West Virginia Bill Would Remove Government Reviews of Hospital Prices

Published February 26, 2016

A bill to strip the West Virginia Health Care Authority (HCA) of its power to review the prices hospitals charge patients has passed the state’s Senate and is now being considered by the House.

Under current law, HCA’s rate-review system “extend[s] to all hospitals” in West Virginia. Senate Bill 68, sponsored by state Sens. Ryan Ferns (R-Ohio County) and Tom Takubo (R-Kanawha County) would amend the state code so that “the jurisdiction of the board or authority as to rates for health services care ceases to exist.”

The House referred SB 68 to the chamber’s Health and Human Resources Committee on February 8.

Approximately 75 percent of West Virginia’s payer mix is subsidized by the federal or state government, Takubo told Health Care News. The prices HCA reviews are components of private contracts. 

“These contracts are negotiated based on market demand, so this is a really outdated, unnecessary mandate that costs hospitals $40,000 to $60,000 per year to collect data that nothing is done with,” said Takubo, a practicing pulmonary and critical care physician. “This money can be better used for community programs or other needs of the hospital.”

Merger Jeopardized

Passing SB 68 could save hospitals money, but the bill could influence the outcome of a merger that’s currently being contested between Cabell Huntington Hospital, Inc. and St. Mary’s Medical Center, also in the City of Huntington. Takubo says he supports the merger.

Stripping HCA of its review powers could jeopardize the merger because the same board authorized to review hospital billing rates, HCA, is empowered to grant certificates of need (CONs). Health care providers must obtain a CON before “adding or expanding health care services,” buying expensive equipment, or “developing or acquiring new facilities,” the HCA website states. Cabell applied for a CON in 2014 in order to finalize its acquisition of St. Mary’s.

In a brief filed prior to its CON hearing, Cabell emphasized HCA’s rate-review system would ensure the hospital would not gouge consumers after the merger, The Herald-Dispatch (Huntington) reported. If HCA loses its power to review Cabell’s billing rates, HCA may reject Cabell’s CON application altogether.

Stiff-Armed Competition?

The U.S. Federal Trade Commission (FTC) opposes the merger, and it filed an administrative complaint on November 5, 2015, stating the acquisition “is likely to substantially lessen competition for healthcare services in Huntington, West Virginia.”

Steel of West Virginia, Inc. (SWV), recognized by HCA as an “affected party,” opposed the merger at a December CON hearing, objecting it would reduce competition in the region, lead to price gouging, and harm consumers, The Herald-Dispatch reported.

Takubo disagrees with SWV’s conclusion. He says there are enough health care facilities in the region to encourage competition even if the merger proceeds.

“The Huntington merger would likely be beneficial to the region,” Takubo said. “I understand the arguments by the FTC, but that area has hospitals just across the river, as well as [Charleston Area Medical Center] that is only 30 minutes down the road, so I believe there is ample competition in this region.”

CON Laws vs. Competition

The real threat to competition among health care providers is West Virginia’s CON laws, says Jim Shaffer, president of the Public Policy Institute of West Virginia.

“[West Virginia is] a very rural state, and wherever we can get a doctor or someone that’s willing to put up a business that will provide health care in a more efficient manner, we should stay out of the way and let the markets dictate how that’s done,” Shaffer said. “If market forces are allowed to operate, free from the restrictions of CON laws, the state’s health care system will run more efficiently.”

The same CON-related problems arise in all 36 states with CON laws, says Mercatus Center scholar Thomas Stratmann, university professor of economics at George Mason University. Stratmann has authored or coauthored numerous studies on how CON laws influence indigent care, radiology, and other health care services.

“When there is less competition, prices tend to be higher and quality of products and services provided lower,” Stratmann told Health Care News. “CON laws insulate existing medical providers from competition by setting up barriers to entry. Thus, there is no reason to believe the CON laws will keep the quality of care high. If they affect quality at all, they will tend to lower quality of care.”

The bills to reform West Virginia’s CON laws were filed in each chamber on February 2. Takubo says he plans to offer a substitute bill to repeal “all except what involves state tax dollars for the time being, but really would not be opposed to a complete repeal.

“There is little that would tickle me more than to repeal our state’s CON,” Takubo said.

Luke Ferree ([email protected]) writes from New York, New York. Michael Hamilton ([email protected]is The Heartland Institute’s research fellow for health care issues and managing editor of Health Care News.

Internet Info:

Christopher Koopman, Thomas Stratmann, and Mohamad Elbarasse, Certificate-of-Need Laws: Implications for West Virginia, Mercatus Center, June 2, 2015: https://heartland.org/policy-documents/certificate-need-laws-implications-west-virginia

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