Clinicians at a federally qualified health center are collaborating with their colleagues at a nearby medical center to operate a four-bed labor and delivery unit.
They're bucking a trend in Centreville, AL.
Most rural hospitals in Alabama closed their obstetrics programs decades ago, owing to a combination of low volumes and high costs and liability. Instead, expectant mothers were sent to the nearest big city hospital for deliveries.
Last November, Centreville's Bibb Medical Center opened a new, four-bed labor and delivery unit that is on track to deliver about 100 babies in its first year. The opening marked the first time in 20 years that babies have been delivered in Centreville, located about 53 miles southwest of Birmingham.
Despite the low volume, averaging eight to 10 births per month, the program works because of a commitment and collaboration between Bibb administrators and clinicians and their colleagues at the nearby Cahaba Medical Care, the town's federal qualified health center, and the Cahaba Family Medicine Residency Program.
"We have a good relationship, and that is not always a foregone conclusion," says John B. Waits, MD, a family physician, CEO of the FQHC, and director of the residency program.
"It has been a very deliberate intentional relationship, where we have cultivated trust with each other, given a little, taken a little, and it is a very positive symbiotic relationship. Often there is a firewall between hospitals and ambulatory, but our model is completely different."
While there is risk and cost associated with such a low-volume service line, Waits says the hospital, the FQHC and the residency program each gain something, too.
"For the hospital, having a maternity center means having more volume in the hospital as a whole and better relationships for mothers bringing their children back for services," Waits says.
"That doesn't make them whole, but the second piece is that we have built a family medicine residency in a rural area to address the workforce disparities. To be accredited, we need to have maternity care happening. We put it in the budget for our health center. Obviously, our residency program can't fund labor and delivery, but that helps. Part of that cost is in the budget."
"For our community health center, we have written several portions of our grant portfolio around maternity care, around prenatal care, postnatal care and the first five years of life," he says.
"Some of the people we have hired in our community health center and in our residency program, nurse anesthetists, some of the labor and delivery nurses, we share some of the personnel costs it takes to run this labor and delivery unit."
"So, you have three relatively distinct but interwoven institutions with their own mission statements. It's a collaboration and we make ourselves whole with this low-volume unit."
Who Pays for What?
"We keep it very simple," Waits says. "We told the hospital that we would handle the medical staff costs. The hospital knew going in that they did not have to hire doctors to cover the labor and delivery. It's our group. If we are short a doctor, we work a little extra. We recruit our nurse partners. When we do a delivery, we bill for the physician fee like most groups do. But there are no hospital-employed physicians."
"The hospital bills for their stuff. They have put up the capital costs to build the unit. The hospital hires nearly two-thirds of the nursing. When a patient comes in, the hospital does the supplies, the equipment costs, which is traditional. The hospital bills Medicaid, BlueCross, whomever, for the facilities fees and per diems and that sort of thing."
The medical group includes nurse practitioners who function as midwives, and help hospital staff as needed. "The nurse anesthetists are on the faculty for the residency program, and they're teaching the residents to put in central lines and manage airways and lumbar punctures or help with the labor epidurals or the C-sections."
Why Bother?
Waits says delivering babies helps preserve the community's care continuum.
"Numerous studies in lots of rural contexts have shown that the loss of a rural labor delivery unit worsens infant mortality rates and portends the loss of many other services," he says. "In Bibb County, once labor and delivery went, so did local prenatal care. Similarly, care in the first five years of life became more difficult to achieve."
And when hospitals stop delivering babies, they're no longer prepared for emergency or even precipitous deliveries, Waits says.
"Institutional memory is lost. Harm comes because people aren't prepared for these routine things," he says.
"Then, there are emergencies and urgencies and care that needs to happen in the first year of life for the child, the first five years of life, etc. The focus tends to turn away from mother/baby in those first five years and that's when you lose that knowledge."
"The final part of that answer is just the reality of doctors and nurses who train and fall in love with this time of life as a part of their profession," Waits says.
"If these services aren't being rendered, you're not able to recruit and retain that work force. They're going to go somewhere where they're taking care of mothers and babies, not just nursing home patients."
A shortage of mental health resources is putting undue stress on hospital emergency departments as holding areas for some of the most vulnerable patients they serve.
It is no surprise to anyone working in a hospital that emergency departments have become the de facto dumping ground for patients in psychiatric distress.
An online survey released this week of 1,716 emergency physicians from across the nation paints a grim scene of psychiatric patients waiting long hours, and even days, for an inpatient psychiatric bed.
