by James C. Sherlock

I have been asked to give examples of the corruption of administration of the Certificate of Public Need (COPN) law and show how it has created and supports regional monopolies. I have chosen as my example COPN Planning District 20 which is my home area of south Hampton Roads, the cities of Norfolk, Virginia Beach, Chesapeake, Suffolk and Portsmouth, home to more than 1.2 million people.

Sentara Health and its massive vertically integrated health system thoroughly dominate this area and the COPN process here.

Sentara has five general hospitals in south Hampton Roads: two in Norfolk, two in Virginia Beach and one in Suffolk. Portsmouth’s hospital is Bon Secours Maryview. Bon Secours also operates DePaul hospital in Norfolk. Chesapeake’s general hospital is state-chartered Chesapeake Regional Medical Center.

Bon Secours and Chesapeake Regional combined have lost money for years on their hospital operations here while Sentara hospitals have operated at double digit margins. In 2017, Sentara’s five hospitals made 87% of the operating revenue of the entire corporation.

It is those profits taken from overcharging patients that fund vertical integration and scale. I just opened the Sentara website and it announced that Sentara has 268 locations of care near my home Virginia Beach. Sentara’s captive HMO and insurer Optima is powerful in Hampton Roads and makes life difficult for Sentara competitors. Sentara controls a large percentage of referrals through its massive network. Bon Secours and Chesapeake have been starved of the money to compete.

The 2008 COPN scandal of which I wrote earlier awarded two hospital certificates to Sentara and denied three parallel applications of Bon Secours on the same date. That decision sealed the Sentara monopoly here and ensured the fiscal distress of Bon Secours. The Health Commissioner in 2008 went to the job from Sentara. She announced that she had recused herself from the decision. The most consequential decision in COPN history was announced by her deputy.

Shocked, the General Assembly actually changed the COPN law after this decision to encourage the Commissioner to consider “the extent to which the proposed service or facility fosters institutional competition that benefits the area to be served …” [1] The irreversible damage here had already been done.

I have assessed data from the records of the COPN program from 2001 through 2018. The results below confirm its absolute control by Sentara in south Hampton Roads.

The data show Bon Secours and Chesapeake Regional have been largely blocked by COPN from expanding in the businesses Sentara most covets – hospitals, ambulatory surgical centers, imagery centers and highly complex (and profitable) services. Riverside has tried to expand to south Hampton Roads with surgical centers and has been denied certificates to do so.

Another facet of these data is the lack of applications from physicians other than eye surgeons wishing to establish their own surgical or imagery centers. Such projects costs about $100,000 to prepare and six months to a year to go through the application process. History tells them that their applications will be rejected. So, for years individual physicians have petitioned their state representatives for special bills exempting their projects from the process. Many such bills were introduced, but few if any passed.

COPN application decisions in Planning District 20, 2001 – 2018[2]

Sentara

Applications: 61. These include a new general hospital in Virginia Beach, expansion of a general hospital in Suffolk, a long-term acute-care hospital, a mini acute-care hospital in Suffolk, four outpatient surgical centers, and three imagery centers

Approvals: 58

Denials: 2 (outpatient surgical centers)

Recommended denials by Virginia Department of Health Division of Certificate of Public Need (DCOPN) staff: 14

Withdrawn: 1 (outpatient surgical center)

Chesapeake Regional Medical Center[3]

Applications: 13. These include an outpatient surgery center, two imagery centers, and open-heart surgery services

Approvals: 9

Withdrawn: 3 (two imagery centers and introduction of stereotactic radiology services )

Denials: 1 (open heart surgery services)

Recommended denials by DCOPN staff: 3

Bon Secours[4]

Applications: 26. These include establishing four hospitals, open- heart surgery services, an outpatient surgical center and two imagery centers)

Approvals: 19 (no hospitals

Withdrawn: 1 (new hospital)

Denied: 6 (all new hospital applications, two outpatient surgical centers, center for MRI imaging, center for radiation therapy)

Recommended denials by DCOPN staff: 11

Riverside[5]

Applications: 7. These include five outpatient surgical centers and two mobile sites

Approvals: 2 (mobile imagery)

Withdrawn: 1 (outpatient surgical center)

Denied: 4 (all outpatient surgical centers)

Recommended denials by DCOPN staff: 3

Decisions for medical facilities that don’t compete with Sentara

Children’s Hospital of the King’s Daughters: all approved

Eye surgery centers: all approved

Nursing home establishment and expansion: all approved

Psychiatric bed expansion: all approved

Commissioners overturn DCOPN staff recommendations

Staff recommended denial / Commissioner approved: 20 times (Sentara 12, Bon Secours seven, Chesapeake one)

Staff recommended approval / Commissioner denied : 4 times (Bon Secours, Chesapeake, Riverside two)

You can see above that Commissioner overturned the recommendations of the professional staff of the Division of Certificate of Public Need (DOCPN) in Sentara’s favor 12 times in just 61 applications and sustained denials only twice resulting in a 95% Sentara approval rate. Those overturn decisions by the political appointee were worth billions of dollars to Sentara.

Attorney General Herring owes the people an investigation to see if laws were violated. He should ask the Justice Department to participate, as they bring to bear the much stronger penalties of federal law including RICO. Start with staffers who were present.

The General Assembly and the Governor need to look at these results and understand that the current system has been corrupted because it has a single politically appointed decision maker. If we must have COPN, then it should be administered by an independent regulatory agency on the Maryland model[6]

James C. Sherlock, a Virginia Beach resident, is a retired Navy Captain and a certified enterprise architect. As a private citizen, he has researched and written about the business of healthcare in Virginia.

[1] Code of Virginia § 32.1-102.3

[2] COPN Monthly Report October 2019

[3] Chesapeake Regional simply does not have the resources to attempt to expand more than with its applications represented here.

[4] Bon Secours has tried for years to expand enough to make its operations profitable in south Hampton Roads. It just can’t get certificates approved.

[5] Riverside tried five times to establish a foothold in south Hampton Roads and was denied each time.

[6] https://mhcc.maryland.gov

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