West Virginia’s CON con

Colin McNickle,

A battle royal has erupted in West Virginia. It pits free marketeers against monopolists.

More precisely, it pits enlightened state lawmakers seeking to reduce barriers to better medical care against health care monopolists seeking to preserve market share at the expense of patients, particularly the poor.

At the crux of the growing debate is Senate Bill 395, sponsored by Majority Leader Ryan Ferns, an Ohio County Republican. His bill would strip the West Virginia Hospital Authority of its sole remaining duty — riding herd over the Mountain State’s “certificate of need” program.

If a hospital wants to open a new facility or even offer a new service, it must go through the authority and prove there is a need, thus, as the authority puts it, “discouraging duplication” in “an orderly, economical manner.”

But as the Charleston Gazette-Mail recently reported, a legislative audit concluded the certificate-of-need process is ineffective at controlling health care costs and poses an unnecessary regulatory barrier.

Hospital types, of course, vociferously disagree. To wit, Gregg Warren, a spokesman for Wheeling Hospital in the state’s Northern Panhandle, dusted off the tried, failed and intellectually vapid talking points in defending certificates of need to The Intelligencer of Wheeling.

“It will harm employment, it will harm patient services and harm financial stability,” he said. “If you let outsiders come in and open similar services, it decreases the number of patients that come to us, (there would be) layoffs and health care dollars end up going to other states” where those unwelcome “outsiders” are based, Warren said.

Talk about monopolistic demagoguery fueled by abject fear of competition. Ironically, that competition would lower costs and better serve patients.

That fear pretty much is confirmed by Angelo Georges, M.D., Wheeling Hospital’s chief medical officer. He told the newspaper that when there are too many hospitals in an area that offer the same specialized services, then there aren’t enough patients for each hospital to remain proficient at procedures such as surgery.

“UPMC, for example, could build a hospital, UPMC of West Virginia,” Georges said, a reference to the Pittsburgh hospital giant about an hour away.

Again, the nub of the rub is exposed — a rabid fear of competition interfering with a state-sponsored monopoly that prevents competition.

Too much access makes patient costs rise, Georges claims. But West Virginia already has one of the highest growth rates for per-capita spending on health care, that legislative audit found.

Fundamental economics refute the contentions of Warren and Georges. So do the facts.

The Ferns bill, introduced Feb. 22, is based on the legislative audit, a report by the U.S. Department of Justice and, also, a study by the Mercatus Center at George Mason University in Fairfax, Va.

“The theory is that by restricting market entry and expansion, states will reduce overinvestment in facilities and equipment,” says the Mercatus study, published in June 2015.

“In addition, many states — including West Virginia — justify CON programs (as they are known) as a way to cross-subsidize health care for the poor. Under these ‘charity care’ requirements providers that receive a certificate of need are typically required to increase the amount of care they provide for the poor,” the think tank scholars note.

“These programs intend to create quid pro quo arrangements: state governments restrict competition, increasing the cost of health care for some and, in return, medical providers use these contrived profits to increase the care they provide to the poor.”

wvcon_small West Virginia’s CON con Fraud

But that’s not what really happens, the center found.

“(T)here is no relationship between CON programs and increased access to health care for the poor,” Mercatus researchers discovered. There are, however, serious consequences.

Such as, in West Virginia, 2,424 fewer hospital beds, between four and seven fewer hospitals offering MRI services and between 13 and 16 fewer hospitals offering CT scans, the study said, to name only three.

“For those seeking quality healthcare throughout West Virginia, this means less competition and fewer choices, without increased access to care for the poor,” Mercatus concluded.

Worse, a decade ago the Justice Department found that certificates of need promoted unfair competition between two Mountain State hospitals and enabled collusion between two others.

The very process of seeking a CON — onerous and expensive — was enough to prevent one hospital from seeking permission to offer a competing open-heart surgery program, a Justice Department attorney recounted in 2007.

And in another case, two hospitals used the CON process to carve up the market for themselves, Justice said. Competition was thwarted to preserve respective monopolies.

