JOHNSON CITY, Tenn. (WJHL) — As Dr. Jeff Schoondyke waited for July 1 to arrive, he began hearing that a rule preventing Ballad Health from opposing “certificate of need” (CON) applications might vanish. His sources turned out to be good.

The cardiologist and founder of Karing Hearts Cardiology wants to establish an independent, outpatient cardiac catheterization lab in Johnson City. He said the one-lab facility that could perform caths, pacemaker implants and other procedures is needed to compete with Ballad’s labs at Johnson City Medical Center — and that the data can prove it.

“Over the past two-and-a-half years the cath lab has been severely understaffed,” Schoondyke said. “Patients are waiting upward of 30 to 60 days for procedures that would ordinarily have been done in a week.”

But Schoondyke said he still prefers to defend his own CON application — a requirement that applies to establishment of higher-level services like MRI machines, outpatient diagnostic or surgery centers and the like — without Ballad having the opportunity to weigh in against it.

“The connections they have in Nashville and the legal team they have, it’s literally David and Goliath,” Schoondyke told News Channel 11.

Dr. Jeff Schoondyke checks a patient at Karing Hearts. (WJHL photo)

He withdrew an initial application to Tennessee’s Health Facilities Commission (HFC) earlier this year when Ballad — which at the time could oppose CONs because the prohibition had been suspended during the COVID-19 emergency — signaled that it would oppose it.

Shortly after July 1 rolled around, though, Schoondyke learned Ballad had successfully sought a permanent change and can now oppose CON applications. He and one other independent medical practice leader criticized the change, while a third said his group would at least have wanted more notice of the proposal and a chance to weight in.

“Ballad signed onto it, they agreed to it,” Schoondyke said. “Now they are systematically changing the rules.”

Dr. Scott Fowler, CEO of Holston Medical Group (HMG) and a skeptic of the merger’s benefits since before it was approved, agreed. HMG won approval for an outpatient surgery center at a time when Ballad couldn’t oppose its CON application.

“We went into this with some skepticism that if the balances weren’t proper, then obviously this is a monopoly that if it can get its way and remove the balances is going to be able to extend its horizontal monopoly, the monopoly for inpatient care and use the force of that in the outpatient marketplace,” Fowler said. “To compete separate, divide, fragment, those types of things. I think we went into it understanding that was a potential.”

Ballad CEO Alan Levine’s assessment of the current situation is diametrically opposed to those of Schoondyke and Fowler. Levine said the merger that created Ballad was designed to protect the hospital system’s ability to provide care in far-flung rural areas of its vast footprint covering Northeast Tennessee and Southwest Virginia — and to “cross-subsidize” those rural services and other money-losing parts of its business so consumers benefit by not losing critical services.

“There have been CONs that have been granted in the last four years that have had or are having almost a $14 million effect on Ballad’s operating income, which represents about 40% of our pre-COVID operating income,” Levine said.

Not being able to oppose a CON application when necessary, he said, leaves Ballad unable to give the state important data and context that every other provider in the state has the right to provide if they’re opposing an application.

“These things happening does have an effect on us, and it’s not a level playing field,” Levine said.

COPA, TOC, FTC, CON, HFC — acronyms and their meaning

It’s difficult to fully understand the friction between Ballad and some of the region’s larger independent groups without winding back the clock a bit. With not-for-profit Wellmont Health System looking to sell in 2013, rival not-for-profit Mountain States Health Alliance became a suitor.

Proponents of a local merger said it would maintain regional control of Holston Valley Medical Center in Kingsport, Bristol Regional Medical Center (both Wellmont), Johnson City Medical Center (Mountain States) and the dozen or so satellite hospitals the rival systems owned.

A merger, though, would create an inpatient monopoly (the systems had extensive outpatient business as well) — something the Federal Trade Commission (FTC) would surely oppose given the almost total inpatient monopoly it would create across about 15 counties in two states.

Keeping the FTC at bay would require something called “state action immunity.” If states determine a non-competitive merger’s benefits outweigh disadvantages caused by lack of competition, and if it maintains “active supervision” of the new entity once that merger is complete, the new creation can be “immune” from FTC action.

Enter two more acronyms: the Terms of Certification (TOC), which contained the prohibition on Ballad opposing CON applications, and the Certificate of Public Advantage (COPA).

