 As a university-based research center, the Mercatus Center's mission is to bridge the gap between academia and public policy by advancing knowledge about how markets work to improve people's lives. We look to achieve this by conducting research and applying economics to offer solutions to society's important problems that we face both at the federal and the state level, like we're going to be doing here today. It's in the spirit of this that we're hosting the event today to provide you with a robust and diverse dialogue about the issues of certificate of public need reform. We hope to give you a wide-ranging picture of the trade-offs that different stakeholders face and an overview of the research that we've done on this important issue. I'm sure there are panelists that they might not have all the same perspectives on everything that we'll be discussing, but we'll believe that engaging in an honest and open dialogue will better help you consider the available alternatives that you guys face. I hope that whatever your organization's affiliations are that you consider us a valuable resource when evaluating this or any number of other issues that our researchers are working on, and on your way out, if you haven't already, there's literature available to you that discusses some of the work that we've done on this specific issue. It's my job today, and I'm pleased to introduce the moderator for today's event, Mr. Chris Saxman, as a retired member of the Virginia House of Delegates representing the 20th District from 2002 to 2010. Delegate Saxman served on a number of committees, including agricultural and natural resources, transportation, and the House Cost-Cutting Caucus, a bipartisan group that works to fund cost savings in government. He's very familiar with the process policymakers have to go through when evaluating various tradeoffs, which is what we hope to help you do here today. In addition to his work in the General Assembly, Mr. Saxman is an active member of the community and serves on the State Water Commission, the Virginia Schools for the Death and Blind Advisory Commission, and the Board of Trustees for the Frontier Cultural Museum, and Blue Ridge Area Food Bank. Not only is he familiar with the process that policymakers have to go through, he's also a really good person, so we're glad to have him here with us today. At least that's what the Internet tells me. But I've met him so far, and it looks like that's true. So without further ado, please take it away, Mr. Saxman. No, I'm going to leave on being called a nice person. Kids at home might disagree with that construct. But it's nice to be with you all, having served in the General Assembly for eight years and really enjoyed the policy work. I can tell you that sometimes the easy work is trying to figure out where we're going to find the best foot forward in changing some of the laws that go in our lives. And I'm going to tell you, I'm going to take a little bit of license here, if I may, and how this one in particular, this particular issue, COPN certificate, need impacts families and individuals. Because while we can talk about policy all we want to, it's really about people. And health care policy in particular has dominated our domestic politics for quite some time, usually since 2008. But why this one matters to me personally, and I think it's important to keep in mind that whatever you come up with at the end of the day, whatever policy changes come at the end of the day in April with the governor's veto, amendment, signature, whatever. Translating it back home for the legislators is the critical part. Because if they can't go back home and say, I made your health care better, or I made your health care less expensive, or I made it better and less expensive, it's not going to happen. There's just going to be a roadblock because they have to go back home and sell it. By definition, and there's no disrespect to my former colleagues in the room, by definition, most legislators are not leaders, they're representatives. They represent the collective thought of their districts, first and foremost, that's why they're there. So this little anecdote, I know it's an anecdote, not data, I think is instructive at least for me because I come from part of the state that would probably be more adversely impacted from the changes in COPN from rural Virginia to Shenandoah Valley. My mother on December 1, 2013 had a stroke, bad, which she ended up passing away six weeks later. She was in Highland County entertaining friends at lunch, I already noted, and they called the rescue squad, which in Highland County doesn't arrive in five minutes. They get the call out in five minutes, then they go to the rescue squad, and then they come out to your phone. And they realized she was in pretty bad shape. And they called for a helicopter ride, which in the Shenandoah Valley, we all love Pegasus. Unfortunately, when you see it flying in to pick up your mom, it's hard. So thankfully, I didn't have to experience that my father did. So we're talking about real stuff. And she was airlifted to the University of Virginia Hospital. She wasn't going to operate on Highland County. She was operated on at the University of Virginia and received outstanding medical care, outstanding medical care. And she improved greatly, so much so that discharged her to a step-down unit at Augusta Hospital, where she did not receive the quality of care you would want for your mother. This is real stuff. This is real people being impacted by the decisions that we are making here in the stratosphere of policy. At the end of the day, it's going to be brought down to people levels. And when you're talking about my mother's health care and my father's health care and my daughters and our sons, it's impactful. So these are really important issues to not only discuss in policy but also in politics because it has to be translated down to that granular level so that the politicians you're asking to change the law can feel comfortable enough to explain it back home in the flow of everything else that impacts everyone else's daily lives. And it's not easy. It's not easy. Yeah, you've got to fit it on a bumper sticker. At the end of the day, it has to be five words or less. Because no one trusts government to make a decision on health care right now. I'm going to lay that as a construct, okay? The U.S. health care system is as complex as it is crucial. So some of that complexity known as certificate of need or as Virginia refers to it's certificate of public need, this law requires providers to obtain approval from a state board before expanding their operation, opening a facility, offering a new service and sometimes just purchasing new equipment. In 2015, the General Assembly's Appropriation Act called for the formation of a work group to review the state certificate of public need program and its impact on access to health care. The group was also tasked with exploring the need for changes to the current COPN process. Today's discussion will cover these issues that the COPN work group has been dealing with and offer various perspectives on these issues by our guests. Today, we are joined by Jamie Baskerville-Martin, I'm far left, non-voting advisor with the Virginia COPN work group and attorney at McCandlis-Hulton. Welcome, Jamie. Brent Rawlings, Vice President and General Counsel of the Virginia Hospital and Health Care Association. To his right, Thomas Stratman, a scholar at the Mercatus Center and university professor of economics at George Mason University. And finally, to my immediate left, Christopher Cootman, a research fellow with the Project for the Study of American Capitalism at the Mercatus Center who, along with Dr. Stratman, has produced some research on this important issue. First question will go to Ms. Martin. Can you describe for us the task of the COPN work group, what motivated its creation and what issues have you been considered? Absolutely. Thank you for the question and thanks to the Mercatus Group for sponsoring this very timely conversation. I will answer that in specifics, but I also really like your introduction because I think what it shows is that even though sometimes we have to talk in sound bites, I think many of us realize that health care really exists in a gray space, that health care exists, health care policy exists in a gray space and that there are not black, white, yes, no, right, wrong answers. So I think although we hear a lot about certificate of public need, is it a bar to competition? Does health care exist in the free market? I think what's been interesting about the work group, and I'll get into detail on that, is really how much the