Whoa there! New hospital? No, thanks.

A local health system wants to enter the Virginia Beach market and build in the growing Princess Anne section.

The hospital's competitors say no fair. The new hospital would draw business away from them and there's no need for more beds, which aren't filled enough as is.

The state agrees and rejects the new hospital.

The year: 1988. The rejected health system: Sentara Healthcare.

It wasn't the first time Sentara and other suitors were rejected for a hospital in southern Virginia Beach. Nor would it be the last. In March, Bon Secours Hampton Roads Health System was rejected by the state in its bid.

More than 20 years after it first tried, Sentara finally succeeded.

"The health planning in this case served us very well by slowing us down," said Howard Kern, president and chief operating officer of Sentara. "That's part of the irony of why we support COPN."

COPN stands for the state's Certificate of Public Need program. Essentially, any major health care project - from new hospitals to MRI machines - needs to get the state's OK. The goal of the law: keeping health care costs in check while enhancing access and quality.

Some maintain that the process does just the opposite, and that it would be better if the state would get out of the way and let the marketplace determine who wins and loses in health care.

Gov. Timothy M. Kaine recently signed legislation to increase the importance of competition and public support in the state's approval process. The law, which goes into effect July 1, represents merely a start in some minds.

"It does need to be reformed," said Del. Phillip Hamilton, R-Newport News, who sponsored the bill to change the process. "If anything ever proved it to me, it was the recent Sentara victories and Bon Secours defeats."

Last year, Bon Secours submitted what it calls a "bold new vision" for health care in Hampton Roads, one that would bring a choice of health care providers to Virginia Beach and Suffolk, which are now served solely by Sentara hospitals.

At the center of the plan was the aging and financially ailing Bon Secours DePaul Medical Center in Norfolk. The Catholic health system proposed redistributing DePaul's 238 licensed beds among a new 114-bed hospital in the Princess Anne section of Virginia Beach, a 60-bed hospital in northern Suffolk and a new, but greatly downsized 64-bed facility at DePaul's location on Granby Street.

In March, Bon Secours was rejected on all counts, with the state health commissioner's office deciding there wasn't a public need for the new hospitals. It also determined that the replacement hospital left at DePaul would be too small and have too few services to meet the needs of Norfolk's residents.

Meanwhile, Sentara received state approval to relocate its Bayside Hospital beds to build a new 120-bed hospital in the Princess Anne section of Virginia Beach - making Bayside an outpatient center when the new facility opens, scheduled for 2011. Sentara also got permission to expand Sentara Obici Hospital in Suffolk by 30 beds.

Bon Secours' attorney, Matt Jenkins, called the set of decisions "the most anti-competitive possible," which had the effect of "reinforcing the Sentara monopoly."

In early April, the health system filed its intent to appeal the decisions, including those affecting Sentara's projects. Bon Secours is taking issue with the result, not the COPN law, said Richard Hanson, chief executive of the health system's Hampton Roads division.

"It's a fair process. We're just disappointed in the commissioner's decision," Hanson said. "There needs to be competition in Virginia Beach. It's the largest city in the state, and it's dominated by one provider."

In judging health care projects, the state uses 20 criteria - ranging from cost to driving times - and consideration of competition takes a relatively small place among them. The new law introduced by Hamilton will put a greater emphasis on competition and public support for projects.

"If a community wants a project, it makes sense that that ought to be a factor," Hamilton said. "Quite frankly, I'd like for that to be the dominant factor."

First tried in New York in the 1960s, certificate of need programs became the law of the land with a federal mandate in the '70s. In 1986, the states were no longer required to have such programs; some did away with them when federal funding dried up. While about 35 states still have certificate of need programs of varying stringency, the debate over their impact continues.

A 2004 joint report from the U.S. Department of Justice and the Federal Trade Commission urged states to examine their certificate of need programs, saying that "they pose serious anti-competitive risks that usually outweigh their purported economic benefits."

But, the American Health Planning Association said that in its rush to push the benefits of the free market, that report overlooked data that showed health care costs are actually lower in states with certificate of need programs, while health outcomes are improved.

