Robert Burke Archives - Page 2 of 7

Health-care reform

The people who will benefit most from a new Medicaid initiative in Virginia also are the ones who need the most help and cost the most to treat.

On Aug.1, a program called Commonwealth Coordinated Care Plus (CCC Plus) was launched by the Virginia Department of Medical Assistance Services (DMAS). CCC Plus started in Hampton Roads and will be expanded across the rest of the commonwealth by the end of the year.

About 216,000 people in Virginia will be enrolled in the program when it is fully in place. Many are “dual-eligible” enrollees who get benefits from Medicaid and Medicare. Many are older adults or people with disabilities. They often receive a lot of services and medical care without anyone coordinating their treatment. Sometimes there is unnecessary care, which doesn’t help the patient or the state’s Medicaid budget.

CCC Plus has been in development for several years in Virginia, and other versions of the program are already in place in about 30 states. The program is making its debut in Virginia after years of steady criticism of the overall Medicaid system from conservatives who call it wasteful and ineffective. Recent failed efforts by Congress and the White House to end the Affordable Care Act included major funding cuts to Medicaid spending.

CCC Plus is designed to make services for this particular population more effective and less wasteful. The elderly and people with disabilities represent 23 percent of Virginia’s Medicaid population, yet they consume 68 percent of the state’s $8.41 billion Medicaid budget. These figures are from 2016.

“How do you bend the cost curve?” asks Cindi B. Jones, the director of DMAS. “It’s not an easy thing to do. We feel that by focusing on quality, the savings will come.”

Managed-care system
The program moves the elderly and disabled patients from a fee-for-service system to managed care, which gives insurers tighter control over medical spending. These patients are eligible for a lot of services, but they don’t always know the best way to access or use them.

“There’s nobody trying to coordinate their care” except for the patients themselves or a support person, usually a family member, Jones says. “I call those ‘fend for yourself’ programs. Sometimes that process is almost worse than the disease.”

Before CCC Plus was launched, a test program in Virginia limited to about 30,000 people began in 2014. It showed good results, Jones says. Patients liked having care coordinators, and the program cut the costs associated with those patients, she says.

Virginia-based Optima Health has the contract with DMAS to handle services to eligible recipients in the Hampton Roads region and Virginia’s Eastern Shore. Randy Ricker, vice president of Optima Health Community Care, says the deal gives the state some certainty about what it will be spending. “They pay us a capitated rate each month, and that allows the state to set a budget,” he says.

Optima has leased space in the Military Circle Mall in Norfolk, which will house about 200 employees. Each employee will handle a number of cases.

Suzanne Coyner, director for program care services for Optima Health Community Care, says the new care coordinators have diverse backgrounds. They include registered nurses (RNs) and licensed practical nurses (LPNs) along with people with backgrounds in social work and mental health.

The amount of involvement the coordinators might have in the lives of recipients can go pretty far. Besides the management of their changing health-care needs, recipients sometimes need help with more basic issues, such as paying a utility bill or finding the right support group.

Amanda Becker, director of behavioral health and addiction services for Optima, recalls a recipient who needed help arranging for home pest control, which can be a health issue. “Coordination is key,” she says. “We’re able to identify gaps because we’re looking from the top down.”

Jones says DMAS officials have spent a lot of time talking to providers in preparing for this program. “The main reason somebody might give us blowback is they’re afraid they might not make as much money, which is not true if they’re a quality provider,” she says.

Similar work is underway now across the rest of Virginia. The central region of the commonwealth launches the program Sept. 1, and by Dec. 1 CCC Plus will be at least started everywhere. “My goal, a personal and professional goal, was to get to this point where these Medicaid clients have comprehensive care and coordination,” Jones says.

Optima is part of Sentara Health Plans. The other insurance companies contracted with DMAS to handle CCC Plus are Aetna Better Health of Virginia, Anthem HealthKeepers Plus, Magellan Complete Care of Virginia, United Healthcare and Virginia Premier Health Plan.

In general, the Medicaid program has long been under pressure from Republicans. The resistance to Medicaid stiffened after a 2012 Supreme Court ruling allowing states to refuse to expand Medicaid under the ACA. Bill Howell, the retiring speaker of the House of Delegates, successfully led the blockade against expansion in Virginia. “Medicaid costs are out of control, patients are not receiving the quality care they deserve, and the program is plagued by waste, fraud and abuse,” he wrote in a 2014 newspaper column.

Jones says Medicaid expansion opponents wanted a political victory, no matter what the practical outcome was. “What they fell back on is: ‘The current Medicaid program is unsustainable so we have to reform that first.’ So that was their excuse. But once they gave us 19 things to do, and we accomplished those, then they moved the goalposts and said, ‘We need to see if it works.’”

Jones says her department has shown that Medicaid is efficient and effective and CCC Plus shows it is working to get more efficient. She reminds critics of what is at stake. “I always say the current Medicaid program [helps] babies, pregnant women, seniors and people with disabilities. Which one do you throw off the train?”

Jill A. Hanken also is tired of Medicaid criticism. She is director of the Virginia Poverty Law Center’s Center for Healthy Communities.

“Medicaid isn’t broken,” she says. Evaluations from the Joint Legislative Audit & Review Commission have supported that conclusion. One recent JLARC review, Hanken says, found $30 million in improper spending, about 0.4 percent of the Medicaid budget. “But $30 million in the context of a $9 billion program … it’s not something you want to support, but it’s not terrible.”

One in eight Virginia residents uses Medicaid benefits, according to DMAS. Two out of every three residents in nursing facilities use it, too. That ratio is a big deal, considering the aging baby boomer population and the increasingly high cost of private-sector, long-term-care insurance. “There always needs to be oversight and review,” Hanken says. “That doesn’t mean there’s anything wrong, but there’s always room to improve it. But you can’t lose sight of the value of the program.”

Keeping pace with change

It is not easy being a new college student, says Troy Paino, the president of University of Mary Washington.

“We’re living in this age of acceleration,” he says. Technology is creating new careers and erasing others. “Change is so rapid … It is overwhelming in some respects, and it is overwhelming to the 18-year-olds who are arriving on our campus.”

In many ways, the same is true for new college presidents like Paino, who arrived just a year ago, becoming UMW’s 10th president in July 2016. He is charged with steering the school through the uncertain environment of higher education. That task includes producing graduates who can adapt to change while keeping the school afloat financially amid dropping state support for public universities.

Those challenges aren’t unique to UMW; all of Virginia’s public colleges have faced budget cuts. And then there’s the task any school faces: convincing students and their parents that a degree is worth the money.

The school has a good foundation. Mary Washington is well-regarded academically, with a tree-shaded campus in Fredericksburg on the same high ground that played a role in the Civil War. The university routinely gets high rankings from various publications. The 2017 edition of the “Fiske Guide to Colleges” named it a “best buy,” one of just two Virginia schools to get that designation. The school has about 4,100 undergraduates, with a student-faculty ratio of 14 to 1.

In addition to the Fredericksburg campus, UMW has two smaller locations — one in Stafford County, which provides midcareer development programs for professionals, and a second site in King George County near the Naval Surface Warfare Center in Dahlgren. The Dahlgren center focuses mostly on science and engineering studies, and UMW shares the space with educators from other Virginia schools.

Digital liberal arts
Paino came to Mary Washington from Truman State University in Kirksville, Mo., a school of 6,200 students where he had served as president for six years.

UMW is continuing its push toward a “digital liberal arts” education. “It is an integration of technology into traditional liberal learning,” says Jeffrey McClurken, who in May was appointed by Paino as a special adviser. A 1994 Mary Washington graduate who later studied at Johns Hopkins University, McClurken has been teaching at his alma mater since 1999. “It’s not about learning a particular platform or platforms, it’s about trying to figure out, when you’re faced with a problem in the digital age, how to solve it,” he says.

In 2013 UMW began a program called Domain of One’s Own (DoOO), the name being a riff on Virginia Woolf’s 1929 essay “A Room of One’s Own.” DoOO provides a domain name with hosted web space to everyone in the UMW community — students, faculty and staff. So far, about 2,000 domains have been created. The service is free to students during the time they’re enrolled. When used as intended, domains can serve as students’ digital presence no matter their career paths. “When students graduate, they can take that domain name with them. It’s their work,” McClurken says.

