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Unfair Competition, Part 2

Philip Betbeze, for HealthLeaders Media, July 7, 2008

In my last column, I wrote about the state of Virginia and its position at the center of a couple of high-profile fights centering on hospital monopolies—or the perception of hospital monopolies. I wrote about the undercard last issue, but I made you wait until now to read about what could be the main event: a dispute in the central and southern part of the state between Bon Secours Hampton Roads Health System and the ubiquitous-to-the-region Sentara Healthcare. Both are nonprofit health systems, and both want to build new, and in some cases, replacement, facilities closer to the insured populations in their regions.

But Sentara, unquestionably the dominant player in the region, got its application for a new hospital in fast-growing Virginia Beach approved this spring, while applications from Bon Secours to replace its financially ailing DePaul Medical Center with three new medical centers were denied. I talked with Bon Secours Hampton Roads CEO Richard Hanson last week. He believes the three-hospital system will eventually get its revised applications through the state's certificate-of-need process, but is concerned with the bigger issue of fair competition.

"We proposed to do a JV with our doctors for all three of these hospitals, but the [state health] commission didn't like that model. In the latest application, we're trying to create a different model by doing a JV and focusing more on preventive care."

But the bigger picture in his mind isn't whether this particular dispute is resolved fairly-it's whether Sentara, where he began his career and worked for 16 years before serving the past 12 at Bon Secours, competes fairly.

Sentara "owns" the majority of inpatients at about 51%, Hanson says, but in the two largest cities in the region, Virginia Beach and Norfolk, Sentara has more than 62% of the market share. Further, Sentara owns the largest HMO in the region, Optima Health, which covers more than 176,000 lives.

"The competitive landscape is out of balance," Hanson says. "They control pricing and they control where their patients go. We feel that it's an unbalanced situation."

Whether it's unbalanced is not for me or Dick Hanson to decide, but uncompetitive or not, the situation in Bon Secours' case must be desperate. I've only been covering healthcare for eight years, but that's long enough to know that hospitals or hospital systems don't fight each other out in the open unless it's a desperate situation.

Inova's failure to secure a more dominant share of the northern Virginia market has emboldened Hanson and his team to fight against what he calls a monopoly in the south.

"I've spoken to the attorney general about the imbalance of competition in our community," he says, further adding that in certain areas of the region where Sentara's HMO isn't dominant, employers can get rates for their employees that are 10% better. Trying to build public support for his contention that Optima is part of Sentara and contributes to unfair competition for healthcare, Hanson also has been speaking informally with decision-makers at the area's largest employers.

Hanson's not the arbiter of what's fair and unfair in hospital competition, saying only, "we like choice and we want to compete on a level playing field." But he sounds a cautionary note if he can't at least get state approval to replace DePaul Medical Center. "If not we have no other choice but to exit," he says.


Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.
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