Who's right? Hard to say. Part of the problem with the dueling data is that the health care system itself is a complicated web of both public and private programs of which no one entity has a full grasp. Laurens Sartoris, president of the Virginia Hospital & Healthcare Association, observed that certificate of need programs "can never fully achieve" their goals of containing costs while improving access and quality "because there are so many other moving parts in health care."

Still, Sartoris said, they provide a hedge against a "health care financing system that would politely be called wacky."

Left to the free market, "you'd have competition only on profitable services," he said. Private physicians would be able to open lucrative outpatient surgery and diagnostic centers at will and poor, inner city areas would likely be left without services. The current system allows hospital systems to get their share of lucrative services to help pay for the traditional care that typically loses money, such as emergency rooms, which must treat all comers, regardless of their ability to pay.

Virginia's COPN is "a very good law," said Paul Boynton, former executive director of the Eastern Virginia Health Systems Agency, the regional body that advises the state on local health care projects. "It's strong, but not really invasive in the sense that it doesn't stop necessary facilities from being built."

Hamilton said that while he accepts that the government should protect hospitals from the cherry-picking of lucrative services, overall he thinks Virginia's COPN law is outdated and in need of an overhaul.

COPN is "an unnecessarily burdensome regulation to the provision of health care services," Hamilton said. In cases like the recent Bon Secours/Sentara decisions, the COPN system "almost fosters monopoly. "

"It's like the rich getting richer," Hamilton said. "It was very disturbing."

Kern bristles at the notion that Sentara is a monopoly - or is trying to be one. It has seven of the 13 general hospitals in an area ranging from Virginia Beach to Williamsburg and Gloucester.

"What Sentara is today is really a network of community hospitals that banded together," Kern said.

Throughout the 1980s, Norfolk-based Sentara was seeking a place in the growing Virginia Beach market. In 1991 it reached that goal by buying Bayside Hospital from Humana Inc., which had opposed Sentara's building a hospital in Princess Anne. Several years later it would merge with another rival, Tidewater Health Care, which owned Virginia Beach General.

Today, with Sentara firmly entrenched as the city's sole hospital operator, Bon Secours, which is based in Maryland, is the one trying to break into the Virginia Beach market. Ditto for the growing northern Suffolk area.

"I don't think the law protects Sentara," said Boynton, who headed the regional health systems agency for 30 years before retiring in December. "I think what the law does do is it protects existing facilities. The whole basis was to avoid the unnecessary duplication of services and equipment."

Bon Secours' Hanson noted that Sentara now has more than 50 percent of market share of inpatient beds in Hampton Roads as well as the area's largest HMO in the Optima Health Plan. The Sentara Medical Group includes more than 350 physicians. Bon Secours, with three hospitals in Hampton Roads, claims about 18 percent of market share.

Hanson questioned the fairness of one health system being so dominant. "When you have competition, it keeps everybody honest," he said.

Kern said that Sentara prevailed in the latest round of state decisions not because it gets special treatment, but because it submitted better plans than Bon Secours.

"We worked on it for five years to be an approvable project," Vicky Gray, Sentara's vice president for system development, said of the proposed Sentara Princess Anne Hospital.

Gray has seen the COPN process from all sides. In the early 1980s, she was a regional health authority planner who recommended that the state reject plans for a new Princess Anne hospital from both Sentara's forerunner and Virginia Beach General. Later, she would work for a Sentara rival and then Sentara itself.

The COPN process is grueling, and with so much at stake people take losses hard, Gray said.

The state's decision to reject a Sentara hospital in Princess Anne in 1988 was ultimately a good one for the health system, Kern said. For one thing, Sentara ended up with a better site, one more centrally located to where population growth actually occurred.

But, ask Kern if he's glad Sentara lost back then and he responds this way: "I wouldn't say 'glad.' They were thinking longer-term while we were thinking shorter-term at the time."

Nancy Young, (757) 446-2947, nancy.young@pilotonline.com