The DoOO project is a creation of the Division of Teaching and Learning Technologies, which works out of the Hurley Convergence Center, an “academic commons” building that opened in 2014. It is named for Richard V. Hurley, UMW’s previous president who retired last year after 16 years at the school serving in several senior administrative positions. He was UMW’s president for six years.

The convergence center is at the heart of an effort to mesh traditional liberal arts and the fast-changing digital environment. Squeezed into the hillier west end of the campus, the building has 77,000 square feet of space devoted to technology. It has, for example, an advanced media productions studio, a multimedia editing lab and the Digital Knowledge Center, where students can get peer tutoring for class projects or personal pursuits.

“Part of what we’re trying to do is develop what I think of as a curriculum and a digital fluency,” McClurken says. That curricula will be integrated into the first-year seminars that new students attend. Faculty members also are being trained to integrate digital skills in their courses. The Hurley center has five “instructional technologists” who work with faculty, McClurken says.

Two years ago the university created a new major, communication and digital studies. “It’s absolutely the fastest-growing” major at UMW, with 100 to 120 students pursuing that course of study. The major includes a lot of areas of study, but in general it concerns “developing a mindset on how we analyze and present information in the digital age,” McClurken says.

New administrators
With a new president, the university also has a number of new faces. In July, Nina Mikhalevsky became its new provost, the chief academic officer. She holds a tenured position as a philosophy professor at UMW. Starting this fall, Kimberly Young will be the new director of Continuing and Professional Studies. She headed executive education and executive MBA programs at the Henry W.

Bloch School of Management at the University of Missouri-Kansas City.

Young’s work at UMW’s campus in Stafford County is part of Paino’s effort to expand the university’s footprint in the region’s business community. At the Dahlgren campus, the Commonwealth Graduate Engineering Program offers online and video-interactive teleconference courses in 12 disciplines. The campus also offers undergraduate classes.

These satellite campus programs serve a different need than the main campus, Paino says. They offer post-graduate programs to people in the middle of their working lives. The programs also are essential to UMW’s value in the regional economy. The presence of major military installations in the area means there are thousands of military personnel and defense-contractor employees looking to advance their careers.

‘Entrepreneurial enterprises’
With its three campuses, the university already has a sizeable footprint in the region, and Paino says that will grow in the coming years. The University of Mary Washington Foundation has assets under management of nearly $200 million, mostly in “entrepreneurial enterprises,” says Jeff Rountree, the foundation’s CEO.

The foundation’s investments are intended to produce “substantial revenue” for the university’s operations, Rountree says. “We’re talking about millions of dollars in annual revenue, once we get some of our major debt packages paid down over the next 15 to 20 years.”

The foundation owns and operates 11 real estate companies. In 2007, for example, it bought a shopping center next to the campus, along with a pair of adjacent properties, and created Eagle Village, a 23-acre, mixed-used project that includes a Hyatt Place hotel, office space and apartments.

In 2002 the foundation bought a six-acre property directly across the street from the main campus. Its 125 garden-style apartments currently house 350 students. Paino says the school is working on plans to tear down those apartments and build residential space for students along with some mixed-use development. The property is on William Street in downtown Fredericksburg, which is a main corridor for the city.

Paino says a real estate project like that can be good for the city and the school, in terms of revenue. “We have over the past 15 years gotten less and less state support” and that trend will continue, he says. That financial pressure is turning schools like UMW into real estate developers, he says. “I think the schools that can do this and do it successfully are the ones that are going to thrive in the 21st century.”

University of Mary Washington facts at a glance

Students

Students from about 34 states and many foreign countries.
About 26 percent self-identified minorities.
About 56 percent live on campus in one of 17 residence halls or campus apartments.
327 enrolled in professional studies and graduate programs.

Graduation rate

The most recent graduation rate for UMW students is 70 percent.

Cost (2017-18 academic year)

Undergraduate tuition and fees for Virginia residents total $12,128; for nonresidents, $27,374.
Room and board for all undergraduates costs approximately $11,000.
Each year, the university administers more than $57 million in financial assistance, including educational loans totaling $23 million, for students at the Fredericksburg and Stafford campuses.
The cost of graduate school for in-state residents is $555 per credit hour.

The play is under review

It’s been a tough time lately for the Virginia Economic Development Partnership. First came a bad review last fall by the state’s watchdog agency, the Joint Legislative Audit and Review Commission (JLARC). “VEDP is not an efficient or effectively managed organization” says the first sentence in the JLARC summary.

That public spanking was followed by a legislative turf battle between Gov. Terry McAuliffe and General Assembly Republicans, with each arguing their side should have more power over the commonwealth’s top economic development organization.

In the midst of all this, VEDP employees were getting used to a new boss — Stephen Moret, an economic development executive from Louisiana, who became CEO on Jan. 1 (see interview).

It may be, however, that the most important change the VEDP needed is already in effect. Legislation approved in last year’s General Assembly session created a JLARC unit to evaluate — in a more diligent way than had been done so far — whether VEDP incentives and strategies actually work.

Experts in the field of state-level economic incentives say that type of change is a big deal. “Virginia actually took a really important step last year by creating a new unit within JLARC to regularly study the results” of its incentive program, says Melissa Maynard, who studies economic development tax incentives for The Pew Charitable Trusts’ state fiscal health and economic growth project. “Every state uses incentives, but lawmakers have often lacked good information about how incentives are working,” she says.

22 states and D.C.
The Virginia legislation requires regular review and evaluation of all major incentives, including grants and tax preferences. That includes measuring the economic benefits to Virginia of the total spending on economic development initiatives at least every other year.

While it would seem obvious that states want to know how their incentives are working, many apparently don’t have a strategy for finding out. According to Philadelphia-based Pew, 22 states and the District of Columbia have enacted similar incentive evaluation programs in the past five years. Last year alone, six states — including Virginia — created review projects.

Research and advice from Pew are two of the reasons more states are taking this step. People such as Maynard work with state lawmakers, agencies like VEDP and economic development officials to develop programs that fit a particular state’s needs.

A Pew study shows how common it is for states to mismanage the money spent on economic development efforts. Every state has some kind of incentive program in place, and most have several. Nonetheless, many states don’t have a dependable way to measure incentives’ effectiveness.

Inaccurate estimates
In other cases, states that implemented high-quality evaluations are finding out how wrong their previous estimates have been. In Minnesota, for example, state officials estimated that each job created in its Job Opportunity Building Zones cost about $5,000, according to Pew research. But Minnesota’s legislative auditor found each job actually cost the state five or six times more.

In the past, the absence of more rigorous evaluations of incentives allowed state leaders to claim that all was well, Pew reports say. Just before the recent recession hit, for example, Pennsylvania’s economic development program said the state’s Keystone Opportunity Zone program had created nearly 64,000 jobs during an eight-year span. A year later, it lowered that estimate to fewer than 35,000 jobs, and the next year a legislative review declared that neither figure was reliable.

What makes states lose track of the effectiveness of incentives? “One of the challenges is a lot of the spending is through the tax code,” Maynard says. Those incentives don’t go through the budget process, so they often don’t get the scrutiny that budget spending does.

JLARC ‘well-equipped’
Maynard says Virginia’s new effort means that every year a number of incentive programs will be evaluated, and she called JLARC “well-equipped” to do the work. “They really have a strong track record already” of studying the effectiveness of incentive programs.

Of course, such evaluations don’t always find failure. Sometimes states discover an incentive program is working but learn ways to make it even better. Maynard says that, a few years ago, Minnesota’s angel-investor tax credit was set to expire, and lawmakers were trying to decide whether to extend it. An evaluation found the incentive was cost effective. As a result, legislators not only extended it; they expanded funding from $12 million to $15 million.