work group has grappled with data and with research and with discussion from the beginning, from our first meeting until I first, to currently, where really there has been a really engaged discussion about these complexities. And I think the fact that there are so many people here and that there is such an intense level of discussion really reflects that people recognize it's a very complex issue, both at the academic level and when it hits your mom or your grandma or your brother or your newborn baby. And I think that's why it's become such a hot topic and I'm very grateful for all of you for participating. Back to your actual question, my name is Jamie Martin. I'm an attorney with McAllish Health and I'm in private practice and I've been in private practice for almost 20 years, I'm exclusively representing, exclusively in the health care field. I represent hospital, physician groups and other health care providers in regulatory and transactional work. So there was an item in the 2015 Appropriations Act through which the General Assembly directed Secretary of Health and Human Resources, Bill Hazel, to establish a work group to study various issues regarding the Certificate of Public Need Law and to provide a recommendation to various House and Senate committees by December 1st of this year. That action, among other things, mandated the work group composition and stated that it should be composed of providers, consumers, representatives of business and industry, among others. And the result is that we have a work group of 16 members. The chair is Eva T. Hardy, who is a former Dominion Resources Vice President and also I think back in the 80s, early 90s, Secretary of Health and Human Resources. Secretary Hazel, who you probably know is also an orthopedic surgeon by training and practice, is an ex-officio member. I'm the non-voting advisor and then the rest are representatives of hospitals, long-term care providers including nursing homes, physicians, the payer community, free clinics and representatives of business and industry. The scope was set forth in the item in the Appropriations Act itself and you all can go online and read that and I won't bore you by reading it line by line. It's about this long. But in brief, there were enumerated items that asked for the process for the review and the criteria for review of Certificate of Public Need applications, the fees that are charged in that process, an assessment of the frequency of the approval and denial of Certificate of Need applications, the impact on the establishment of certain healthcare services, specifically noted were open heart surgery, neonatal intensive care and inpatient beds, the impact on charity care and how charity care is enforced, et cetera, impact on graduate medical education which as you probably know is a key issue for academic medical centers. The role of regional health planning agencies in the timing of the state medical facilities plan updates for those of you who are not in the weeds on Certificate of Public Need, the state medical facilities plan is a document in Virginia's administrative code that sets forth with more specificity than the code itself, various standards and thresholds for the review of those endeavors that are subject to Certificate of Public Need authorization. Okay, what are the takeaways so far from what you all have been able to accomplish or where are you now? It's been a really interesting evolution. We have had four meetings, one in July, August, September and then most recently last week at the end of October. And the secretary deserves great credit for really providing a lot of education on this topic. So when we first started out, I think many people had really been in the weeds on CON and had a lot of opinions, either pro or con. And then there was also a group who sort of, who had some familiarity with Certificate of Public Need but had never really been deep in the process. And so we have had a number of speakers that I think were intended to give a lot of education to the work group, the background of Certificate of Public Need, prior efforts successful or not at reforming or repealing the program. The impact of Certificate of Need, as it's called most age or Certificate of Public Need, as it's called in Virginia, on the delivery of healthcare services of various levels, information on charity care, a comparison of other states' COPN processes, how long they take, what is reviewed, what are the components of that review, and also some good education on the state medical facilities plan and the process for updating. As this has evolved, I think we have really seen the group be very interested in some of the research and in some of the options for reforming the process. And that discussion has continued throughout. There are some folks who still are very concerned that Certificate of Public Need is an inappropriate barrier to full free market activity in healthcare space. There are some folks who fear that repeal or a significant curtailment of the scope of what's subject to the Certificate of Public Need law could impact safety net hospitals or could really restrict or impair access to certain needed services, as well as folks who think that a proliferation of certain particularly complex services would adversely impact the quality of care. So we've had a lot of discussion about that as a policy matter. We've also had a lot of discussion about the process. And here I bring you back to the charge of the General Assembly, where we really are tasked with looking at different processes. And a lot of the concerns that we heard were this process takes too long. It's allegedly longer than other state's processes. It's too expensive. It's too imprecise in its outcome. Information is hard to come by and charity care enforcement is either opaque or nonexistent. So that discussion has evolved to various levels of information, questions and enthusiasm over the first three meetings. We really became much more focused in our last meeting, which is last week. Joe Hilbert with the Secretary had issued a documental draft recommendations. It was broken down into seven categories. The first six were, as a lawyer, I tend to divide things into substance and process. And the first six were clearly what I would say are very process oriented. How do we look at letters of intent? How do we make information more transparent and more available? What sort of certificate of public, what sort of information do we ask for in forms? How much do we ask for an application? And at this last work group meeting, we got through as a group, I think a very thorough and vigorous discussion on six of those topics. Again, all of them very process oriented. And I would say the group reached consensus on really some significant points to change the program. This is where you wanna take notes, Gilles. I'm almost done, so you can talk to me. No, no, no, I want them to take notes. This is an important part. They love consensus. Well, and I think that there was really a recognition that we could make the process more transparent, that we could really improve the regulatory structure to make it more responsive to what health planning is supposed to respond to, that we could make the process more transparent. The seventh topic was really what I'd call a blend of substance and process. And that seventh topic included some recommendations for the committee's consideration on potential either exemption or curtailment of the scope of what is currently subject to Certificate of Public Need Authorization. The meeting, just for some background, was scheduled from one to four. This topic, regrettably, we finally reached topic seven at about 350. And so with the scheduled adjournment and with some scheduled conflicts for some members of the work group who were very key to that discussion, we did have some discussion on those points, but in the end, we felt that the better due process would be achieved by moving that discussion to our next meeting. I should back up also and say that in addition to the substantive discussion on should we deregulate certain services within COPN, should we exempt certain services? There was also vigorous discussion about whether it was even within the scope of this work group's charge to recommend repeal of certain elements of the definition of project under Certificate of Public Need. So basically, was it within our scope to issue a recommendation on substantive deregulation? So those were sort of the two topics that we ended with. And because I think those are really key and people have very strongly held opinions, we did decide to move that discussion to our next work group meeting, which is November 