Northern Virginia has experienced strong and consistent population growth over the past decade. Loudoun County grew more than any other county in the commonwealth over the past three years and recently became Virginia’s third most populous county. A booming population has led to growth in Northern Virginia’s economy, with competitive markets developing in all manner of industries, save one: health care. A single provider that has developed a near-monopoly, Inova, dominates health care in region.
Monopolies are rarely, if ever, good for consumers, and this is especially true in the health care industry. Inova’s domination of the Northern Virginia market has not generated more services or lower prices. In fact, the opposite has happened: There are now fewer beds than in many urban areas. According to Virginia Health Information, there are only .54 hospital beds per 1,000 residents in Loudoun County. In addition, costs have increased. In a 2013 study published by the University of Arizona, Gautam Gowrisankaran, Aviv Nevo, and Robert Town found breaking up the multi-hospital Inova System would lead to a 7 percent market-wide price cut.
One of the main reasons Inova has been able to develop its monopoly is the protection offered by the state’s set of certificate of public need laws. Virginia is one of 36 states with certificate of need (CON) laws, and while CON laws are intended to slow the growth of health care prices, promote consolidation of health care providers, and limit duplication of services, they often create costly market inefficiencies that harm consumers and slow growth.
Virginia requires a certificate of public need for a wide range of expenditures, including construction and modification of health care facilities and the offering of new services, medical procedures, and inpatient care beds.
CON laws give inappropriate influence to competitors during government vetting processes. When a company applies to enter a new market, current providers often use the CON process to block potential competition. As a result, CON laws raise the price of medical care by preventing new medical providers from competing with existing hospitals. Several states, including Virginia, have undertaken efforts to limit or even repeal their CON laws. Inova has opposed these reforms.
Inova has benefited handsomely from a system that makes it more difficult for competitors to enter the market: The Thomas Jefferson Institute found Inova Health Systems had a 2013 net income in Virginia of $160,435,032. As a nonprofit organization, Inova often points to its efforts to provide health care to patients without insurance, a policy which should be encouraged. However, given the organization’s near-monopoly, the many tax benefits it receives through nonprofit status, and its high revenues, it does bear asking whether the tradeoff is worth it.
CON laws limit health care competition across the state and leave fewer options for everyone, especially the most impoverished. Virginia requires CON approval for 19 different medical services, devices, and procedures, higher than the national average of 14. Thomas Stratmann and Christopher Koopman of the Mercatus Center ranked Virginia’s certificate of need program as the nation’s 11th most restrictive. They found Virginia has 131 fewer beds per 100,000 people than does the rest of the United States. Virginia also offers fewer advanced health care services, including 41 fewer hospitals offering MRI services and 58 fewer hospitals offering CT scans, all resulting from the state’s CON laws.
Data from the Kaiser Family Foundation show health care costs are 11 percent higher in CON states than in non-CON states. States requiring certificates of need on 10 or more services average annual per-capita health care costs 8 percent higher than the $6,837 average for states requiring certificates of need for fewer than 10 services.
Virginia lawmakers should consider reforming the state’s CON program again to end burdensome regulations that increase the cost of health care while limiting access and benefitting only those with political connections.
[Originally published at The Fairfax Times]
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