Rigorous evaluations turn up details that matter. Ohio took a close look at some of its incentive programs that required matching funds from local governments for companies to be eligible for grants. But an evaluation showed that the local match requirement also forced companies to accept subsidies they didn’t want in order to qualify for the incentive program they did want. And, the money spent by businesses on lawyers and accountants to process those unwanted incentive programs was more than the benefit. So Ohio dropped the local match requirement.
“The high-quality evaluation that we like to think of is way beyond ‘yes’ or ‘no’ verdicts,” Maynard says. “So, even when an incentive is working well, evaluations can point out ways that they can be even more effective.”

35 recommendations
Pew researchers also say another advantage of setting up a regular schedule of evaluations is that the process lets businesses know when an incentive they might want to use is going to be reviewed. Businesses generally don’t like surprises.

Among the 35 recommendations in its VEDP review, JLARC does have something to say about incentives. The report recommends, for example, a more consistent approach in evaluating projects that might be considered for incentives. JLARC also calls for regular audits of the job creation and wage claims of companies receiving incentive grants. That kind of effort would require some data from the Virginia Employment Commission and the state’s Department of Taxation.

The watchdog agency also calls on VEDP to create a separate division that would be responsible for administering incentives. It wants at least three people in this division to “have the qualifications and training necessary to perform the work assigned to them,” according to the JLARC recommendations.

(Legislation passed by the General Assembly in Februrary will create a VEDP division to oversee financial incentives. It also will reduce the partnership's board from 24 to 17 members.)

Compared with other states, Virginia is seen as a “light” incentive state, awarding $384 million in state grants over the past decade. Yet prior to January 2016, JLARC reported that the awards were made without a formal, written due-diligence process, a situation that exposed the state to possible fraud and financial loss.

Political distractions
JLARC’s report wasn’t just about VEDP’s mission and how to accomplish it, but also about how it works, or doesn’t work.

Dan Clemente, a Northern Virginia developer who is VEDP's board chairman, is fine with those recommendations. But he thinks that the report has become too much of a political weapon. Republican politicians, for example, have used it to attack the gubernatorial candidacy of Democratic Lt. Gov. Ralph Northam, who wants to succeed McAuliffe. Northam is an ex-officio member of the VEDP board.

Clemente was named to the board by then-Gov. Bob McDonnell in 2014 and became its chairman last year. “I think VEDP has done fabulously well, considering the circumstances,” he says. He rejects criticisms that focus on specific failures of VEDP efforts with some companies. “If you’re running a bank and you don’t have bad loans, then you’re not working hard enough,” he says.

He thinks the current amount of involvement VEDP has with any governor’s cabinet is a distraction. In addition to Northam, four current cabinet members and community college Chancellor Glenn DuBois are ex-officio board members. In his proposed legislation, McAuliffe wanted to make the secretary of commerce and trade the permanent chairman of the VEDP. “You’ve got the entire cabinet sitting on your board, and every time the governor goes overseas, you’ve got to stop to help the governor,” Clemente says.

Plus, Clemente says, the partisan split that regularly occurs in Richmond doesn’t help VEDP. “You should not be in a position where one year you’ve got a champion, and the next year you don’t,” he says. “Who is your boss? The General Assembly says they’re the boss, and the governor says he’s the boss. The taxpayers are the real boss, and they don’t get a say at all.”

Clemente says the state should give VEDP a dedicated source of funding, and then focus on the outcomes.

“They could give us benchmarks. If we did not produce, then they could adjust the funding,” he says. “So it’s not like a blank check. That’s the way I’m going to present it in any further discussions. Give us the funding and give us the benchmarks instead of trying to run the place.”
VEDP gets 98 percent of its dollars from the state. This year that funding will be $27 million, not including money for incentive programs. (During this year’s session, the General Assembly was considering a move to put an additional $1.5 million in the current two-year budget — earmarked in part for marketing initiatives — into a reserve with contingencies that the money be released only if VEDP began implementing changes recommended in the JLARC report.)

“The way the VEDP works now is under the thumb of the governor,” Clemente says. “The VEDP staff has to draw up a proposed budget; they have to sell that idea to the governor; and … then he has to sell it to the legislature. I don’t know how you run a company when you have no idea what your revenue stream will be.”

Some states have a different approach.

In South Carolina, the Coordinating Council for Economic Development receives a dedicated stream of revenue, capped at $20 million a year, from utility taxes. And in Ohio, the operation of the state’s liquor stores provides funding for the state’s economic development efforts. In 2015 that revenue source tallied $90 million.

Clemente says the common desire of governors to claim credit for big job growth means that too much attention goes to urban areas like Northern Virginia and Hampton Roads. Those regions are going to get jobs anyway, he says.The places that really need the help of VEDP are the rural regions. “I think we have a moral responsibility at VEDP to figure out how to create jobs in those areas,” Clemente says. “If all we are is a booking service for the governor, so he can say he created 20,000 jobs, that’s not helping the state.”

Focus on site development
In that argument Clemente has an ally in Moret, VEDP’s new CEO. Getting a consistent funding stream is “the Holy Grail” for economic development efforts, Moret said in a late January interview.

And the state’s rural regions “need a much more robust, customized workforce training program. I think doing something not unlike what Louisiana and Georgia and Alabama have done would make a world of difference for rural Virginia.”

Virginia also needs a better supply of ready-to-go sites. “We need to place a bigger focus on site development,” Moret says. “I don’t want to seem like I’m harping on rural Virginia over and over, but I just really want to see us be successful across the commonwealth. And that’s a place where some other states have put a lot of investment, in developing sites and getting sites prepared.”

Moret and Clemente’s view suggests at least a different measure of what defines success. “Some folks think this is all about incentives,” Moret says. “Incentives have a place, but it’s just one piece of what a great state economic development organization does.” The ideal organization would be “professional, fast, creative and innovative.”

And, says Clemente, it will deliver results to those places that need help the most.

Getting back on track

From the construction cranes at Tysons to a billion-dollar power station in Southern Virginia, major construction projects are in the works across Virginia. In addition, contractors are optimistic that more work could materialize under the administration of President Donald Trump. Before taking office in January, Trump was a billionaire commercial real estate developer with properties around the world.

Gordon Dixon, CEO of the Associated General Contractors of Virginia (AGCVA), says members “are cautiously optimistic … the growth is potentially there” from Trump-driven federal spending and the generally improving economy. Since coming out of the recession, Will Karbach, CEO of The Branch Group in Roanoke, says the average project size that his firm competes for has “increased significantly. What we’re seeing … are pretty healthy pipelines of work. It’s strong, we think, particularly for the next year.”

While the industry waits to see if Trump’s promises of as much as a trillion dollars in new investment in public infrastructure pan out, the Waterside District in Norfolk is crawling with construction workers. They have been brought in by The Cordish Cos., the Baltimore-based company in charge of the overhaul of one of downtown Norfolk’s best-known attractions. “We’re in full construction mode right now,” says Glenn Sutch, president of the Waterside District.

The $40 million, 125,000-square-foot redo of the old Waterside Festival Marketplace into a dining and entertainment venue broke ground in mid-2015. The mixed-use development with restaurants, live entertainment and views of the Elizabeth River is expected to open in April. It will eventually employ about 1,000 people and is keeping a lot of subcontractors busy. “We have local plumbers, local electricians,” Sutch says.

The project is good news for the region’s construction sector, an area that took big hits in recent years. Dixon says the 2007-09 recession and ongoing cuts in federal spending in Virginia slowed construction activity. “So much of Virginia’s economy has been in the past reliant on the federal government, and that’s drying up,” he says. Another major head wind is finding workers. “The discussions I hear amongst our members and their subcontractors is, they are having a hard time filling the job requirements. A lot of guys don’t have the workers to bid on certain projects,” he says.

AGCVA is making a concerted effort to try to rebuild a pipeline of trained workers. That effort includes pushing for state funding for workforce development training and marketing “to convince people that construction is a viable career,” says Dixon. The demand for skilled workers is likely to drive up wages and make projects more expensive, but contractors really don’t have a choice. “There’s a lot of competition out there for workers,” he says.

