Column: A Last Shot at Hospital Competition

By Steven Pearlstein

Friday, January 30, 2009

Here they go again!

For many years, Inova Health System has been trying to turn its dominant position in the Northern Virginia hospital market into a veritable monopoly. The nonprofit chain has expanded aggressively, establishing outpatient clinics and imaging facilities and buying up hospitals in neighboring communities. And it has used its considerable political and legal muscle to protect its ability to dictate prices to insurers, earn some of the highest margins in the industry and serve the medical needs of the region in whatever ways its executives and trustees think best.

Last year, some cracks began to appear in Inova's invincibility. The Federal Trade Commission and the Virginia attorney general blocked its plan to take over Prince William Hospital, the dominant hospital in the western part of that fast-growing county. The Virginia Supreme Court rejected its appeal of a decision by the state's health commissioner to grant HCA, the for-profit hospital giant, a license to build a new community hospital five miles from one in Loudoun County that Inova had acquired several years before.

But Inova didn't get to be Inova by simply accepting the judgment of the state's top health officer and its highest court. Next week, the Loudoun Board of Supervisors will vote for the second time on HCA's application for zoning changes necessary to build its $200 million Broadlands facility on 50 acres off the Dulles Greenway. Under heavy pressure from Inova, an earlier board had rejected the zoning request, but last year a newly elected board offered to take a fresh look at the issue if HCA agreed to withdraw its legal challenge. Now, after months of intense lobbying by both sides, a sharply divided board looks like it may be prepared to send HCA packing once again.

If the supervisors' zoning decision on Broadlands were to be based solely on land-use criteria, HCA should win hands down. Approval was recommended by the county's professional planning staff and by an overwhelming majority of the planning board. Since the original proposal, HCA has agreed to several design changes and has offered to donate about five acres to the county as open space. It has also offered to contribute $13 million toward road improvements to ease traffic flow around the facility.

It gives you a feel for how Inova operates that the woman who led the zoning campaign against Broadlands last time went on to work at Inova and has stepped forward once again to lead the "grass-roots" opposition. As before, Inova has provided much of the funding for the Concerned Citizens of Broadlands. Inova has also bused in scores of its employees to public hearings on the issue, outfitting them with bright yellow T-shirts that read: "Danger: HCA Fallout Zone." Doctors at Inova Loudoun Hospital have been importuned to speak out against the Broadlands proposal, and Inova has matched HCA dollar for dollar in donations to local charities.

Although it takes various forms, the essence of Inova's message comes down to a simple threat: If you don't allow us to preserve our profitable monopoly in the populous part of Loudoun, we'll lose so much revenue that we'll have no choice but to cut back on our services in the county. We'll scrap plans to invest several hundred million dollars to turn our existing community facility into a world-class hospital center. We'll cancel plans to open satellite outpatient clinics, along with the $17 million in highway improvements we promised. And we'll cut back on charity care.

If I didn't know better, I'd wonder whether these guys hadn't spent some time with Tony Soprano and the boys.

Inova is right about one thing: A new hospital at Broadlands will probably cut into the revenue and profits of Loudoun Hospital for a few years, but with $2 billion in revenue and $150 million in operating profits, Inova can handle that. And in time, in a big, fast-growing county, there is no reason two well-run hospitals couldn't survive and prosper. After all, it was under the threat of competition that Inova offered to dramatically expand its offerings at Loudoun Hospital. And it will be competition from Inova that will force HCA to offer a top-quality facility in Loudoun.

Inova, however, rejects the competitive model. Knox Singleton, its chief executive, has told me that competition in health care is badly overrated, that it leads to costly excess capacity and ruinous price competition that saps hospitals of the money they need to offer quality service and provide care to the uninsured. The better arrangement, Singleton argues, is one built around nonprofit hospital chains that are allowed to carve up the market into regional monopolies under the gentle supervision of state regulators. Fortunately for the people of Northern Virginia, neither the commonwealth of Virginia nor the federal government share Singleton's vision of a state-planned health economy.

There are some in Loudoun who want to believe that if HCA is denied its zoning for Broadlands, then it will do the "next best thing" and open a hospital in the less populated southern portion of the county, on land it recently bought along Route 50. During the last zoning fight, Inova's supporters cleverly pushed through an amendment to the county's long-range growth plan that called for a second hospital in that area. Now Inova has raised expectations anew, graciously offering that it would not oppose HCA if it were to seek state or local approvals for such a facility.

But it is the market -- doctors and patients -- that ultimately determine where successful hospitals are located, and right now there is not a viable hospital market along Route 50. If there were, Inova would be actively seeking approval for a hospital there.

Know this: If HCA is unable to get zoning approval for Broadlands, the most likely outcome is that it will withdraw not only from Loudoun County, but from Northern Virginia, leaving Inova with no serious challenger. Having just one hospital in a region, as HCA now does with Reston Hospital, is not the way big hospital chains do business. They rely on the economies of scale, and the negotiating leverage with insurers, that only come with having significant market shares.

Moreover, HCA's withdrawal will send a clear signal to every other hospital company that the political barriers to entry in Northern Virginia are simply too high to overcome. It will be "game over" for hospital competition in the region.

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