The TOC provides the meat on the bones of the “COPA,” which the Tennessee Department of Health and Tennessee Attorney General’s office approved in late 2017 after about two years of negotiations and input by everyone from the hospital systems and the FTC to providers like Fowler.

State of Franklin Healthcare Associates had to gain a certificate of need for this MRI machine at its Johnson City diagnostic center. (WJHL photo)

“We had the open forums and the public debates about it and there was a lot of understanding I think that there were nuggets of things that might be positive in the COPA,” Fowler remembered. “Maybe we could keep things more local and balance things in a way that we could improve community health and improve access for our patients.”

The TOC was a linchpin to ensuring that, Fowler and Schoondyke both said. And the rule about CON opposition in Section 5.04 (“Competing Services”) “was probably number one or number one A in importance for the entire independent physician community,” Schoondyke said.

“That provision opened up the market to the independents, and now it’s gone.”

Schoondyke pointed to what he said are access issues for patients, particularly since the COVID pandemic, that have reduced Johnson City Medical Center’s cath lab to operating on just one or two labs, down from five or even six a few years ago.

Ballad has acknowledged that situation in emails obtained by News Channel 11 but has said it’s a consequence of national labor issues. Even if it were remedied, though, Schoondyke said he’d push to gain approval for a free standing cath lab because he believes it would benefit consumers — the purported main goal of the COPA and its protections.

“In this situation if there were an option for these services, people could get taken care of in a very safe and efficient way,” he said. “But when you throw in a CON opposition from somebody as powerful as Ballad, with all the resources, really it’s the patients that suffer. They just don’t know what’s going on, and it’s sad, but they have been really let down.

“That wasn’t what the promise of the merger was. The merger was better access, lower cost. Access is at its all-time low in the cath lab, cost is still where it was. I can provide that same service from a cardiology perspective at a significant reduction in cost and (greater) efficiency.”

Renegotiating the contract

Ballad’s Levine forcefully disagreed with Schoondyke and Fowler’s assessments. He said Ballad needs some protections of its own in order to keep providing some of the most important parts of its “public advantage” — preserving rural care, operating safety net hospitals including Woodridge Psychiatric Hospital, and running Niswonger Children’s Hospital among others.

Without an ability to oppose CON applications for projects Levine said “cherry pick” higher reimbursing patients and leave Ballad with far more uninsured and Medicaid patients, the people who need the system’s help the most suffer.

In fact, he said, Section 5.04 (c)’s original language stuck in his craw, and those of the Mountain States and Wellmont board members, from the beginning — even though it appears to have at least some protection against “cherry picking.”

“(Ballad) shall not oppose the award of a certificate of need in the Geographic Service Area of any healthcare provider seeking to provide inpatient or outpatient or any other services similar to or which compete with the services provided by (Ballad), unless such applicant for the certificate of need does not consistently accept inpatient Medicaid patients or uninsured patients. (emphasis added)

“The department of health commissioner at the time (Dr. John Dreyzehner) insisted on that provision being in there,” Levine said. “The board of Wellmont and the board of Mountain States did not like that provision, but they agreed to it. We followed that provision. We didn’t oppose any CONs.”

Ballad CEO Alan Levine during an interview about the change to the COPA’s Terms of Certification. (WJHL photo)

Those boards took their proverbial medicine, Levine said, to achieve the greater good of preserving rural health care and working to accomplish the positives he said Ballad is achieving.

But Levine said the system very likely would have opposed some of the CON applications that were filed when it couldn’t, though perhaps not all of them. Several filed when the rules were lifted went through without Ballad opposition.

As that emergency wound down, Ballad leaders approached the state as they are permitted to do under the TOC’s Section 8.02, “Proposed Modification by New Health System.” That reads that “in response to material unforeseen circumstances,” Ballad can notify TDH, request proposed COPA modifications “and provide a written explanation and any supporting documentation.”

Following allowed negotiation, TDH and the AG’s office can make modifications “only to the extent the Department determines (those)… are necessary to retain, or otherwise will not impair, Public Advantage.”

The new section 5.04(c) allows Ballad to oppose CON applications. Its key language references the “Tennessee Health Services and Planning Act of 2021,” which says establishment and modification of healthcare facilities “must be accomplished in a manner that promotes access to necessary, high quality, and cost-effective services…”

It goes on to say TDH and Ballad “seek to ensure that the Health Facilities Commission … has access to information relevant to its decision-making process.”