Dixon’s concerns were echoed in a 2017 national hiring and business industry forecast released last month. “Contractors remain quite concerned about labor shortages, tight margins and growing costs,” said Ken Simonson, chief economist of the Associated General Contractors of America.

As Karbach of The Branch Group observes, “The industry lost a lot of people in the downturn, and they didn’t come back. There’s generally a shortage of not just qualified people, but people.”

Virginia now has about 188,500 people employed in construction, down from a prerecession peak of 252,500. That’s a 25 percent difference while nationally the current average difference from peak employment is 13 percent, according to Simonson. “So Virginia’s really slow to recover,” he says.

Despite the labor squeeze, big projects are moving forward. While Sutch’s group works to fill spaces in Waterside District, it already has leased space to more than a half-dozen tenants, including Rappahannock Oyster Co., Guy Fieri’s Smokehouse and The Fudgery. They’ll be located in a part of the project called The Market, which will have 30,000 square feet of space for restaurants and other dining options.

Besides the Waterside renovation, downtown Norfolk also looks forward to this spring’s opening of The Main. The mixed-use development a few blocks away will include a conference center, a 300-room Hilton hotel, and entertainment and dining. “There’s a lot going on right now; it’s pretty great,” Sutch says.

One of the largest projects under construction in Virginia is the $1.3 billion Greensville County Power Station. Dominion Virginia Power broke ground in June on its new natural gas-combined cycle power station, which should be operational in 2018. It’s located on a 1,143-acre site that straddles Greensville and Brunswick counties. When complete, the station is expected to produce enough power for 400,000 homes.

Paul Koonce, CEO of Dominion’s Generation Group, said during the station’s groundbreaking ceremony that it would be the largest and the cleanest-burning gas-fired plant in the country. For contractors in the region, the project means jobs. At the end of 2016, there were about 700 workers on-site, and at the peak of construction there will be about 1,200, according to Dominion. When the station becomes operational, it will have about 45 employees. The counties expect to see some benefits, with Greensville getting about $8 million in property tax revenue from the station’s first year of operation.

Construction projects frequently serve as economic development drivers, and that’s why localities are glad to get them. Downtown Richmond is in the midst of a project that should bring more people to the city. A $90 million facelift for Main Street Station will renovate the train shed. Started in 2014, the first phase of the project is scheduled to be finished this summer. Most of the funding comes from federal sources.

The next step will be site work, and that project is being bid. It will involve developing various transit access points for buses, vehicles and pedestrians, and accessories such as charging stations for electric-powered vehicles, along with bike storage. The goal is “to make this a working multimodal transportation center,” says Jeannie Welliver, project development manager for the city. The project employs about 150 workers. It’s also designed to be a hub for retailers with about 20,500 square feet eventually available for lease.

Click here for a list of other major construction projects underway in Virginia.

Building on consensus

The premise behind VIRGINIAforever is that if you can find common ground you can build on it.

Now 10 years old, this nonprofit group — an alliance of businesses and environmental organizations — has become an effective presence in Richmond. Its mission is straightforward and relatively noncontroversial: It wants to get as much funding as possible in the state budget to support land and water conservation.

“We can come to the same table because both sides agree that the state should protect its natural resources, and that [they are] key to the state’s economic development,” says Dennis Treacy, the group’s chairman, who is president of the Smithfield Foundation and will become chair of the Virginia Chamber of Commerce in late January. A former head of the Virginia Department of Environmental Quality, Treacy just retired as executive vice president and chief sustainability officer of Smithfield Foods.

The group’s seemingly unusual alliance is part of why it has influence, says Nikki Rovner, vice chair of VIRGINIAforever and associate state director for the Virginia chapter of The Nature Conservancy. She’s also a former state deputy secretary of natural resources. “When you walk into a legislator’s office, and it’s somebody from a conservation group and somebody from one of Virginia’s big businesses, [lawmakers] really are interested and respond to that,” she says.

The group has a 42-member board (of which half are on the executive board), but it has just one lobbyist, L. Preston Bryant Jr., who was secretary of natural resources under then-Gov. Tim Kaine. Bryant is with McGuireWoods Consulting, a firm that also provides communications support to VIRGINIAforever.

Its leadership includes representatives from some of Virginia’s biggest corporations, including Dominion Resources, Norfolk Southern and Newport News Shipbuilding. Environmental groups include the Alliance for the Chesapeake Bay, the Chesapeake Bay Foundation, the Trust for Public Land and the New River Land Trust. Industry groups include the Home Builders Association of Virginia, the Virginia Association for Commercial Real Estate and the Virginia Agribusiness Council.

The board meets five times a year and the organization hosts three events annually, most recently a briefing in mid-December following the release of Gov. Terry McAuliffe’s proposed budget.

Treacy says last year was the group’s best in terms of successfully getting state funding. But the group expects a tougher time in the upcoming General Assembly session.

“Unfortunately they’re in budget-cutting mode,” Rovner says. “So ours is just a question of finding funding for the things for which there is no funding in the current budget.”

The group’s priorities for the 2018 budget include some minimum funding goals: $20 million for the state’s Stormwater Local Assistance Fund, to help localities reduce urban runoff, and $62 million to help farmers adopt practices to reduce agriculture runoff. The group also wants $10 million for land conservation grant programs.

In the longer term, VIRGINIAforever has much bigger spending goals. A five-year plan produced last year calls for the state to spend $805 million on water quality improvement, with most of that money directed to agriculture projects to limit runoff. It also proposes a funding goal of nearly $834 million over five years for land conservation.

VIRGINIAforever emphasizes the economic value of environmental protection, from farming to the industries dependent on water quality in the Chesapeake Bay to outdoor recreation and clean drinking water supplies. Back in the early 2000s when the group began to take shape, Virginia ranked last among states in spending on the environment, according to the group’s website.

One of the group’s strongest allies in the General Assembly is Republican state Sen. Emmett Hanger, who represents parts of the Shenandoah Valley. Hanger was honored by VIRGINIAforever last September for his support of land and water conservation efforts.

During the decade that the group has existed, there has been less political polarization on issues where environmental protections and business goals tend to collide, Hanger says. “I get in trouble sometimes [with] my base, the right wing of the Republican Party; maybe they’re not as quick to try to achieve some consensus or compromise … but the truth is there are a lot of common goals,” he says.

Hanger says the next major water quality issues are stormwater management and dealing with polluted runoff from developed areas. “We’re at a particularly sensitive point right now where this group can be helpful with the coalition they’ve put together,” he says.

Consensus doesn’t always happen, though. “Early on, we were asked to take on air quality, and we couldn’t get agreement on it, so we didn’t do it,” Treacy says. “We agree on what we can agree on,” he says, adding that it’s not for a lack of effort. “We’re very serious about what we do; these aren’t just fly-by-night positions. We debate them. It’s a consensus organization, so we all have to be in agreement.”

Even in disagreement there are benefits, says Bill Street, CEO of the James River Association. “I think it certainly has helped open lines of communication and even build enough trust to collaborate. Just being able to identify these are issues we disagree on, and these are things we do agree on” is valuable, he says.

Building consensus may advance the shared goals of business leaders and environmental advocates, but it’s not easily done, Street says. “It takes more work to be willing to hear and try to understand different perspectives, as opposed to just sticking to what you believe and going to battle,” he says. “That’s why it takes having an entity that is really focused on bringing folks together and focusing on that common ground.”

Ending the commute

The Fredericksburg region has gotten large enough to start comparing itself to some of Virginia’s urban giants. There are more than 350,000 people in this region, which is the fastest-growing area in Virginia.

Despite its growth, though, there’s one threshold the larger regions have crossed that this area has not. Northern Virginia, the Richmond area and Hampton Roads — the anchors of the state’s urban crescent — have enough local jobs that they actually import workers from outside their regions. The Fredericksburg region does the opposite: It exports more than a third of its workforce — nearly 62,000 workers — mostly to jobs in Northern Virginia and Washington, D.C., according to a new study.

That’s not good news for this region’s tax base or for the thousands of workers who have to travel an hour or more to and from their jobs. But having an excess of workers is a good argument for the region’s efforts to recruit companies. And it’s making progress. “Our job is to figure out how to continue to diversify our regional economic base. And we’ve got the tools to do that,” says Curry Roberts, president of the Fredericksburg Regional Alliance.

