019, according to the nonprofit Virginia Health Information network, while VCU Medical Center made roughly $202.5 million), smaller physician groups and independent doctors are forced to navigate the same process with fewer resources.

“That’s why we don’t want to refer to Sen. Barker’s bill as ‘reform,’” Whitehead said. “Whether it’s an ear, nose and throat doctor, or a gastrointestinal specialist looking for an endoscopy permit, they’re still going to have to hire the same lawyers and consultants to wade through the application process.”

Not every hospital operates with such high margins (facilities in southwestern Virginia were especially burdened by charity care and bad debt last fiscal year, VHI pointed out in its latest report). Mejia said there are also valid concerns that some private practices circumvent the COPN program’s charity care requirements by writing checks to safety net providers, rather than treating at-need patients.

But overall, Mitchell, the George Mason research fellow, said there’s strong evidence that COPN programs end up hurting patients. In a 2016 working paper, he reviewed existing research and found that the system actually increased health care prices and limited access to treatment. Other researchers have found that COPN regulation is linked with longer travel distance to care.

The system can also limit patients’ access to new kinds of care. Mitchell pointed to a particularly egregious case in 2012 when Dr. Mark Baumel, an internist with practices in Delaware and New Jersey, applied for a certificate of public need to open a new “virtual colonoscopy” clinic in Virginia.

The imaging technique uses CT scanners to screen a patient for colon cancer without an invasive probe, Baumel said. No one else in Virginia was offering the service, but Baumel was still required to apply for a certificate to purchase new CT machines. He was denied after a year-long process, later becoming a plaintiff in an unsuccessful suit against the program.

“COPN prevented patients in Virginia from being able to access this alternative to invasive colonoscopies,” he said in a February phone interview. “I don’t know of any other state with a program that gets as far in the weeds as Virginia, where you’re filing an application to open a clinic with a single CT scanner. We were told by the supply companies, ‘Don’t even bother with Virginia. Don’t even try.’ And they were right. Because its reputation preceded it.”

‘That dynamic really stacks the deck against reform’

In the 47 years since Virginia’s COPN program began, Whitehead said there’s never been a successful effort to majorly reform the system. That includes a 2020 bill from Sen. J. Chapman Petersen, D-Fairfax City, which would have required the Department of Health to establish an expedited permitting process for certain medical projects, including the purchase of new imaging equipment. It quickly met its demise in a Senate committee hearing.

There have been attempts to carve out exceptions from the COPN program for specific hospitals or providers. In a 2018 act of rebellion, Whitehead said the physician community introduced at least 20 special project bills in the General Assembly. This year, there were at least two, including a failed amendment in Barker’s bill that would have allowed HCA Health System to open a new neonatal care unit in the Roanoke region — part of an ongoing dispute with Carilion Clinic.

Mitchell argued that it’s challenging to galvanize grassroots opposition to COPN given that the vast majority of health care consumers don’t know about the system. “It’s obscure and arcane for most of those who are negatively affected by it,” he said, “while those who are positively affected know exactly what it is and how to comply with it. That dynamic really stacks the deck against any type of major reform.”

This year, though, there were indications that lawmakers were growing frustrated with carveout bills. One, sponsored by Sen. Louise Lucas, D-Portsmouth would have added a COPN requirement to any freestanding emergency room specifically located in Planning District 20. It failed in a House committee, but not before launching nearly an hour of debate on the need for systemic reform.

Del. Cia Price, D-Newport News, specifically asked the state to convene another work group — this one women-led — to take another last stab at COPN reform. It’s a novel argument to link past failures to a lack of female leadership, but she said it sent a clear signal that the General Assembly’s new Democratic majority was ready to keep the effort alive.

“My argument is that you can’t say it won’t happen when you’ve had so many changes to leadership,” she said. “I know that past legislators were not interested in moving more comprehensive bills through. But I think everybody saw the signal in that committee. Everybody wants something to happen, so the stakeholder groups are on notice.”