Senate committee rejects attempt to regulate hospital-owned insurance plans

Similar bills, which trace to a long-running dispute between Hampton Roads hospitals, have repeatedly failed in the General Assembly

By: - February 8, 2022 12:03 am

Sentara Heart Hospital in Norfolk. (Ned Oliver/Virginia Mercury)

For the fourth time in as many years, a Senate committee killed legislation aimed at resolving a feud between two Hampton Roads hospital systems.

The debate, though, extends beyond the region to all vertically integrated health carriers — a term for hospitals that own their own insurance plans. This year’s bill, sponsored by Sen. Chap Petersen, D-Fairfax City, would have required those hospital-owned plans to cover services from competing providers upon written request.

Sen. Chap Petersen, D-Fairfax City, speaks on the Senate floor last year. (Ned Oliver/Virginia Mercury)

The legislation stems from a long-running feud between Sentara, one of the largest hospital systems in Virginia, and Chesapeake Regional Medical Center, a locally controlled facility that’s one of the few remaining public hospitals left in Virginia. Sentara owns the health plan Optima, and Chesapeake has spent years complaining that the carrier excludes some of the public hospital’s medical services from in-network coverage.

Earlier iterations of the bill were more narrowly tailored to the dispute and would have required vertically integrated carriers to cover public hospitals under their in-network benefits. But the broader legislation filed this year reflects growing scrutiny of hospital monopolization by both state and federal officials. Sentara, specifically, has been the subject of complaints from both competing hospital systems and insurance companies, especially after threatening to cut off Medicaid patients covered under Anthem-owned plans.

“I understand it’s easy to see this as a Sentara-Chesapeake issue,” Curtis Byrd, the director of advocacy for Chesapeake Regional, told lawmakers on the Senate’s Commerce and Labor Committee on Monday. “But frankly, it’s a lot more, and it’s become a lot more about policy.”

One ongoing question is whether hospital-owned plans purposefully direct consumers away from competitors or offer lower reimbursement rates than they extend to their own facilities. Contracts between insurers and hospitals are considered proprietary and aren’t publicly reported in Virginia. But a 2016 report from the Joint Legislative Audit & Review Commission, a legislative watchdog group, found they could present a problem, particularly for vertically integrated carriers that offer plans on the state’s Medicaid exchange.

Petersen’s bill would have prohibited the practice, often known as “tiering.” But some of the state’s largest hospital systems argued the requirements of the legislation would put them at a competitive disadvantage compared to major out-of-state insurance plans — including Anthem — that don’t operate hospitals in Virginia and aren’t included under the bill.

“If this was really an improvement, it would apply to all carriers,” said Anna Healy James, Sentara’s vice president of government and community relations. Lobbyists for Inova and VCU Health, which also own their own health plans, similarly spoke against the bill.

The measure was also opposed by the Virginia Association of Health Plans and the Virginia Hospital and Healthcare Association, two of the state’s most powerful lobbying groups. Opponents have long argued that vertical integration is better for patients, making medical service more seamless and preventing bill disputes between hospitals and insurers.

“VHHA is opposed to this legislation and any legislation that regulates vertically integrated carriers,” said Julie Dime, the vice president of government advocacy for the hospital association. “This is an alignment to better coordinate on quality, patient care and cost.”

Committee lawmakers largely agreed, rejecting the bill on a bipartisan 11-3 vote (Sen. Tommy Norment, R-James City, abstained). At least one member, though, was frustrated that the state still didn’t have a clear picture of anti-competitive practices among hospital-owned plans.

In 2018, legislators directed the state’s Health Insurance Reform Commission to study vertical integration after killing a similar bill. But the report didn’t address the issue of tiering, according to Sen. Steve Newman, R-Bedford.

“I’m really disappointed that HIRC still hasn’t done what we’ve asked them to do,” he said. “Someone should look at what the delta is between what these companies are paying themselves and what they’re paying others. Because we just don’t have the answers.”

In response to Newman’s concerns, lawmakers voted to send a letter to the state’s Joint Commission on Health Care, another legislative research group frequently assigned to analyze debated policies. The House of Delegates is also carrying a similar bill, but it has yet to be heard in committee, making its future uncertain.

Whether submitted in the House or the Senate, legislation must pass a full floor vote before it can carry over to the opposite chamber. Lawmakers have until Feb. 15,  commonly called the crossover deadline, to pass bills out of their respective chambers.

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Kate Masters
Kate Masters

Kate grew up in Northern Virginia before moving to the Midwest, earning her degree in journalism from the University of Missouri. She spent a year covering gun violence and public health for The Trace in Boston before joining The Frederick News-Post in Frederick County, Md. Before joining the Mercury in 2020, she covered state and county politics for the Bethesda Beat in Montgomery County, Md. She was named Virginia's outstanding young journalist for 2021 by the Virginia Press Association.