16th from one to four. It's in House Room D. And like all of our meetings, it is open to the public and we welcome your attendance. Okay, thank you, appreciate that. Brent Rawlings, what are the top concerns for your industry? What questions were your members have from this group's review? Well, the first thing I'll start by saying thank you, the Mercatus, for inviting the hospital association to participate. At one point in time, I saw some of the work by Mercatus and reached out to Professor Stratman and expressed our interest in having a conversation about it. And so they're kind enough to invite us here and I really appreciate that. With respect to the issues that hospitals and health systems are most interested in, one thing I'll say as a starting point is that the hospital association advocated for this work group to be put into place last year coming out of session because there was not a lot of consensus around these issues. And so we're pleased to see the work group underway making good progress. And we really do hope that there will be meaningful reforms coming out of this, recognizing that it is a cumbersome process that has been in place for a long time. And when that happens, it's always difficult to unravel some of the challenges that you face with it. One of the things I wanted to talk about today though was to, in answer to your question, Chris, is to try to talk about some of the policy rationale behind Certificate of Public Need Law. And I think that is a way to start the dialogue and to think through some of the issues. And with Certificate of Public Need, at one point in time, the policy rationale behind Certificate of Public Need was cost containment. And this was at a time when hospitals were reimbursed based upon their costs. So if they put up a facility or add equipment, they would be reimbursed for their costs. And so there was a built-in incentive in our healthcare financing system to spend. And so back in the 70s or 80s, Certificate of Public Need laws were brought into play to help to restrict and confine some of that spending. Well, as we all know, cost-based reimbursement has gone away. So one of the primary policy rationale for Certificate of Public Need went away as well. But in addition to that, we also know that a majority of states retain Certificate of Public Need laws or Certificate of Need laws on their books. And so we have to ask ourselves, what is the policy rationale that those states, including Virginia, have? And I think in Virginia, the policy rationale is pretty simple. We want a sound healthcare delivery system in our state. That is the underlying policy rationale. And one of the things that we focus on is access to essential healthcare services. And this includes access to care for the indigent, access to care for Medicaid recipients. We look at things like teaching hospitals and medical education and making sure that we have adequate supply in our healthcare workforce. And we also delve into, some of the law delves into maintaining competency and quality levels at our healthcare facilities. So this policy rationale is the underlying policy rationale. And you can see that if you actually look at the statute, you can see that policy rationale spelled out and I'll quote some provisions from the statute. The extent to which the proposed service or facility will provide or increase access to needed services for residents of the area to be served. Quote, the financial accessibility of the project to the residents of the area to be served, including indigent residents. The extent to which the proposed service or facility fosters institutional competition that benefits the area to be served while improving access to essential healthcare services for all persons in the area to be served. There's also language that delves into looking at whether or not the project provides improvements or innovations in financing and delivery of health services as demonstrated by introduction of new technology, promoting quality and cost effectiveness. And there's also a consideration around the unique research training and clinical mission of the teaching hospital or medical school and contributions the teaching hospital or medical school may provide in the delivery of innovation and improvement in healthcare for citizens of the Commonwealth. So those policy rationale that I described are actually baked into our statute and it's part of the review process. One question might be whether or not these policy goals are being achieved by the way that the law actually functions and I think that's a lot of what the COPN process group is about is to see are we really achieving those policy goals and the secretary when he started the group set sort of set out as part of the charge evaluating whether or not what are the policy goals we have and are we meeting them with that law, with this law and I think that's an important consideration. So you can see those policy goals built in there. Certificate of public need does not grant a monopoly to any particular provider. What it does is it favors those that are best situated to help the state meet its policy goals. This is the policy tool we have in place for these things. One thing I also just want to mention the work by Mercatus that Dr. Stratman will talk about here in a minute, I commend them for doing that because I think it's very important that we try to bring in as much data and analysis into the evaluation of policy as possible and I think this is a great start. In response to some of the findings in that study I just wanted to touch on them because I do think that they relate back to some of the policy points. One of the things that the Mercatus Institute looked at is this issue of cross subsidization which is a policy rationale. It doesn't fit on a bumper sticker like free market. It's less than seven words but cross subsidization is kind of a confusing concept. The concept that is discussed in the Mercatus work is the idea that these laws create a monopoly that then allows hospitals to fix prices and raise up those prices so they can pay for the indigent care but there is not an ability to fix prices in this market. We do not have price control. The majority of our prices are set by government payers including Medicaid and Medicare that pay well below costs so that concept I don't think applies in the way that hospital financing works today but I do believe the cross subsidization does play a role and we just treated it a little differently. We look at cross subsidization in terms of how it works at a systems level and we look at that idea of basically you know that within a system you will have profitable services and you will have unprofitable services and those profitable services help to subsidize within the system whether it's a hospital or a health system help to subsidize those unprofitable services and there is some evidence of that in the peer reviewed literature around that cross subsidization occurring and that you know that demonstrates when you have specialty providers coming in that focus on profitable services that does result in a curtailment of the unprofitable services at the existing providers and so that we do believe that cross subsidization exists that's a big rationale as to behind why hospitals and health systems are so concerned with that issue because it does affect our ability to make sure that we have these essential health services in our communities. Another issue that the Mercatus work touches upon that I also wanted to address is indigent care. With respect to indigent care in Virginia you don't have to go very far to find evidence of whether or not the COPN law induces indigent care. We have part of our law is that the state can impose a condition upon hospitals upon physicians whoever it is that receives that certificate of public need and obligate them to provide a requisite amount of charity care and so for fiscal year 2013 according to the Department of Health statistics 1.34 billion was provided in meeting charity care conditions, 34.8 million of in kind donations to safety net clinics. So all told about a billion and a half dollars in 2013 accounted for charity care conditions that is going to provide indigent in the state. And then just the last thing I'll mention is about access to care. And a lot of the work that Mercatus did looked at national data around the impact of these laws on hospital capacity in MR and CT and Dr. Straven and I have communicated about this and we basically, we don't see a capacity shortage in Virginia, we've got an average capacity in Virginia for hospital beds about 56%. There are a couple of hospitals that have access over 80% but each of those