Two Hampton Roads health systems’ legal battle reignites old debate over state’s medical facility policy

For years, a battle between two competing hospital systems in Hampton Roads has spilled into the halls of the Virginia Capitol and the hands of sometimes reluctant legislators.

Now, it’s spilled into the court system. In late April, Chesapeake Regional Medical Center sued Sentara, the region’s dominant health system, claiming Sentara worked deliberately to “cripple” Chesapeake’s cardiology program. Among the heated allegations are that Sentara worked secretly to poach doctors that formed the backbone of Chesapeake’s program, persuading them to break their contracts and join the much-larger system.

At the root of the business dispute, though, lies a nearly 50-year-old Virginia policy — one that’s become the center of countless debates in the state’s General Assembly. Since 2017, Chesapeake has sought to establish its own open-heart surgery program, a service offered by Sentara and multiple other hospitals in the region. But to do so, it has to go through Virginia’s Certificate of Public Need Program, a bureaucratic process that governs medical services and facilities across the state.

Virginia isn’t the only state with COPN laws. But its program is known for being uniquely granular. Approval is needed not only for major projects, like building a new hospital, but for purchases as small as a new MRI machine or CT scanner. Even adding licensed beds to an existing facility requires going through the application cycle.  

The process also allows competitors to oppose projects they view as a threat to their existing services. It’s done routinely and frequently. When Chesapeake first applied for an open-heart surgery program, the application was derailed when Sentara requested what’s known as an “informal fact finding conference” — a chance for it to contest the merits of the project. 

Eleven months later, Chesapeake’s application was denied by State Health Commissioner Dr. Norman Oliver, despite initially being recommended for approval by staff at the Virginia Department of Health. That background factors heavily into the hospital’s lawsuit against Sentara, which — not content with its majority hold on local cardiology services, Chesapeake alleges — “seeks to eliminate competitors who attempt to encroach on its monopoly service lines.”

It’s far from the first clash between the two health systems. In Virginia, it’s common for providers to fight over the COPN process and appeal to the General Assembly for legislative solutions. But long-time observers say it’s unusual for the matters to end up in court.

“This probably represents a new level, in some respects, of controversy between health systems,” said Don Harris, who spent more than four decades in government relations for Inova Health System before joining Del. Mark Sickles, D-Fairfax, as his senior policy adviser. COPN applicants sometimes file litigation against the state health commissioner to contest a decision — a step that was also taken by Chesapeake. Of more than half a dozen experts interviewed by the Mercury, though, none could think of another instance where one health system sued another and cited COPN-related activity.

At stake is more than $20 million in damages that Chesapeake is seeking for Sentara’s “malicious” interference in its business, according to the filing, first reported by the Checks & Balances Project, which describes itself as an investigative blog and has set its sights on Sentara’s power and influence. But the litigation could also force COPN laws, which faded in prominence at the start of the COVID-19 pandemic, back to the forefront for Virginia legislators. 

In the 1980s and ’90s, Harris said disputes tended to be between hospitals and physician groups, who were becoming increasingly interested in establishing their own outpatient surgery centers. But as most health systems have moved to acquire medical practices and establish their own outpatient services, opposition to COPN applications more frequently comes from competing hospitals.

If that results in more lawsuits — or more legislation designed to benefit a particular health system — Harris thinks lawmakers could begin to reconsider the COPN program. Because at the end of the day, experts say, the Virginia legislature doesn’t like to choose between competing business interests.

“When you put legislators in the middle of these disputes, it does provide a lot of ammunition for them to say, ‘Well, why don’t we just get rid of the law altogether?’” Harris said. “It puts them in an unwinnable situation.”

‘Chesapeake, especially, is pretty frustrated’

Over the years, providers have often looked for legislative intervention in the form of what lobbyists refer to as “carve-outs.” In bills addressing the COPN process, a frustrated applicant — often a health system — will slip in a clause meant to ensure their success in the process. 