Power play, or protecting the people?

Levine said Ballad requested the change partly after state law regarding CON changed last year and included a clear preference for retaining rural services. He supported the notion that the HFC board wouldn’t be best-served without Ballad being able to make its case if it opposed an application.

“When an applicant goes before a state body it’s critical for that state body in its judicial work to have access to all the information,” Levine said. “There is no process more competitive than the CON process because when you’re standing in front of that HSDA, you’re providing arguments, information, data, they’re asking questions, everybody’s revealing the other sides weaknesses in their arguments, and then the HSDA, they debate it publicly and then they make a decision.”

Levine dismissed any suggestions that Ballad may have undue influence on the process, whether direct or by simple virtue of its size and power.

“That’s kind of an insult for them to suggest that people who are independently appointed and who are tasked with making those decisions are gonna be swayed because we’re Ballad Health,” he said.

“There are hospital systems all over the state that are far more powerful than Ballad Health that have won some and lost some. Vanderbilt. HCA. Erlanger. There’s some very big, very powerful institutions that have opposed CONs and lost and supported or applied for CONs and didn’t get them. But that’s the process.”

Neither Fowler nor Schoondyke was buying that argument, and even State of Franklin Healthcare Associates, no “Ballad basher” according to COO Dan Bragg, had its reservations about the change and how it occurred.

Bragg said SOFHA would like to see a complete elimination of the CON process and agreed the TOC has important protections.

“We want them to successful,” he said of Ballad. “But there were many tradeoffs in the COPA originally, and I think it’s important that as many of those remain in place as possible as long as possible,” Bragg said.

He said the CON process itself has seemed fair to him in the past, as SOFHA has had requests granted even with opposition. Still, the large provider group would have preferred to know the potential change might be in the pipeline and had a chance to weigh in.

“We didn’t know this was coming at all, so we were a little bit surprised to see this as well,” Bragg said.

Schoondyke said he doubts whether allowing Ballad to challenge CON applications meets the TOC’s bar of “material unforeseen circumstances” — and he thinks the shift could “impair public advantage.” He also cast doubt on the amount of financial pain an independent cath lab would be likely to cause Ballad.

“I think it’s more about control and being able to dictate the market,” he said.

“I’m not out to hurt Ballad. I’m not here to make their life difficult. But I am a private citizen who runs a business and I have just as much right to deliver a service that I can do better, faster, stronger and cheaper as they do.”

Schoondyke bristled at the suggestion that his practice “cherry picked” patients.

“There has never been a situation where we have cherry picked those patients with good insurance,” Schoondyke said. “If you look at our patients, look at our mix, and I think Ballad can attest to this too, we’ve never done that. Our patients are our patients and we will care for them the best way we know how whether they’re insured or not.”

And whether Ballad had to inform the private sector practice leaders about its intentions or not, Schoondyke and Fowler both said the hospital system should have.

“I actually check the (COPA) website regularly and was completely blindsided,” Schoondyke said. “It’s wrong. The people need to know that these kinds of things are happening, and if you don’t think that it affects you as a citizen of this region, you’re absolutely wrong. It is a major, major decision.”

Fowler said Ballad has a lot of power no matter how objective processes are supposed to be.

“The ability of the people on the CON board to make rational decisions about who should get a CON and who shouldn’t can be strongly influenced by the hospitals and the power that the hospitals have in the marketplace. So I think there’s a lot of reasons why this would have been something that I would have wanted to understand much better before it happened.

“I don’t necessarily want to disagree with what Mr. Levine thought. He thought what he thought about it. But from our perspective this was a part of the bargain that the COPA was based on and this is an erosion of the quid pro quo that was in the COPA.”

News Channel 11 asked TDH and the AG’s office about the decision and received this statement from TDH’s Bill Christian:

The COPA is an unprecedented process, and as a result, there are ongoing conversations among Ballad Health, the Department of Health and Attorney General’s Office to ensure that there continues to be a public benefit to the citizens of Northeast Tennessee.  The Department’s role in the COPA in cooperation with the Attorney General’s Office is active supervision, and TDH takes this responsibility seriously.

As the COVID-19 pandemic unfolded, Ballad requested that the State consider modifications to the Terms of Certification. Those discussions took place over the course of time, and certain changes were recently approved.