hospitals has another hospital with open capacity within a 15 mile drive. And so we don't see the capacity issues and the same thing with MRI and CT, hospital MRI and CT, every hospital in Virginia with the exception of a couple of critical access hospitals have MRI and same thing with CT. We're not at the same, we're not at the national levels for the capacity that we have but our capacity is different and maybe that suggests that some aspects of our COPMR are working pretty well making sure that we don't have excess capacity. Real quickly, what's the breakdown though between your members? How are you, what are your members telling? What are our members telling us? Well, there's a lot of variation in sort of how our members approach these issues because they're all impacted differently. You have some members that are in urban areas, you have some that are in rural areas, you have some that are part of large systems, you have others that are independent hospitals and they're all affected differently and they all have different access to resources and how these laws affect them just differs based upon their operations. And so by and large, I think there's great consensus that we need to take a close look at this law and try to reform it and improve it. Okay. Dr. Stratman, can you describe your research and how it informs the debate on COPN laws in the Commonwealth? Thank you, I'm glad to. First of all, thank you very much for the caters to inviting me to share our research results and findings. And we started out working on this issue about one and a half to two years ago and looked at the academic literature that was out there and we found that the literature has some very mixed findings with respect to the benefits of CON laws and also most of these studies are fairly old. So we decided to take a fresh look and so for that purpose, we have compiled several data sets on CON laws nationwide, including Virginia and developed a research agenda looking at these type of issues. So we have a total of three papers eventually. Now let me talk first of all about the first paper relatively briefly that was just mentioned in the previous comments and there we're looking at whether CON laws limit the provision of medical equipment and specifically we're looking at MRI machines, we're looking at CT scanners and we're looking at hospital beds. So what we, for each of those different laws, for each of these laws specifying whether MRIs are regulated or not, whether hospital beds are regulated or not, we compared the number of hospital beds in states that regulate them, BSCON and that do not. And we adjusted of course for state population, the health of the state population income and some other socioeconomic characteristics. And when we did so and compared these differences we found that as was mentioned before, we found that specifically there are about 21% fewer hospital beds in states with CON laws. So that means for a population of about 100,000 there are about 99 fewer hospital beds or for a town with 100,000 people, that many fewer hospital beds. Now it's important to understand that just came up that this number does not necessarily mean that we have a shortage, the way maybe economists define it in that they say there is more supply than demand or more demand than supply. What our numbers mean is that without CON laws, most likely we would have more hospital beds, more hospital beds, even in a regulated market like healthcare we would get more competition and ECON 101 tells us that competition leads to lower prices, more competition leads to lower prices, higher quality and by lower prices and higher quality it's likely that the additional hospital beds would get filled. We also, as was mentioned, we're looking at MRI machines, the provision of MRI machines and again, we're finding that there are about 35% fewer hospitals with MRI machines in states with laws where you have to get permission as a medical provider to purchase that equipment. Now the upshot of these findings is that CON laws have a bite and they limit the supply of medical equipment and therefore, the availability of these services and that's something I'll get to in one second. And let me just say one more thing with respect to this first paper, we also looked at CT scanners and again, we found that there are significantly fewer CT scanners, hospitals with CT scanners in states with CON laws. Now one of the justifications of CON laws is that they are supposed to provide integer care or charity care. The idea is with CON laws, we're going to restrict competition, we're preventing entry into the market. With less competition in generally, we're going to expect higher prices, excess profits of those firms insulated basically from competition and the legislatures expected the hospitals and medical providers to provide charity care in exchange for these extra profits. So we said, well, let's see if this is in the data. So we compared states with CON laws versus non-CON laws, compared their charitable giving and we found no difference. It does not appear that there's more charity care in states with CON laws. Of course, Virginia may, it's definitely going to spend one billion, one billion, I forgot exactly what the number is, but again comparing Virginia or other states with CON laws to states without, there's no difference in between. And that was one of the expectations that there would be a higher medical, more services for needy people. Now the, so that was our first step and then when we talked about to people in the field, they mentioned to us well, CON laws are very important for the provision of rural care. Rural hospitals are in dire states in many areas in the United States and CON laws can help hospitals, rural hospitals to be insulated from competition. In particular, often people have specialty providers in mind like ambulatory surgery centers. And there the argument is that these ambulatory surgery centers are what people call cream skinning, skinning, sorry. So basically they're going to take the profitable patients while the rural hospitals are going to be stuck with unprofitable emergency services and other procedures. So we decided to take a look at this. This is forthcoming in the second paper. It's coming out in a few months. So first of all we saw two states with CON laws have fewer or more rural hospitals. And what we found is there are fewer rural hospitals. So there doesn't seem to be much to the justification that CON laws increase the number of rural hospitals or keep them alive because actually CON states have fewer rural hospitals. Moreover, then we looked at ambulatory surgery centers. And there are many states that regulate the entry of ambulatory surgery centers via CON laws. Again, we found many more ambulatory surgery centers in states without CON laws. And in particular states that had CON laws had fewer ambulatory surgery centers in the rural areas. So the upshot is what we find is without CON laws, more rural care provision, one through more rural hospitals, and two through more ambulatory surgery centers. Now our third paper in this research agenda looks at utilization. Utilization is an important measure for access of care because clearly if you would have zero access to medical care, you would have zero utilization. So we're looking at Medicare data because that's where the data are available for the entire United States. And again we look at different states with CON laws and without CON laws. And we find significantly lower utilization of MRI machines, PT scanners, PET scanners, and CT scanners in states that regulate these type of services. So less utilization and that can be perhaps interpreted as being less access to care. Now what do people do when they have less access to care in CON laws, in states with CON laws? We find that people actually go out of state. People migrate from states that have CON laws, to states that do not, and get their imaging service over there. That shows up in the data, in the Medicare data from 2013. If we can, we'll come back, hopefully come back to this topic, but if you had one takeaway, I'm gonna ask every panelist here, you're gonna have to put this on a bumper sticker for everybody in your audience, okay? I want you to come up with what you've been working on and put it in five words or less. Okay, I'm serious. I'm gonna go around, what's your bumper sticker, what's your bumper sticker, what's your bumper sticker? Cause this is five words, it's all you got. It's healthcare one. Virginia Healthcare Hospital Association, you're done. This is tough for a lawyer. Welcome to politics. So what's your one takeaway? CON does not promise what they, does not deliver what