One recent example was a failed amendment in a 2020 bill from Sen. George Barker, D-Fairfax, which aimed to streamline the application process. At one point, the legislation would have exempted HCA Healthcare from going through the COPN process for a new neonatal care unit in the Roanoke region. The system has long been embroiled in a fight with Carilion, which opposes HCA’s efforts to establish a new NICU. VDH has sided with Carilion, arguing the area has enough services to meet the existing need.

But Chesapeake, especially, has a history of inspiring specific legislation to protect it from Sentara. The same year that HCA sought a carveout in Barker’s bill, Sen. Louise Lucas, D-Portsmouth, sponsored narrowly tailored legislation that would have added a COPN requirement to any freestanding emergency department owned by an affiliated hospital located within 35 miles specifically within Planning District 20 (which covers much of the Hampton Roads region). 

The bill was a direct response to freestanding emergency departments established by Sentara, which Chesapeake — and its supporters — argued were deliberately siphoning well-resourced patients to Sentara hospitals.

The previous year, Chesapeake and Sentara were the focus of yet another legislative fight when Sen. J. Chapman Petersen, D-Fairfax City, sponsored a bill that would have required vertically integrated health carriers — insurance plans that also own hospitals — to allow public hospitals to participate in their networks. This time, the dispute focused on the Sentara-owned health plan, Optima, which Chesapeake argued didn’t accept all the services it offered in-network.

“They felt that Optima was favoring Sentara hospitals and services and not giving them an equal opportunity,” said Del. Terry Kilgore, R-Scott, who served as chair of the House Commerce and Labor committee at the time. Chesapeake has frequently served as a convenient proxy in the COPN war, both for its local lawmakers and for legislators who more generally oppose the process. The hospital is one of the few independent facilities left in Virginia — one that’s not owned by a large corporation with multiple hospitals across the state. And it’s controlled locally through the Chesapeake Hospital Authority, a governing body with members appointed by the Chesapeake City Council.

It was conceived more than 50 years ago by local residents and community leaders, who led the drive to fundraise and build the hospital. Those hometown ties have inspired fierce loyalty among residents and the local legislators who represent them. But other lawmakers, including Petersen, have argued that smaller players like Chesapeake need protection from entities like Sentara, a multi-billion dollar company with 12 hospitals across Virginia and northeastern North Carolina. 

“Honestly, I feel like it was inevitable it was going to come to this point,” said Lauren Schmitt, a lobbyist who’s worked on COPN bills for the Virginia Orthopaedic Society, which is part of a loose coalition focused on reforming the process. “We’ve seen a lot of the larger health systems dominate the process. And I think Chesapeake, especially, is pretty frustrated with the process that they’ve been going through over the last few years.”

‘These events caused a lot of damage’

That frustration is palpable in the lawsuit, in which Chesapeake points out that Sentara holds about 70 percent of the market share for cardiology services in the Hampton Roads region. Chesapeake is “the only one of three systems without an open-heart surgery program,” said Johan Conrod, the attorney representing the hospital in its suit.

But what forced the hospital to litigate, he said, was Sentara’s successful poaching of seven cardiologists from Bayview Physician Services. The private medical group was contracted by Chesapeake to provide the bulk of its existing cardiology services, and losing those doctors nearly upended the program. It was only through “significant additional cost” that the hospital was able to continue providing those services to its patients, Chesapeake claims in its suit.

“There can be no debate that if your interventional cardiologists walk out the door, you as a community hospital have to scramble to make sure people are served,” Conrod said. “It massively impacted Chesapeake, and you can’t get around that. This wasn’t one of those car accidents that happened at 2 miles per hour. These events caused a lot of damage.”

Whether Sentara stole those doctors is the subject of separate litigation filed in Virginia Beach. Chesapeake alleges that Sentara began meeting secretly with the cardiologists in early 2019, “not long after taking steps to block CRMC’s open heart application,” according to its lawsuit. Gary Bryant, an attorney for Sentara, counters it was the doctors who approached the system for employment after deciding to end their contract with Bayview.

