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FTC-DOJ Join Forces: Encourage Repeal/Retrenchment of Virginia CON Laws

The Federal Trade Commission (“FTC”) and Department of Justice Antitrust Division (“DOJ”) (collectively, “agencies”) issued a joint statement to Virginia’s Certificate of Public Need (“COPN”) Work Group, which was recently charged with reviewing Virginia’s certificate of public need process and its impact on health care services in Virginia, including the development of “specific recommendations for changes to the certificate of public need process to address any problems or challenges identified during [its] review.” The agencies’ statement encourages the Work Group and the General Assembly to reconsider whether “Virginia’s COPN laws best serve its citizens” and suggests that the Work Group consider the repeal or retrenchment of the COPN laws in order to promote the efficient functioning of health care markets. This statement is another example of the agencies’ continued vigilance in their efforts to prevent CON laws from suppressing competition by “limiting the availability of new or expanded health care services.”

Virginia’s CON program requires providers such as hospitals, nursing homes, rehabilitation facilities and other general acute care service providers to obtain a COPN from the State Health Commissioner (“Commissioner”) before initiating certain projects. The Commissioner can only issue a COPN after determining that there is a public need for the project. According to Virginia’s Department of Health, the review process can take six to seven months to complete -- applications are examined during 190-day review cycles designated for certain batch groups which occurs just twice a year for most groups. Aggrieved parties, including incumbent providers, can appeal the Commissioner’s decision to the circuit court. From the agencies’ perspective, this time-consuming and costly process may deter beneficial entry “since a potential entrant may decide that the process itself is too costly.”

The agencies believe that Virginia’s COPN law, like other CON laws:

  1.  Can impede effective antitrust remedies and entrench anticompetitive mergers by limiting the agencies’ ability to implement effective structural remedies. The agencies point to the FTC’s recent inability to obtain a structural remedy to resolve competitive concerns raised by the merger of two hospitals in Albany, Georgia (FTC v. Phoebe Putney) due to Georgia’s CON laws.
  2.  May be exploited by competitors seeking to protect their revenues by filing challenges or comments to a potential competitor’s CON application “merely to thwart or delay competition.”
  3. May suppress more cost-effective, innovative, and higher quality health care options by delaying and raising the cost of entry by firms that are able to offer lower cost, higher quality health care services. In addition, the agencies state that the laws may reduce the ability of the market to respond to consumer demand for different prices or treatment options, and remove or delay the “competitive pressures that typically incentivize incumbent firms” to introduce new or improve on existing services.
  4. Can facilitate anticompetitive agreements akin to those challenged by the DOJ between hospitals in West Virginia who “used the threat of objection during the CON process to induce another hospital to refrain from seeking a CON for a location where it would have competed” with the incumbent hospital.

The FTC and DOJ recognize that CON laws were created, in part, to control health care costs and “mitigate incentives created by a cost-based health care reimbursement system,” but suggest that these laws are no longer necessary, noting that the health care reimbursement system has changed dramatically since the adoption of CON programs and that CON laws “have failed to produce cost savings or higher quality health care.” To the contrary, the agencies cite studies that suggest that “repealing or narrowing CON laws can reduce the per-patient cost of health care,” and further note that any desire to retain Virginia’s COPN laws in order to ensure access to health care for the indigent and those in medically underserved areas can be achieved in more effective or narrowly tailored ways to accomplish those public policy goals.

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Dionne Lomax