That study, released in May by the Center for Business Research at the University of Mary Washington, gives the clearest picture yet of what these 62,000 out-commuters are like. They tend to have higher levels of education and higher incomes than noncommuters. They are more likely to have military experience — 28 percent compared with 12 percent of noncommuters. And perhaps most importantly, more than half work in the six industry clusters that the region is targeting.

Plus, the commuting workforce generally makes a lot more money. In the computer-science field, for example, commuters make an average of $112,600, while a noncommuter in the same field averages just under $81,000.

The higher salary level for out-commuters was consistent across eight major fields of study, says Bradley Hansen, a UMW professor of economics who helped prepare the study. The likely reason the pay is higher is that commuters expect it. Among commuters with degrees in computer science, for example, 79 percent report commutes of at least one hour. That means that over a year they would average about 12.5 work weeks just in commuting.

“From the standpoint of commuters, salaries need to reflect the compensation they expect to receive for their skills and experience and the compensation they expect to receive for the time and money they spend on commuting,” Hansen writes. Translation: If they don’t have to commute so far, they’ll take lower salaries.

Laying the groundwork
Stafford County is the northernmost locality of the region, which makes it most likely to lure companies from the Northern Virginia and Washington-area market. It doesn’t expect to compete for the corporate headquarters of major players in the defense and government contractors that dominate those markets.

“We’re going for the divisional and regional offices,” says Richard Cobert, business development administrator with Stafford’s Department of Economic Development and Tourism.

The county is laying the groundwork for those kinds of employers. This year it set aside $500,000 to help launch the Stafford Research and Technology Park, which is setting up shop in the Quantico Corporate Center, an office park at the county’s northern boundary near Marine Corps Base Quantico. In October, the center hired its first director and plans to lease some space at the office park. It will be an incubator for entrepreneurs, with a focus on cybersecurity.

Two years ago Northern Virginia-based SummitIG laid dark fiber (fiber infrastructure not currently being used) along the Interstate 95 corridor, which borders the corporate center, and this summer Yyotta LLC set up an exchange point and a data center there. It’s a big step for the region because without that infrastructure in place, companies needing that kind of connectivity would just look elsewhere. “It’s a great opportunity for the next phase of growth,” Cobert says.

The current phase of growth in the region is more about new housing and transportation. A 2.2-mile extension of the Interstate 95 Express Lanes is under construction and should be completed in 2018. It will bring the southernmost point of the lanes deeper into Stafford.

Road construction
And next summer an even bigger change is coming when construction starts on a new $150 million interchange on I-95 right in the heart of Stafford. Given that I-95 is pretty much the reason this region has grown so quickly, a project like this will have a big effect.

The new interchange will be just south of an existing exit, which is a miserable two-lane traffic choke point leading to the county’s government center buildings on U.S. 1. A new four-lane road from the interchange will lead directly to Stafford Hospital, which opened on U.S. 1 in 2009. On the west side of I-95, the interchange will give new access to hundreds of acres of undeveloped land.

The new interchange — expected to be completed in 2020 — also will make it easier to reach Embrey Mill, a new 831-acre development just west of I-95 that, at build-out, could have up to 1,800 homes.

That kind of housing project, driven by access to I-95, is a continuation of the pattern that helped make Stafford, at more than 142,000 people, the region’s biggest county. Spotsylvania is second at roughly 130,000 people and it has the same kind of interstate-access development.

Last year, for example, Spotsylvania leaders approved a 241-acre residential project called Jackson Village, near the U.S. 1 interchange on I-95. It hasn’t broken ground yet, but the rezoning will allow for 2,270 homes.

Distribution centers
Not all the economic expansion is driven by proximity to Northern Virginia, though. The region’s mid-Atlantic location and interstate access has helped bring a couple of big employers recently — projects that have nothing to do with proximity to Northern Virginia. In Spotsylvania the Germany-based retail chain Lidl broke ground a year ago on a $125 million distribution center. That facility is expected to create 200 jobs.

Even farther south, North Carolina-based grocery chain Harris Teeter announced plans in late 2015 to build a new distribution center on 190 acres in Caroline County. The facility will eventually be 1.5 million square feet, and the company says it will employ about 400 people. The project hasn’t broken ground yet, but Harris Teeter already bought the property, says Gary Wilson, Caroline’s economic development director.

It’s worth noting that this Harris Teeter project is about 40 miles south of Stafford’s new technology park. Caroline, with just under 30,000 residents, is less than a quarter the size of its northern neighbors, so there’s much less commercial activity. Plus, says Wilson, “We don’t have federal investment here.” The other big project coming soon to Caroline is a new Walmart superstore, which will likely break ground in 2018 and bring another 500 jobs.

The county also is getting a major road expansion, a $26 million project paid for with state and local funds at its state Route 639 interchange with I-95. “It’s a really good project for us, because it completely opens up this corridor to commercial access,” Wilson says.

Here’s one more location-related example for Caroline: Wilson says the county has a ready-to-go data center site near I-95 with dark fiber and sufficient power and water. The county doesn’t have any other data centers, but Washington-area companies looking for data redundancy should take a look, Wilson says. “We’re where they should be. We have the utilities and the resources.”

Naval center major employer
That seems to be key to attracting the bigger private-sector deals in this region — have a growing population or a few exits off of I-95, or preferably both. The region’s King George County, to the east, has neither of those things, but it has a healthy local economy with a September unemployment rate of 4 percent, which is in line with its neighbors.

The county’s biggest asset is the Naval Surface Warfare Center, on the Potomac River. It has 4,850 civilian employees, according to county figures, with a $499 million annual civilian payroll. It also has 1,807 contractors supporting the facility.

King George is the region’s smallest locality in population, at 25,500, smaller even than the city of Fredericksburg, which has about 28,000 people. The city’s downtown is in the midst of a makeover, with several new upscale townhome and condo projects planned or already completed. Its restaurant sector is thriving, too — the city’s annual meals tax receipts are up $1.1 million this year compared with 2013.

The city’s downtown is unique in the region and is a destination for locals and visitors. But, much of the region’s economy is still driven by the Washington economy. You could reasonably say its gravity reaches to the southernmost station of the Virginia Railway Express, which opened a year ago.

On weekdays the earliest northbound train leaves at 4:57 a.m., and even those passengers have to drive to catch the train because there is no housing near the station, just woods.

That’s been the formula here for a few decades. If you’re willing to commute a long way, you can buy a house for way less. But, Roberts with the regional alliance says that commuter ethic might be retired with the baby boomers. By 2025, he says, about 75 percent of the nation’s workforce will be millennials.

“I’m curious if they’re going to want to do that two-hour commute,” he says. If they don’t, companies will have another reason to move here. “Given the quality of life here, that’s where the employers are going to go.”

Medical breakthrough with a hitch

For the Charlottesville-based Focused Ultrasound Foundation, this is a big win. In July, the U.S. Food and Drug Administration gave its approval to a focused ultrasound device to treat essential tremor, a condition that affects several million people in the U.S. The tremor can affect any part of the body but often occurs in the hands, making many everyday tasks difficult to perform.

The foundation promotes the adoption of focused ultrasound technology in a wide range of treatments. Focused ultrasound uses magnetic resonance imaging (MRI) to aim the ultrasound waves. They create enough heat to destroy the brain tissue causing the tremor. That means no surgery is involved, and patients are awake and responsive during the treatment.

The expanded use of focused ultrasound is an important development. “It opens the door for [treating] Parkinson’s disease and epilepsy and all those other” conditions related to brain function, says Dr. Neal Kassell, the founder and chairman of the foundation and a professor of neurosurgery at the University of Virginia.

FDA approval of the essential tremor treatment “validates the technology for all the other conditions,” Kassell says. “Because it treats a condition deep in the brain, that makes it much more likely to work in the rest of the body.”

