Opinion: Daily Journal

Scrapping the Certificate of Public Advantage

Much happened in the final hours of the N.C. General Assembly’s latest session: some good, some bad, and altogether too much in general for those interested in good government to rest easy. The process used had a worrisome lack of openness and transparency.

That criticism is not to suggest that everything passed is de facto bad, however. Bills are to be judged on their individual merits.

Accordingly, one of the measures passed included the removal of the state’s highly unique exemption to its certificate-of-need law known as “certificate of public advantage.”

As the John Locke Foundation’s “Rights and Regulation Update” explained last year:

COPA is highly novel state policy instituted to circumvent antitrust laws on the theory that so doing would make it easier for health professionals and hospitals to work together under the watchful eyes of state regulators to serve patients more easily and at less cost.

If this experiment has instead created a health behemoth able to circumvent the regulators, leverage its protection from competition into driving remaining competitors out and forcing health professionals to do business with it or else, and increase prices on patients, then it would be time to pull the plug. A “kingdom” established under state policy would be a quintessence of cronyism.

The update noted that the state had issued only one COPA, which was in 1995 to Mission Health System in western North Carolina, formed by the merger of the only acute-care hospitals in Asheville (Memorial Mission and St. John’s Hospital). It covers Buncombe and Madison counties.

Nevertheless:

Serious concerns have been raised over COPA and Mission Health. The largest employer in WNC, Mission has entered into numerous partnerships since 1996, expansion that has provoked criticism from other hospitals and smaller health care systems. Critics complain that the state has allowed Mission to engage in “empire building,” “predatory” practices, and threatening competing providers of services either to partner with Mission or be driven out of business (or “crushed”) by Mission duplicating those services.

A 2013 Asheville Tribune report on “The Kingdom of Mission” noted that “physicians and consumer advocates have complained that Mission mostly self-reports its COPA compliance, with little oversight from the state agencies that are supposed to police it.” It described COPA as the “hunting license” Mission uses in what critics termed a “manifest destiny-like cherrypicking of different private specialist practices so as to capture an entire spectrum of medical services under its umbrella.” …

Though its monopoly is regulated and limited to only two counties, Mission enjoys significant power in WNC boosted by such regulatory protection. It has acquired five hospitals in surrounding counties and is building expansions in other counties.

In 2010, the State of North Carolina commissioned an economic analysis of COPA and Mission. Economist Gregory Vistnes of Charles River Associates in Washington, D.C., conducted the study, released in 2011. Vistnes found several perverse incentives at work threatening to undermine the foundational purposes of the COPA agreement with Mission. …

Vistnes also observed that “The incentive problems associated with the COPA regulation appear to be consistent with MHS’ observed conduct and complaints about MHS’ conduct that have been voiced by certain parties.”

But don’t stop at COPA

The measure eliminating COPA is contained in a bill that would create a new CON exemption called a “Legacy Medical Care Facility” to assist in the reopening of the Yadkin Valley Community Hospital.

The measure itself (creating a new exemption, ending an old one) shows the utter unwieldiness of CON. It’s yet another reason that lumbering dinosaur of a policy should be fully repealed.

Jon Sanders (@jonpsanders) is Director of Regulatory Studies for the John Locke Foundation.