The Justice Department’s bottom line on certificates of need:

They “create barriers to beneficial competition,” the “original cost-control reasons for CON laws no longer apply”; “protecting revenues of incumbents does not justify CON laws”; such laws “impose other costs and may facilitate anti-competitive behavior”; and “CON laws lead to less competition and higher prices.”

Justice Department litigator Mark J. Botti was succinct in testimony before a joint congressional committee in 2007:

“Let me close by encouraging you not to accept without careful scrutiny claims that elimination of CON laws will visit significant harm on your state. We are unaware of evidence that those states which have eliminated CON laws have suffered such harm.”

In fact, Botti said, citing a number of studies, that “elimination of CON laws leads to improved markets.”

Pennsylvania’s certificate of need program was ended in December 1996. But about three dozen states continue to have a CON process.

Back to Sen. Ferns.

“We’re talking about a state-run agency that is determining when and where hospitals can spend their money and investment,” he told The Intelligencer. “Having the government artificially decrease competition leads to poor outcomes. Increasing it leads to improved outcomes and access to health care.”

That the West Virginia Hospital Association and its member hospitals openly support those poor outcomes and less access is shameful. Some might even consider it to be a violation of the Hippocratic Oath.

  • DrArtaud

    Some see UPMC as a monopolistic “hospital swallowing giant” that builds hospitals near existing facilities for the sole purpose of eliminating the competition, and there appears to be a concern that as UPMC builds new hospitals, it closes smaller community hospitals that are considered vital to those living there.

    Pittsburgh Hospital System, Insurer Price-Fixing: Suit

    aw360, New York (April 22, 2009, 12:00 AM EDT) — Pittsburgh’s dominant hospital system, UPMC, and the city’s dominant health insurer, Highmark Inc., have been conspiring to stifle competition, hike up prices and drive UPMC competitor West Penn Allegheny Health System Inc. out of business since at least 2002, according to a complaint filed by West Penn Allegheny.

    West Penn Allegheny Health System filed the suit against UPMC and Highmark in the U.S. District Court for the Western District of Pennsylvania on Tuesday.

    Forum: Stop the UPMC takeover of Children’s

    This community should be under no illusions about the ability and willingness of UPMC to use Children’s as a lever to injure and, if possible, destroy competing institutions

    UPMC seeks to build large facility near Jefferson Hospital

    Health system UPMC wants to build a hospital on about 80 acres in Pleasant Hills, less than a mile from rival Allegheny Health Network’s Jefferson Hospital.

    ……In a statement, UPMC spokeswoman Gloria Kreps said the system was “once again demonstrating its commitment to investing in our region’s communities” by building the facility “to serve patients closer to home.”

    ……The project is expected to create “hundreds of jobs in the region,” she said.

    …..“It’s a blatant, costly duplication of services,” said AHN spokesman Dan Laurent. “It’s a predatory action. The clear intent here is to weaken Jefferson and the other independent hospitals that serve the community.”

    …..UPMC’s bid for a new hospital nearby comes after Jefferson expanded its emergency room, added a number of medical specialties, such as neurosurgery, and invested $19 million in a maternity center, which opened in 2014.

    …..UPMC Health Plan already contracts with Jefferson to provide health care services, eliminating the need for another hospital in the area, said Louise Urban, Jefferson’s president and CEO.

    …..Plans for a new UPMC hospital raise questions about the future of the system’s McKeesport hospital, which is located in a town still smarting from the closure of a U.S. Steel plant in 2014….and….its daily newspaper, which closed in December…..But UPMC said it was committed to its hospital in McKeesport.

    …..In 2010, UPMC closed its Braddock hospital, then two years later opened the 156-bed UPMC East hospital about 6 miles away in Monroeville. UPMC East is less than a mile from AHN’s Forbes Hospital.

    “The parallels of what’s happening are clear,” Mr. Laurent said. “This isn’t about community need. This is really about UPMC’s ongoing drive to monopolize the market at the expense of other providers.”

    Overall, after hearing the news stories in Pittsburgh of UPMC (University of Pittsburgh Medical Center) over the years, and reading articles such as those above, offhand I’d say West Virginia’s Certificate-of-Need program is a good thing.