The FDA’s action is a big deal, and the next step might be even more important. The Center for Medicare and Medicaid Services (CMS) is now deciding how much the federal government is willing to pay for the treatment. CMS’ proposed Medicare payment — about $5,800 per treatment — isn’t enough to encourage health-care providers to start using the technology, its supporters say.

“They approved it at a level that’s too low,” Kassell says. “From the perspective of the treating physicians and the facilities, it’s not enough.”
Pivotal payment

Medicare payment is a critical step in the adaption of this newly approved device and in the effort to increase the use of focused ultrasound. Medicare payment has a big influence on what commercial insurers will pay. Plus, the majority of patients who might need this treatment are old enough to be eligible for Medicare. So whatever payment CMS sets will likely be what most providers will get.

In a sense the payment issue is a matter of bad timing. CMS payment review took place shortly after FDA approval was announced. Kassell and others say CMS is somewhat hamstrung because the focused ultrasound treatment hasn’t been used enough to show what its actual costs are. “It’s not like CMS is doing anything wrong,” Kassell says. “If you’re in their shoes, they’re trying to save taxpayers’ money” by taking a conservative approach to deciding reimbursements.

The FDA-approved focus ultrasound device used in the essential tremor treatment is called the ExAblate Neuro. It is produced by Israel-based InSightec, which has a U.S. office in Dallas. Dee Kolanek, Insightec’s vice president of reimbursement, agrees that the CMS payment decision could at the very least delay implementation of the new device “because hospitals may not invest in the technology,” she says. That investment could be between $1.5 million and $3 million.

In addition to the equipment costs, there is the price of having a trained physician and the support staff needed. Even with the FDA’s approval, getting the system up and running soon will be challenging. “It’s a huge capital expenditure,” she says.

Kolanek says that, while Insightec is disappointed with CMS’ initial $5,800 proposal, the company understands why the agency settled on that figure. “There’s no way to figure a cost without claims data,” and CMS didn’t have enough data to go on, she says.

Collecting enough data
If CMS approved a higher payment, Kolanek and Kassell say the few health-care providers with the ExAblate Neuro system would at least be encouraged to keep using it. After a couple of years of use treating a few hundred patients, CMS could have enough data to more accurately set the reimbursement. Only about a half-dozen hospitals now have the ExAblate Neuro system, so it wouldn’t cost a lot of taxpayer dollars to fund treatments at a higher rate.

Kolanek says Insightec is pursuing FDA approval for other uses for its focused ultrasound technology. “We have clinical trials going right now for many other indications including Parkinson’s Disease … and we have a clinical trial for prostate cancer,” she says.

FDA already has approved focused ultrasound therapy for palliative care for bone metastases. The treatment lets end-stage cancer patients avoid radiation therapy, possibly reducing their need for pain medications. The FDA also has approved the treatment of uterine fibroids using focused ultrasound.

CMS accepted public comments until Sept. 6 on its reimbursement proposal for the essential tremor treatment. The feedback included comments from Dr. Jeffrey Elias, a neurosurgeon at the University of Virginia Health System, one of six clinical trial sites for the treatment. In an August letter to CMS, he said more than 200 people called his office in the days after the FDA approval. What’s more, U.Va. already had a list of 3,000 people interested in getting the focused ultrasound treatment, Elias said.

U.Va. invested $8 million in building a focused ultrasound center five years ago to support testing, he says. “I am hopeful that focused ultrasound will eventually be proven to significantly help with all kinds of conditions of the brain,” he wrote.

Now, proponents of this new treatment must wait to see if CMS changes its proposed reimbursement. “We really have no idea what decision is going to be made and what they’re going to do until the decision is posted,” Kolanek says. A decision is expected in November. “What we would hate for Medicare to do is finalize the hospital payment as is, which could have a significantly adverse impact on the development of this technology… because it can help many people.”

Merger muddle

In the long-running war between insurance companies and health-care providers, each side makes the same claim: Our mergers are better than your mergers.

Federal and state regulators don’t seem very fond of either argument, which is a main reason that for at least the near-term the status of the health-care business is in limbo.

The current front line in that fight is the proposed mergers of insurance giants — a $54 billion Anthem and Cigna deal and a $37 billion combination involving Aetna and Humana. Announced last year, both now are on hold, facing challenges on antitrust issues from the U.S. Department of Justice and some state attorneys general, including Virginia’s Mark Herring.

What the mergers might mean for Virginia’s health-care sector and for consumers is complicated and for now, uncertain if not confusing. The State Corporation Commission’s Bureau of Insurance, for example, reported in March that it didn’t recommend opposition to the Aetna-Humana merger.

Herring, however, is against both mergers. In late July, he joined the legal challenge against them. In a statement, he called the proposed deals “illegal, anti-consumer moves that would reduce competition, eliminate choices, stifle innovation, and drive up costs by allowing four of the largest health insurers in the nation to merge into two exceptionally large providers.”

A week later, the Bureau of Insurance recommended the SCC oppose the Anthem-Cigna merger, saying it would hurt competition in the large-group market, with the potential to harm policyholders and the general public. In Virginia, Anthem is the largest commercial carrier in the large-group insurance market, which offers plans for companies with 50 or more employees. Combined, Anthem and Cigna would have about 25 percent of that market.

Anthem Virginia spokesman Scott Golden said in a statement that the company disagrees with the insurance bureau’s decision but expects “to have continued constructive dialogue with the commonwealth.” He said Anthem is “confident we can address their concerns, complete the transaction and deliver its benefits at a critical time when American consumers are seeking high-quality health-care services with greater value at less cost.”

The insurance bureau recommended Anthem get 30 days to propose changes “that may alleviate the competitive concerns” cited in its report.

The SCC has authority only over the business that Anthem and Cigna do in Virginia. While the insurance bureau recommended that the SCC reject the merger, the SCC hasn’t scheduled a vote yet. The three-member commission eventually will rule on the merger application, SCC spokesman Ken Schrad said in an email.

The Anthem-Cigna deal is obviously complicated by the federal and state-level opposition. The terms of the merger are very likely to change as Anthem and Cigna try to get past regulators’ criticisms. If changes are made, the companies can resubmit their plans to the SCC. If the merger proceeds without satisfying the objections raised in Virginia, the SCC has the option of suspending the combined company’s license to operate here.

Business case for deal
Doug Gray, executive director for the Virginia Association of Health Plans, says the Anthem-Cigna deal “should be good for employers” because Anthem would gain more customers and could negotiate a better deal with health-care providers on the employers’ behalf.

Self-insured companies hire insurers like Anthem to manage their insurance coverage, and they want “the best deal they can get, because they pay every bill out of their pocket,” Gray says. If there weren’t advantages for insurers that have a larger market share, “we’d have many more health plans, with a smaller number of enrollees.”

He says health-care providers — including hospitals and physicians groups — also have been merging, proof that size matters. “The health industry has one big challenge, which is that in every sector, someone with an MBA comes along and says bigger is better when it comes to revenue and profit,” Gray says. “There’s always going to be a natural tension between providers and payors.”

Gray acknowledges that the Anthem-Cigna merger would mean fewer choices for some companies. “But the choice they do have will have a lot more leverage,” he says. “The bottom line for them is: How much is this going to cost me, and am I going to get access to a good network? They want somebody who is equipped to get a good deal.”

Gray offered this example: Say, you have a company with locations in six states. Today, it might be able to get a bid from Anthem in three states and a bid from Cigna or one of the few other major insurers in the remaining states. “If this merger happens, in all the places where Anthem is and where Cigna is, they can get one deal, which is more efficient and more effective. That’s the business case for the merger.”

Hospitals, physicians opposed
A major voice in the commonwealth against the Anthem-Cigna merger is the Virginia Hospital & Healthcare Association. Chris Bailey, the group’s executive vice president, made the VHHA argument at a May hearing before the SCC. Anthem already has “a significant concentration in Virginia’s self-insured and fully-insured commercial market,” he told the commission.

Plus, Bailey argues that mergers among hospitals and other health-care providers are different from combinations among insurance companies. Health system “integration” has helped improve medical care in a number of areas, Bailey says. “There are many opportunities for further improvements, but Virginia health-care delivery is moving in the right direction,” he said during his testimony.