But neither system is arguing against the COPN system itself. Both parties frame it as a contract dispute — despite Chesapeake claiming that “undermining” its COPN application was “part of Sentara’s plan to cripple CRMC’s cardiology services program.”

“While it makes a number of COPN-related allegations, none of the claims relate to COPN,” wrote Jamie Martin, an outside counsel to Sentara who represents the system in matters involving the process. Sentara, too, said the litigation revolved around the question of whether the cardiologists had broken their contract with Bayview when they went to work for Sentara.

“We are focused on our patients and not-for-profit mission to improve health every day by providing safe and quality care to the communities we serve,” Dale Gauding, a spokesman for the system, said in a statement. “It is unfortunate that Chesapeake Regional Medical Center chose to file a lawsuit involving a contract dispute, not a Certificate of Public Need, instead of continuing to focus on the communities we serve – especially as we continue to face the COVID-19 pandemic together.”

That’s because hospitals remain one of the most enthusiastic supporters of Virginia’s COPN program, despite sometimes falling victim to it. Health systems, which are required to accept all patients regardless of insurance status, argue that protecting local monopolies on profitable services such as knee replacement and imaging subsidizes loss generators like NICUs and psychiatric beds.

“COPN proved its worth and proved its value as a foundational block of the health care delivery system during the pandemic,” said Julian Walker, the vice president of communications for the Virginia Hospital and Healthcare Association. He pointed to facilities that served on the frontlines despite losing millions during a pause in elective surgery and surges of often-costly COVID patients. If any provider was able to expand without input from the state, health systems argue it could undercut their own services to the point where they’d have to close, leaving communities without a vital health resource.

State data highlights the extent to which all hospitals participate in the COPN process. In May 2020, Chesapeake wrote its own letter of concern when Sentara submitted an application to open a new operating room at Virginia Beach General Hospital. A few months later, both systems opposed Bon Secours’ effort to significantly expand its services at Harbour View in Suffolk, arguing the competing health system was trying to transfer more care to a higher-income area.

There have even been deals struck between the two. During the 2019 fight over vertically integrated health carriers, Kilgore said he brokered a handshake deal between Chesapeake and Sentara. Sentara wanted the bill to go away. Chesapeake agreed on the condition Sentara wouldn’t oppose its new COPN application for an open-heart surgery program.

“We’ve always said the focus should be on providing care to patients where it’s more convenient and less expensive,” Schmitt said. And when hospitals can influence the system, she argued, it’s patients who suffer from inflated costs and less access to services.

“If someone lives 15 minutes from a hospital, they should be able to go to that hospital for whatever care they need,” she said. Chesapeake’s second open-heart application ended in a recommendation for denial, and city residents still can’t receive the surgery at their local hospital. Sentara, too, has been blocked from adding specialty level NICU services to its medical center in Harrisonburg. That’s despite support from the Mennonite community, who said it would be more accessible for them than traveling to the next-nearest specialty center at UVA.

But repealing the law, or supporting substantial reforms, is still a tricky subject for legislators. Some lawmakers have long been opposed to the program, arguing it stifles competition. But as a representative of a rural district, Kilgore said the issue wasn’t as straightforward.

“It’s a tough call,” he said. “Someone coming in with an MRI machine and taking away paying patients could really hurt a small, rural hospital.”

Medicaid expansion was expected to significantly shift arguments surrounding COPN, and Sickles, who’s submitted numerous bills on the program, said it has — to some extent. With more insured patients, it’s harder for hospitals to argue that they need protection from the burden of providing charity care. But many have shifted to arguing that Medicaid reimbursements still don’t fully cover the cost of services.

“The problem is, we need another way to finance hospitals,” Sickles said. “Because if you take away their highest payers and they’re living on Medicare and Medicaid patients, we’re going to have a problem.”