they promised. Doesn't deliver, doesn't deliver. Okay, okay. Moving along so we can get to the Q&A after this. Mr. Coopman, for those who are unfamiliar with the certificate of need programs, can you give us some background on them and some context for what is happening around the country on this issue? Sure. So I think it's important to understand the history of certificate of need to understand why these were put in place, I think Grant referenced this before, on why they continue to be implemented, but then also what's happening around the country right now. You know, this conversation isn't happening in a vacuum in Richmond, it's happening all across the country. To give you guys the historical context for all of this, certificate of need laws are an invention of the states, but their proliferation across the country is the result of federal policy. So the first certificate of need program was created in 1964 by New York State. The idea being it would help these regional or planning associations better plan the healthcare market in New York. Now again, there was a proliferation of capital investments as a result of the federal reimbursement procedures, and so the federal government in 1964 passed the National Health Planning and Resources Development Act, which essentially required states to implement a certificate of need program to get certain federal funding. So this essentially went from about 18 states in 1973 having a certificate of need program to every state in 1980 having one. So this is a product of the federal government trying to fix problems with policies and creating new problems at that. And so far as they thought it would control costs, all of the early studies in the late 70s, early 80s found it did not control costs, and by the mid 1980s the federal government repealed the requirement and said, essentially they had made a mistake and they were no longer requiring it. Now since then about 14 states in the mid 1980s have repealed their certificate of need program. Now leaving us with two thirds, 36 states approximately in the District of Columbia that continue to regulate healthcare in this way, essentially requiring facilities and practitioners to go get permission from a state regulator before they can enter a market, expand their practice or purchase certain devices or offer new services. Now over the past nine months, two thirds of the 36 states, so approximately 22 states have begun to wrestle with the idea of what does certificate of need or CON or COPN, what role does that play in the future of healthcare? In five states there are beginning to talk about the idea of repeal. And now this is, again it shows some consensus, but these are states as diverse as Michigan, Illinois, Mississippi, Florida and Maine have all taken up the idea, including the Obama administration is now even recently sending a letter, I believe to the work group saying that CON is not an efficient vehicle to achieve in cost control or the other goals that people have sort of attached to CON and that repeal may in fact be an adequate response to this. I think is what the DOJ, FTC joint saving set to the work group. So that's sort of where we find ourselves today. Now where does Virginia compare to the rest of the country? So there's 36 states that currently regulate healthcare services through CON. On average they regulate about 14 devices or services. Virginia regulates 18, so slightly behind the curve when it comes to the amount of healthcare being regulated with a certificate of need. And what does this mean for Virginia? I think, again these are national studies and we're using large national data sets to look at these issues. But as Thomas said, this means lower competition. This means lower rural care for example, our preliminary findings are telling us that in states that regulate healthcare with a certificate of need you find 36% fewer hospitals in rural communities. You find 15% fewer ambulatory surgery centers in rural communities. So this is really I think getting at the heart of how do we move into the future of healthcare in the United States. And I think a big reason why this has become an issue as of late and really a bipartisan issue is that for the past maybe 15 or 20 years people have relied on the federal government to sort of drive the conversation as to how healthcare policy will look in America. And as Washington has stagnated and I think all of us have witnessed that in some ways is that states are realizing and people in Richmond are realizing that it's high time that individuals in their state capitals can take their own destiny into their hands and decide for themselves what the future of healthcare ought to look like beyond let's say policies dating back to the early 1970s. It's not that long ago. I apologize. Oh, do you? No, before we get to the Q&A session I wanna go to your bumper stickers. And then what I want you to understand is that when you're in the legislature you're in the caucus meetings these bills come out of the HWI in the house Doc Bannon, great to have you with us. And in the Senate, Ed and Health no one else knows what's going on. They haven't been part of the conversations if they're not on Senate finance and house appropriations, subcommittee on healthcare they don't know. And they gotta ask, they ask a very simple question and they got 30 bills coming up that day and Chris and John and Kathy can understand this. They go, look does it help my constituents or hurt my constituents? Bottom line of form, right Doc? And we all go to Doc O'Bannon and say help me. I don't know, this is not what we do in county cities and towns, okay? So, what's your bumper sticker? There being one word here, so. So, that is healthcare colon is more always better, question mark. Colon? Well, healthcare colon. Thank you. Is more always better. But I'm fine, we got an healthcare. Very funny. You're welcome. Gonna keep it light, it's a light lunch. Healthcare. Is more always better, question mark. Is more always better. That's what you're grappling with, is more always better. Is more always better. I think that's the theme of what we hear here. But your work group, that's what you're dealing with. That's what you're, is more always better. You're questioning the whole system. Well, I can't say that that's the statement of the work group, but that is the statement that I do. Your view of the work group coming out, what's the bumper sticker? I think is more always better is actually a pretty decent one because I think we have been assessing whether there is an unjustifiable or unneeded bar to additional market entry. So I think healthcare is more always better, question mark is an appropriate summation of the work group's discussion. Okay. Next. She actually stole mine. So you're in cahoots, is that it? No, no. Well, the concepts are similar. I'm struggling a bit, but I think the, with all of the issues that we confront, hospitals and health systems, we're inclined to put patients first. And so it would be something along the lines of, No, no, no, not along the lines. I need a bumper sticker. It's got a slap on the back of a Toyota. COPN, it's about people. And we're talking about facilities. We're talking about businesses. We're talking about adding CTRs, MRIs and the real issues, some of the issues here are about access. What we're really talking about is about access and access is affected by economic. So your bumper stickers, it's about access. It is about access. I think it absolutely is. And it doesn't mean, and it doesn't mean building more hospitals. It doesn't mean building more beds. I mean, we're in the midst of transformation in healthcare delivery. It's about access. It's about access. Thank you. It's more better. It's about access. This is what we did. I'm trying to help me help you. It's about access. Okay. It's about access. I like that. Three words. Thank you. Just saying. You won. It's early. Trust me. Professor. CUN doesn't know deliver. Does not deliver. Sorry to the Stolly Dunham family. That was the opposite of her campaign slogan. The OBGYN, the one Walter Stosh's open seat. Dunham can deliver. So CUN doesn't deliver. Yes. Sick Dr. Dunham on you. So I think I would say something like, more healthcare, lower cost, year after year. You got it. You would fit on the back of your car. Maybe not on your Toyota. I'm trying to tell you that. Well, you said a Toyota before. That's what's driving around suburban America. It's a Camry. I mean, let's go with it. I think it's about more healthcare, more people, lower cost. That's what this all about. And it really is about people, right? And it's important to remember. Over across higher care, higher quality. More