Health-care providers already have the weaker hand in many parts of the state when it comes to negotiating fees or getting insurers to help them find new ways to deliver care, Bailey says. “There is no evidence in Virginia’s history, or in other markets, to indicate that allowing an already dominant insurer to gain greater market share and become even more protected against competitive pressures will result in” lower costs or more insurer support for new ways to deliver care, Bailey said in written comments to the SCC.

He also argued that there has been a steady drop in the annual rate of hospital price increases in recent years, while productivity has increased. “It is evident that a decade of provider integration has shown measurable improvement in quality and safety” while allowing the Anthem-Cigna merger “will make an already untenable situation that much more problematic for the insured, the public and health-care providers.”

The Medical Society of Virginia isn’t a fan of the merger, either. It polled 198 physicians in Virginia on both mergers and says that 79 percent “felt they had to contract with Anthem” and 55 percent felt that way with Cigna. Only 6 percent of doctors felt they could find enough new Medicare or Medicaid patients to replace the lost income from commercial insurance. Medicare and Medicaid payments are generally lower than what commercial insurers pay.

Scott Johnson, an attorney from the Richmond office of Hancock, Daniel, Johnson & Nagle, spoke on behalf of the medical society before the SCC, saying that the Anthem-Cigna merger would lessen competition over prices and discourage other insurers from entering Virginia.

Johnson says providers already face “a sort of take-it-or-leave-it type of contract” from Anthem and Cigna. “The concern that our folks have is that, if these companies merge, it gets even more arduous and puts more pressure on them.” He also raises the specter of some physicians facing exclusion. “We’re frankly concerned that, if it’s only one large company, for those physicians who advocate furiously for their patients, perhaps they wouldn’t be offered a contract” by Anthem.

Physicians with small practices in particular get squeezed by dominant insurers, Johnson says, and they get tired of the fight. “They have no choice; either retire or move out of state, or be consumed or hired by some type of health system in order to hang on.”

He cites his own law firm as an example of the problems some businesses face. In 2015, Johnson says, Anthem took in $300,000 more in premium payments than it paid out in claims to the firm’s employees. But when the coverage renewal came up last December, “they said, ‘We want to bump your premium another six figures.’”

Skeptical consumers
Somewhere in the middle of this battle are consumers. Karen Cameron, director of the Virginia Consumer Voices for Healthcare, believes that claims that the mergers will save consumers money is a worn argument. “It won’t cut costs. Those systems are already very large systems, with advantages of economies of scale,” she says.

Cameron says large, self-insured firms might be convinced that the Anthem merger could help drive down costs, but smaller companies usually aren’t in that position. Smaller companies could face higher costs without competition, and, if it drives them to drop insurance coverage, then their employees will turn to the insurance exchanges of the Affordable Care Act. There, the federal government could wind up paying part of their costs.

Meanwhile, Anthem is making clear that it plans to fight. In full-page newspaper ads published days after federal regulators announced their lawsuits, Anthem CEO Joseph Swedish said the Justice Department’s analysis reflected its “fundamental misunderstanding of the dynamic, competitive and highly regulated health-care landscape.”

Swedish argued that the merger would save its self-insured customers $2 billion annually. “These savings are a direct pass through to consumers and will greatly improve the affordability of care,” he said.

Johnson, the Richmond attorney, says health-care providers feel the pressure from a lot of directions. “The practice of medicine right now is very fragile, and everybody is on edge for any type of change,” he says. “In the meantime, it’s somewhat status quo,” he says, though “everybody is waiting with bated breath for their renewal contracts.” But nobody expects a quick resolution of the merger fights. “Things just don’t happen that quickly.”

More than a friendly face

When you think of cutting-edge mobile banking, does your local bank come to mind? Too often the answer is no, says Jim Cherry, the Richmond-based CEO of Charlotte-based Park Sterling Bank.

“I think most people think of a community bank and start thinking, ‘stodgy,’ which is unfortunate,” he says. Of course, many community banks promote the friendly-local-folks image, he says, because it’s a great marketing point. But it’s not the whole story. “Most people’s observation is that community banks may have great service, but they don’t have great products,” he says. “We have to fight that image.”

That issue and others — such as cybersecurity and the aftermath of the 2008 recession — came up during a recent roundtable discussion among community bank leaders hosted by Virginia Business. (See edited transcript.)

The personal touch of community banks is still a core value. Billy Beale, president and CEO of Union Bankshares Corp. in Richmond, says customers like dealing with the familiar faces they know at a community bank. “The person that a client had 10 years ago is probably the same person today and likely the one they’ll have five years from now,” he says.

Plus, community banks stuck around when the economy slumped, Beale says. “After this downturn, there are many of our clients who saw the big banks exit lines of business while we stood in there and continued to finance homebuilders,” he says. “We continued to finance others that were out of favor, and so I think there is more of a steadiness that comes in community banks that you don’t see in some of the big banks.”

Susan Still, president and CEO of Roanoke-based HomeTown Bank, says the recession “really caused a renaissance for community banking, because all of the sudden the folks that were banking at the larger banks realized they had a choice.”

And when they had a choice, some community banks picked up business. Bob Aston, chairman and CEO of TowneBank in Portsmouth, says the retreat of larger banks from some portfolios “actually made some of those years during the downturn some of our best years.” Big banks may have hurt themselves, he says, because their good customers would just go to another lender, leaving some banks “stuck with those who couldn’t pay.

So at the end of the day, my view is they may have reduced the size of the portfolio, but the risk profile of that portfolio probably went up in the process because it was the better customer that could exit.”

Those dynamics have given way, though, to the changes that mobile banking is having on big and small banks. Those changes suggest that the personal touch that community banks provide isn’t enough. Bank of America, for example, has been selling off hundreds of branches as it turns toward a mobile-banking market. Cherry sees that kind of move by bigger banks as evidence that branch-based banking isn’t where the growth is.

Before its recent merger with Glenn Allen-based First Capital Bancorp, Cherry says, Park Sterling tried an experiment. It announced a money market account with a generous 1.36 annual percentage yield. Some said the bank was paying too much, but Cherry notes the offer attracted about $60 million in deposits in just a few months without adding any new bank branches.

He says one of his bank branches typically has about $35 million in deposits, adding that a new branch requires four to five years to reach that level.

What’s more, Cherry says, mobile banking is filling in the gap for customers in rural areas. They might have seen their local branch close and have to travel a long way to reach the closest one. “The truth of the matter is they’re being served better,” he says. Mobile banking can go anywhere customers are. Recently a customer who spends part of the year in Naples, Fla., asked whether there was a branch there. Cherry said use your smartphone. What about cash withdrawals? Use any ATM and we’ll pay the interchange fee, Cherry told him.

This is what community banks need to do to capture customers who will gravitate toward mobile banking. “I think the key is letting people know we’re part of that,” Cherry says.

Banks of every size need customers to trust them, and keeping up with cybersecurity is a big deal. Bill Ridenour, president and CAO for John Marshall Bank in Reston, says it recently completed a conversion to a new security system “and it was a big investment … it was hundreds and hundreds of thousands of dollars.” The process took more than a year, with everything from making sure vendors are compliant with cybersecurity protocol to training staff and educating customers. Still, with HomeTown Bank, says her bank even sets up small tests for its board members to make sure they know how to avoid exposing the bank to hackers who come in through emails or web links.

Banks may have it a bit tougher than other businesses in that they’re handling so many money transactions. Gary Shook, president and CEO of Middleburg Bank in Middleburg, says customers still want the best of both worlds. “They want to press the button and say, ‘Go,’ and we’re trying to protect them in the process,” he says.

Ridenour agrees. “Regardless of how the breach occurs, you know, the customer is going to look to the bank and even if they created the breach they’re going to say, ‘Well, you know it was your system.’ So it is a public relations issue that we wrestle with every day.”

With interest rates so low — in mid-June the Federal Reserve held steady on its benchmark interest rate — banks of every size are chasing the growth and profit they can find. The disruptive technology changing the industry nowadays is making that possible, but it also brings a new set of challenges.