healthcare, lower cost. More healthcare? Yeah, to more people. Get healthcare. Oh, so not more utilization. I mean, if that's what people need, again, as our data points, people are leaving. So let me help you here. People are leaving some states. Better healthcare, lower cost. That's fine, yeah. That's pretty good. That's what I want to campaign on. I'm a researcher. I write in a story. Well, that's not gonna get you elected. I'm just saying. I'm called. That's not gonna get you elected. And when you go to the website of the guy running for office, they're not gonna say, your healthcare is not gonna get marginally better, but on average, we're gonna bring down the overall utilization rates in your general area. If you're in this zip code, click this zip code to get a coupon. Don't hire me to write your bumper stickers. I think you need to take away. No, no, no. This is the challenge. Look, policy is one thing. And this is about delivering healthcare for people, but in the beginning, as you came in late, I described the situation where my mother was airlifted from Highland County to the University of Virginia, which are two different worlds in the same state, and received world-class care. Step down unit in Augusta, World Community Hospital, her healthcare level, her health quality degraded to the point at which she ended up passing away. In my estimation. Okay, that's a son looking over a mother. Okay, this is where the rubber hits the road, guys. And this is what the challenge is before all of us, is because we all have our interests and our desires on this final product we're gonna try to come up with. But at the end of the day, everyone in Richmond who comes in here to the General Assembly, which we just had an election for, has to go back home and say, what did you do for me? And when they go to the Lions Club and the Kiwanis Club and the Chambers of Commerce, just knock on doors and they get stuck in the grocery store for two hours when you went to get one thing because someone's gonna talk to you about my healthcare or my hospital if you gotta answer. And you gotta get it down to a point at which that person can walk away and say they care. And they listen. That's what it's all about. So, I leave that as the beginning so that when you're all working together on this you have to understand that the bottom line is if you can't put it on the cover of a USA Today, it ain't selling. Okay, that's the bottom line here. And that's my view coming from the business world and the political world. Yeah, and I think just to build on that and then also something, when I said before, I do like your bumper sticker. I like it too. He stole mine and I tried to pivot miserably. That happens all the time. But it is about people, right? It is about people, but COPN, you go through the history and the policy rationales for certificate of need across the country. It is not about people. It is about the business side of healthcare. It's about the viability of critically important community, I think the financial viability, I think is in the guiding principles of the state medical facilities plan. It's about financial viability. It's about utilization. It's about what you're buying, what doctors are purchasing and what they're not purchasing. It's not about the services being provided. It's not about the access people get. It's not about can they get it more efficient and better for them. And that's sort of what, in many ways, that's what the data shows is that people have to leave certificate of need states to go find services elsewhere. Because certificate of need, again, is not allowed. Well, that's happening, I would imagine, Professor, we'll get to Q&A here within states. I think you're seeing a migration within states where people are moving towards better healthcare anyway, where they do have more of a free market orientation and better healthcare. I think you might find that as well, not just leaving states from one economic zone to another. I think people are leaving rural Virginia to go to suburban Virginia for healthcare, better education, better job prospects. I think it's all the same. So back it up. One more time through on your bumper sticker. Health care is more always better. There's more always better. Question mark. Question mark. You're still in the questioning phase. It's about people. No, it's about access, period. And there's one underneath it that says no margin, no mission. And... You're killing me, you're killing me, you're killing me. You're on the phones. Answer the phones. You're in the campaign office, you're on the phones. Don't talk to the customers. Right? Professor? I'm gonna stick with the provocative, Colin doesn't deliver. Doesn't deliver. Better healthcare lower cost. There we go. All right, we're gonna open up for some Q and A. Microphone in the back there, Mike Thompson with the... With the Thomas Jefferson Institute. The Thomas Jefferson Institute. Super public policy. Think Tank for the Commonwealth. I'm interested in whether the commission that there are 14 states that don't have COPN laws and there are a number of states that have less things they regulate under their COPN laws. And the concerns expressed today about charity care and those things. Have you compared the non-COPN states to Virginia on whether there's that kind of impact? When Pennsylvania took away their COPN law in the early 90s and legislation was introduced this last year to bring it back, it was the hospital association and the Pennsylvania AMA that went and testified to keep the COPN laws out of their state. So I think that the commission really ought to take a look at the non-COPN states. And it would be interesting to find out with the legislators here whether the restrictions on the commission of not looking to do away with it was really a restriction of what they had in mind. I don't understand how you can look at this without having that as at least an option that you bounce things against. Get a response? I think that those are all topics that have been discussed. We have posted a lot of literature to the website. If you Google COPN work group Virginia, you will come up with the website that is devoted to this group and has countless articles, all of which have been made available to the work group. So we've not only read a lot of that literature, the Pennsylvania case in particular has come up. We have discussed it and we've had a number of presentations on the different levels of regulation or no regulation in different states and how that has impacted the number of features of the health care delivery system. If I can't, if I can work? Well, let me, Mike, let me ask, let me follow up on that one, Mike. If we can, since you were alluded to process earlier, what is the process? Are you scheduled to make recommendations and to whom will they be made? So the statute under which we are acting directed that the report and recommendations be directed to various House and Senate committees. So that answers your question about to whom the report is addressed. Is there a deadline on that? That did say December 1st. I can only report on what was discussed in the meeting because that's the only discussion that I've had on this topic. But we do have our next meeting on November 16th. There is a concern that with the Thanksgiving holiday and the scope of what we still need to address that we may have to have yet another meeting and that the actual report may be a bit beyond December 1st. And in terms of your other question about the scope of the report, whether it is pure process, whether it crosses over into recommendations on changing scope of the specific public need law itself, I think that is still a very right topic for discussion as well. Not, I'm not aware of the process on this, but if they do return by December 1st, can you receive it in the legislature? So it's not a rec, it's just a recommendation. Okay, get on that. Doc O'Vannon. John O'Vannon. I think I just talked to the person that wrote the budget amendment, the budget language. It's actually not statute, I think it's in the budget. And I think it was pretty clear that our request to the commission was not just procedural. It was to look at the whole COPN plan and that would certainly include consideration of changes in what's regulated and all the other pieces of it. Okay, thank you, doc. Thank you, Susan. Claire, good to see you. All rise. Just kidding. That's funny for those of you who work in the General Assembly. Any other questions? Student hand up? Yes, yes sir. My name is Ken Law Nelson. I'm a retired urologist. I worked with Virginia Urology. Over the years, I personally put in three certificate of need applications here in the state and one in all for ambulatory surgery or facilities. And all were approved. Their grand total cost of those four applications to me at that time was two parking tickets. That I did it all personally. Businesses subsequently had a number of other CONs where our legal fees have been astronomical. Well, not astronomical, they've been appropriate but significant. That I went to look at the Martha Jefferson, not the Martha Jefferson, the HCA application for Fredericksburg, the amount of paper reached almost six feet in terms of the amount of paperwork required. That CON tends to prevent innovation. We had a CON application at one time for a mobile operating room, I'm a urologist. Our standard operating room cost a million dollars. Then we had an application in to provide a mobile operating room at Franklin, South Hill, Emporia so that those services could be provided at those hospitals. It's the same here in Richmond. There were eight sister, eight urologic rooms. We could reduce that to four. Here it gets turned down. I think the CON laws particularly take away the ability to innovate and make healthcare affordable and available to everybody. Thank you. Okay, did you have a question or do you want to express the concern of the permitting and application process to the commission, to the work group? Have you, are you all looking at that? Yes. Okay. Delegate Byron? Just one question in regards to the price controls that were mentioned. You were talking about price controls and how you, this doesn't affect, doesn't affect that. I forget exactly how you put it, but how would you explain then when a hospital picks up purchases another facility and then don't they also have the ability to charge a different rate as an outpatient facility than they would if that facility was independent and free standing? There are differences in payment mechanisms for example with Medicare. Medicare pays a outpatient facility differently than it pays a free standing ambulatory surgery center. So that is part of it. My comment was with respect to the fact that when you look at price control, the ability of a hospital to affect its prices, you look at average 40%, upwards of 70% of your payer mix being Medicare and Medicaid. We don't negotiate prices with Medicare and Medicaid. Medicaid pays about 66 cents on the dollar for hospital services, pays about 90% on the dollar under Medicare. So we don't affect those prices. That's the significant portion of our payer mix. And then beyond that, you've got commercial payers and we're seeing greater consolidation of commercial payers. So my point was that our ability to affect the actual dollars that we receive for the services and to cover our costs is limited by, is basically dictated by payers. But your point is correct that Medicare does recognize the difference in payment amounts between what would be a provider based facility versus one that is a free standing ambulatory surgery center. If I can, I think it might be a good time. If I can, call on Dr. Stowley and I need to put you on the spot. I carried two hats in this room as a doctor and a legislator. Congratulations. You care for patients? What kind of an impact would you see from these changes and what would be most concerning to them if there were any? You live in a relatively suburban, urban area relative to the most of the landmass of the Commonwealth. Well, I'm actually, I don't see patients anymore since I've been in the General Assembly. I am a hospital administrator though and I have to make our budget meet. I mean, we're going through the budget process right now. John, I think Kathy can both tell you I'm more than a little bit passionate about this topic. I was actually shocked a little bit when we compared healthcare financing to Econ 101. There is nothing Econ 101 about healthcare financing. When we talk about beds going up by 21% in other places, you have to staff those beds. You have to put doctors and nurses in those beds. I think for most businesses, healthcare included, your number one cost is your payroll. So I think it's just as likely that if we increase the number of beds out there and I have to staff those with doctors and nurses, we know we already have a shortage of doctors and nurses, limited workforce, salaries go up, costs go up associated with that. But not only do costs go up, we now have suburban, urban areas better able to take and buy those services from skilled employees that your rural hospitals do not have. So I think there are a lot of aspects to CON that have to be looked at. I think the impact of CON on hospitals, particularly on rural care and our ability to provide that rural care is really at risk. And so I guess what strikes me is the stuff that I hear about D&D regulated, surgery centers, diagnostic centers, cancer infusion centers. There's one thing in common with each of these services. They're profitable. You don't see anybody out there saying I really, really want to start a birthing center. Right, because birthing centers don't make any money. And so we, as you started out, you said, well, this is about the patient. But I really, really think that a lot of this push is really about the dollar. And when it comes down to it, what is the impact of taking and setting up a surgery center or a diagnostic center across the street from a hospital? How is that gonna impact if they can sit there and cherry pick patients that can afford to pay and just send the patients who can't afford to pay across the street to the hospital? That's something I think we need to address. Healthcare finance is not simple. Just because you build more does not mean prices go down or a fixed price market. So to sort of compare this to a lemonade stand just doesn't make a lot of sense to me. Again, I started out by saying I was passionate. And thank you for being someone who serves in those capacities and with passion. We need that in the world. I guess I threw that to Professor Strattman and that's one of the questions that I've been chewing over when we first got this assignment on this panel is is this a free market anymore and can it be governed with free market principles? I mean, there is definitely, it is not a free market in that it is very regulated in many aspects. But the solution to an unregulated market or a heavily regulated market is not necessary to regulate it more. It may be to loosen some things up. And even in a regulated market, you have competition. Just competition occurs around different dimensions. And so if you have more hospital beds and hospitals are trying to fulfill it, maybe, I mean, one way competition goes if the carol compete along prices, they may compete about care, quality care. So there are levels of dimensions competition can happen and I do not mean to be callous by comparing it to ECODE 101. The point was to say, ECODE 101 is about competition and competition goes in lots of various areas. Well, it's not to say also that there's no competitive market orientation, free enterprise pressures involved in this market whatsoever and obviously that's going on. Also, there are, and I've experienced that, having grown up in the bottled water industry up against global companies, companies try to gain the system and try to gain a competitive advantage through legislative policies. Isn't that correct? Exactly. Which subverts the whole free market enterprise. The can subvert the whole free enterprise. It can be a detriment concept, yeah. Do you wanna? I mean, the regulatory complexity is something that gives leverage to larger, more well-funded establishments regardless of the industry. So if you have a really complex, really difficult system to wade through, maybe some individual practitioners are savvy enough to wade their way through it, but it does give a competitive advantage. There's competition on that margin too. Gives a competitive advantage to the larger established. Because they went on scale. Just simply they're bigger, they have more resources to grow it at handling the system. So there are ways that regulation, I mean, this is sort of economists have been identifying this phenomenon for decades as regulatory captures that sometimes, even if a regulation was put in place with the best of intentions, right? Increasing access, lowering costs, increasing charity care, protecting rural hospitals. All of these are really laudable public policies. But the question really ought to be, A, are these policies achieving that end? And B, do we have unintended consequences? And so far as, I think you mentioned how big some of these applications are, we were talking to somebody at the Office of Licensure. I think they said the average application is 1,500 