Stopping the bleeding

Leaders of Virginia’s hospitals are frustrated, and they have some good reasons for feeling that way. After all, they were left hanging when the 2010 Affordable Care Act cut Medicare reimbursements to hospitals in anticipation of Medicaid expansion, but then Virginia refused to expand its program.

Then there were more Medicare cuts in the 2013 sequestration budget deal. According to the Virginia Hospital and Healthcare Association (VHHA), overall funding cuts will cost Virginia hospitals close to $1 billion annually by 2021. “This is not a sustainable business model,” says Sean Connaughton, VHHA’s president and CEO.

Hospitals are required by federal law to treat patients even if those patients are uninsured or can’t pay the bill. “I say let’s talk about this,” says Mark Merrill, president and CEO of Winchester-based Valley Health System. “I can’t walk into Starbucks or a Martin’s or a Food Lion and say, ‘I need a basket of food because I’m hungry.’ But if I need medical care, I can show up at the emergency department and get treated.”

Hospitals cut a less sympathetic figure, though, when numbers come out showing that most Virginia hospitals have positive operating margins, according to 2014 data released in December by Virginia Health Information (VHI).

VHHA, however, says that a hospital needs to have an operating margin of at least 4 percent to maintain fiscal stability and fund capital expenditures. Forty of 89 fell below that mark, including 18 of 31 rural hospitals on the VHI list, the trade group says.

Some hospitals are feeling the pinch for reasons that reflect their own more specific circumstances as well as cuts in federal dollars.
Valley Health System operates four of its six hospitals in Virginia, and three of them — Page Memorial Hospital, Shenandoah Memorial Hospital and Warren Memorial Hospital — were in the red in 2014. That’s better than 2013, though, when all four of its Virginia hospitals failed to break even. The fourth is Winchester Medical Center.

Like others, Merrill blames much of the problem on the cuts from the ACA and the sequestration budget deal. So far, he says, the hospital group has not yet seen a financial uptick from an increasing number of insured patients because of rising ACA enrollment. Plus, “we continue to see an increase in charity care” and bad debt, he says, with the cost of such care at Shenandoah Memorial rising $800,000 to $6.8 million from 2014 to 2015. In addition, the reimbursement percentage from Medicaid continues to decline; Merrill says he’s been with Valley Health for six years, and it’s dropped every year.

Merrill also cites the financial impact on hospitals when doctors leave. Their departure results in fewer hospital-based procedures and patients. Warren Memorial, for example, lost an orthopedic surgeon a few years ago, leaving the hospital with just one in that specialty. Another local doctor just moved to a different market. “In a small hospital… the medical staff is not as robust. A loss of a busy practitioner is a big hit,” he says.

A small hospital group also has a tougher task in spreading out the costs of systemwide investments, Merrill says. In 2014 Valley Health launched an electronic health record (EHR) system called EpicCare. “We think it’s very valuable, but Warren and Shenandoah and Page, if they had to proceed with an EHR system like EpicCare, it would not be affordable for them,” he says.

Valley has had to make some reductions in services; it closed its obstetrical services at the Shenandoah hospital and combined it with its Warren location, and scaled back pediatric care at Shenandoah as well. “It was a combination of cost and insufficient physicians” to provide care, Merrill says.

Another rising expense is the cost of pharmaceuticals, he says. Pharmaceutical companies are for-profit, but many hospitals are not. Those hospitals find themselves stuck between the private sector’s profit motives and their own responsibilities. “We haven’t as a nation decided: Is health care a private good or is it a public right?” Merrill says.

Another example of the tough choices facing some hospitals is Chesapeake Regional Healthcare in Chesapeake. It has a 310-bed independent hospital, a rarity these days. Its operating margin was 7.9 percent in the red in 2014, and 24.6 percent of its total expenses were used to cover charity care, bad debt and taxes, among the highest percentages in the state. Chesapeake Regional had a profit margin of 1.3 percent, or $3.9 million, in fiscal year 2015.

Dr. Peter Bastone, Chesapeake Regional’s CEO, recently reflected on its challenges near the end of his tenure at the hospital. He was scheduled to leave at the end of March to be closer to his family in California. Dr. Alton Stocks, Chesapeake’s chief operating officer, is now interim president and CEO.

Bastone previously served as chief administrative officer of CHA Health Systems in Los Angeles and Seoul, South Korea. He said that, when he arrived three years ago, Chesapeake Regional’s board was “pretty clear that they want this hospital independent.”

Independent status brings financial challenges because it can’t share costs. Chesapeake Regional is surrounded by bigger competitors, such as Sentara Healthcare, which has six hospitals in the region, and Bon Secours Health System, which has three. Bastone’s strategy was to not be all things to all patients and to form partnerships with other hospital groups when they made sense.

“We want to be the integrator of care. If you come to our hospital, and you have a major cancer, I don’t want to treat you here. I want to send you to Johns Hopkins, to Sloan Kettering [in New York.] If we’re able to take care of that problem, that family is going to come back to us,” he said.

Bastone took some tough measures. He froze salaries for a year, looked at what programs made sense financially and wrote off $22 million in bad debt. “Over the last two years, I kind of cleaned house,” he said. “I just really kind of stripped down the car and rebuilt it.”
Shrinking Medicare payments and the cost of indigent care hurt the hospital, too, but he looked at what he could do with the hand he had been dealt.

That meant deals such as contracting with Bon Secours and a subsidiary to install an EHR, a move that saved about $14 million. Bastone’s strategy basically was to align where he could. “We structured our programs and our services to do what we do best… I don’t have to own 100 percent of everything, I just have to have a piece of it that’s working.”

Labor represents 60 percent of the hospital’s expenses. “For us to make $750,000 on the bottom line, we need 275 patients per day,” he said. “Not too much Medicare or Medicaid. Low charity [care]. That’s the thin line we work under.”

The trend in health care is toward outpatient care, Bastone said, so maybe Chesapeake Regional will have some future financial advantage, with its lower overhead. “Sentara’s biggest strength is that they have a lot of facilities,” he said. “Their biggest weakness is that they have a lot of facilities.”

In another part of the commonwealth, Carilion Clinic has six hospitals in Southwest Virginia but only one, Carilion Tazewell Community Hospital, was in the red in 2014. It’s a small hospital, with 56 licensed beds.

Carilion CFO Don Halliwill cites several financial headwinds the hospital faces. The cuts in Medicare reimbursements, the lack of Medicaid expansion and the loss of commercially insured patients are the main issues. Unemployment in Tazewell County was 7 percent in December, compared with 3.9 percent statewide, according to Virginia Employment Commission figures, which are not adjusted for seasonal changes in the labor force. The jobless rates in neighboring Buchanan and Dickenson counties were both above 10 percent, the only two localities in Virginia with double-digit rates.

The weakening coal industry is shedding jobs, and Tazewell’s region feels it. “Fewer businesses, fewer jobs mean fewer insured patients,” Halliwill says.

The Tazewell hospital also struggles to keep doctors in the area, both specialists and primary-care providers, he says. A primary-care doctor in a rural region generally is paid less than a physician in a practice in a wealthier and more populated community. And the work demands can be higher.

“Maybe 20 years ago, several primary-care physicians had settled there to practice their whole careers,” he says. New doctors are less willing to be on call 24/7 in small solo practices, preferring practice groups “where the work/life balance is more acceptable to them. Those changes have hit communities like Tazewell harder.”

Some regions have more problems than others. Northern Virginia had just one hospital in the red in 2014, according to the VHI figures. Southwest Virginia had eight. Some hospitals are just a few years old and need time to get established in the market. This group includes facilities such as Spotsylvania Regional Medical Center, which opened in 2010, and Riverside Doctors’ Hospital Williamsburg, which opened in 2013.

This year’s General Assembly considered a proposal to enact a 3 percent provider tax on hospitals, which would have brought in matching federal dollars. The final two-year budget approved in mid-March, however, did not include that provision. But hospitals did not come away empty-handed. The budget provides $16 million in state matching funds to adjust Medicaid reimbursements for inflation.

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byline: Robert Burke