pages. By the end of the process, in some go, is as high as 6,000. That's a huge, and you think that's all time. I mean, I'm a lawyer, and lawyers get, they get paid by the bid. That's a lot of time spending. It's not like they get paid by the page. Yeah, that's a lot of time. Just kidding for all your lawyers out there. Filling out pages, and that's high, high cost to smother newer entrants in their market. So yes, there are ways that the system can't be gained. If I can jump in, that's a great thing. If I, if I just look at you. Yep, yep, go. The gentleman in the back of his hand up. My name's Eric Turner, I'm from Indiana. Chris, I'm part of the dead legislator club. I like you are. Just retired. Am I dead? Am I really dead? Just retired after 25 years in Indiana House and appreciate the discussion, serious discussion, as you know, many states are looking at CON. I wanna talk just about one specific service. My colleague and I represent the largest developer of nursing homes in the United States based in Indiana. And one of the things that was brought up here at this table is innovation that CON prohibits in some areas. And in the nursing home industry, it's certainly that case. And let me give you a couple of examples. There's 15,500 nursing homes in the United States. The average age of a nursing home is in excess of 40 years. That means they were built for people who were born in the 1800s, who were 70 and 80 in the early 70s. And in the 36 or 37 states where no new innovation in senior care can happen, the public, and this is one thing you have to remember in delivery of healthcare, the public rejects some healthcare services. And I would venture to say in this room, it would be very similar to National Polling that the company we represent, Main Street, has done 81% of seniors say they would never go to a traditional nursing home. They've had that experience. They've either gone with their parents or visited a loved one. They have no desire to go there. So there's need for innovation. What Main Street builds actually is transitional care, short-term care, rehab and back-to-work rehab, back-to-home, but in all these states they cannot build. And Virginia is one of them. And they build what the public wants. That includes private room, private bath, restaurant-style dining, amenities like a movie theater, a spa, a pub, things like that, that they wanna go to. But in many of these states you can't build because of COM. So I'll just throw that out to you. No, thank you. That's a great point you bring up in the representation of other states what you're doing. Any other questions from the teacher I'll call on you? All right. Summations, please. Can we start at the other end? Yeah. Go right ahead. Oh, okay. You know, I guess I started my summation just a minute ago, but all of these are laudable public policies, right? To try to say how do we get better healthcare to people, increased access, increased charity care. All of these things are really laudable public policies. And especially with older regulations it's incumbent on policy makers, on everyone to look and say are these policies being achieved by these public policy approaches? Are we achieving what we're set out to do? And it's not there, and I would say for people interested in increasing competition, increasing innovation, and the long-term growth and sustainability of the healthcare market, it's incumbent upon all of us to take a hard look at what's on the books and figure out what we can clear out, and I think COPN or COIN is a good place to start. Okay? Professor, and thank you for coming. Appreciate your time. Yeah, so we are not necessarily, or I'm not thinking about a regulation necessarily per se is good or per se is bad. Question is, what do the data tell us? Some regulations might be supported by the data, and others do not. So we looked at the regulations for COIN and COINP and looked at various outcome measures, and just comparing basic averages, it doesn't look that favorable for COPN. So that's basically where the numbers are, and so we have to just rethink whether COPN and COINP is exactly doing what we intended to do. Okay, all right. Again, thank you everybody for listening, and I appreciate all the questions and the thoughts on this issue, and I think it demonstrates one of the challenges, because there are a lot of different viewpoints, and everybody's right, and at the same time, we're all wrong, but I think that's helpful. The one thing I'd say, just to make sure that you all appreciate is that it's, we can talk about doing away with this regulation over here and that there's no reason to have more regulation. More regulation doesn't get us where we need to go, but when you peel away one regulation, there are all these other regulations over here that don't make it a free market, and we need to look at things comprehensively and really think about what the impact is, and when we talk about issues like access and how people get health care services, again, you can do away with significant public need, but then you need to think about the consequences, and I think the example of Pennsylvania was brought up earlier, and in the 10 years after they repealed their law, they saw hospitals closed, they saw ambulatory surgery centers through the roof, and 14% declines, eight closures, 21 mergers, four conversions in the hospital industry, and how does that impact your community? How does that impact how you receive services? So to expect that changing a law like this that has been in place for so long and not thinking through the consequences and thinking about how that plays out and how it affects individuals is a risky proposition. We just need to be really thoughtful about it. Okay, great comment. Jenny? I'm sure everyone here has heard the alleged Chinese curse of may you live in interesting times, and I like to think that is how lucky are we that we live in this absolutely fascinating, interesting time where we can help to affect great change in health care one way or the other, and so I think that the lesson from the work group is what a great time to be interested in health care. What great data we have now after years of not having great data. What a great opportunity, right in this very room, to talk to some physicians and some surgeons and some hospital administrators and some policy folks to learn. And so I would say make that time more interesting. Make that time, make this time a time where you can learn more about health care and understand that it is complex. So we might not be able to run to our corners of the purity of a particular economic policy or the purity of alleged protectionism or the purity of one particular theory or another. It is a complex area and regrettably and for the good, I think that that means it doesn't lend itself to easy issues. So I would encourage you to engage in the debate and come to our next meeting. Figure out when our next meeting after that is and we would love that participation, thanks. Thank you all and I guess I'm gonna ask and indulge if you could say one something to a legislator who are somewhere in the room, but if you had a legislator back home and you've been a part of this discussion and you've seen, I don't wanna say both sides, you've heard all angles from this conversation. You're very schooled in this topic. What would you tell them? And I'll start with Brent. What I tell a legislator about this topic today, here. Right now. Let's figure out a way to make this work. You listening, Dr. B? No. Let's figure, there is a path forward and as there are with all issues that are tough then Virginia's especially good at that. So we just need to keep talking. Okay, Professor. I would say look at the evidence. Okay, follow the data. Follow the evidence, yep, follow that. I would say yes, it's complex, yes it's hard. It won't be easy but it doesn't mean there's issues that aren't worth tackling and it doesn't mean that we should just throw our hands up. Okay. There are worth going after. Worth going after, that's a great way to conclude. Jamie. Let's say don't be afraid to ask the hard questions. Don't be afraid to be in that uncomfortable space where really if everybody's a little bit unhappy with you maybe you're in the right spot. That's easy for me to say, isn't it? That's a tough sell back there, I can't sell. Well, thank you all for coming out today. I want to thank the Mercatus Center for putting on this excellent discussion today and providing lunch, thumbs up. When you get people to an event, you have to feed them. And thank you all for coming out and participating. I'm sure the panelists will be open for questions after us. Thank you all for coming.