"Three-quarters of emergency physicians responding to our poll reported seeing patients every shift who required hospitalization for psychiatric treatment," ACEP President Rebecca Parker, MD, said in a conference call with journalists on Monday.
"The problem is that once the decision to admit is made, it can be nearly impossible to find an inpatient bed for these patients."
Parker said that more than 10% of respondents to the polls reported that they had six to 10 ED patients waiting for inpatient psychiatric patients during their last shift.
"All of these patients require care and monitoring while they are in the emergency department, which keeps our physicians from treating new patients who come through the door. This ripple effect is real," Parker said.
"More alarming is that almost one-quarter of our poll responded that they have patients waiting two to five days for a psychiatric bed. Can you imagine waiting in the ED for a bed for days at a time! It's awful! Yet, the inpatient beds for psyche patients just aren't there."
21% of psychiatric patients versus 13.5% of medical patients required admission to the hospital.
11% of psychiatric patients versus 1.4% of medical patients were transferred to another hospital.
23% of psychiatric patients versus 10% of medical patients stayed in the ED more than 6 hours.
7% of psychiatric versus 2.3% of medical patients stayed in the ED for more than 12 hours.
"We have a potential perfect storm," says Lippert. "Decreasing psychiatric inpatient beds. Insufficient accessible outpatient psychiatric centers for crisis stabilization, and then increased emergency department crowding. We are really seeing the growing crisis of unmet psychiatric need."
14-Hour Waits
Renee Hsia, MD, author of recent study on the topic that appeared in Health Affairs, attended the ACEP teleconference and noted that "the absolute number of psychiatric visits increased by 55%, from 4.4 million to 6.8 million between 2002 and 2011, far outpacing the growth of non-psychiatric visits."
"The disparities between [waits for] psychiatric and non-psychiatric patients are very stark. In 2011, the 90th percentile length of stay was 1,378 minutes for psychiatric patients, and 543 min for non-psychiatric patients, which amounts to a difference of almost 14 hours," Hsia said.
"This is especially disturbing when you realize that in 2002, psychiatric and non-psychiatric patients had virtually no difference in the length of stay for these patients."
Why is this happening?
"It's important to note that between 1970 and 2006 state and county psychiatric inpatient facilities went form around 400,000 beds to less than 50,000 beds," Hsia said.
"Starting in the 1960s there was a large deinstitutionalization of mental healthcare from the inpatient to outpatient facilities. Unfortunately, they closed a lot of inpatient beds without shoring up the outpatient resources."
HHS says the new payment system for Medicare clinicians provides flexible options that encourage 'pick-your-pace' participation by small practices and sole practitioners. It goes into effect in January.
The federal government on Friday finalized sweeping Medicare payment reforms for clinicians that were called for under the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015.
The new rules, which begin on Jan. 1, 2017, and which will take years to fully implement, replace the flawed and reviled Sustainable Growth Rate funding formula and are designed to reward quality over volume in the Medicare program that serves more than 55 million people.
The 2,398-page document is the end result of an arduous process that involved a months-long nationwide listening tour by officials with the Centers for Medicare & Medicaid Services who met with nearly 100,000 people and compiled nearly 4,000 public comments.
"This is a landmark effort to move the healthcare system forward," CMS Acting Administrator Andy Slavitt said at a Friday teleconference.
"Transforming something of this size is something we focused on with great care. The policy we finalized is the result of the user-driven policy effort where our staff put down our pens and went into the field to hear from physicians and patients."
"Overall, the comments we received from across the country can be summed up this way: Make the transition to MACRA as simple and as flexible as possible," he said.
The centerpiece of MACRA is the Quality Payment Program, which creates two pathways that over the next year will let clinicians pick their own pace in the transition from a fee-for-service to payment models that reward quality over volume.
Payment Path 1: APM
The first path, called the Alternative Payment Models (APM), begins in 2019 and gives clinicians the opportunity to make more money if they're willing to take more financial risks for performance, use electronic medical records, and report quality measures to CMS.
In the first year, APM also provides a flexible performance period, so that clinicians can dive in immediately. Those who need more time can prepare for participation later in the year.
Clinicians who receive 25% of Medicare covered professional services, or 20% of Medicare patients through a fast-tracked Advanced APM in 2017 can earn a 5% Medicare incentive payment in 2019. Slavitt said that about 100,000 clinicians are expected to try this more aggressive payment model, and the hope is that more clinicians will join in the coming years as the program evolves.
Payment Path 2: MIPS
As many as 500,000 clinicians are expected to travel the second, more gradual path, called the Merit-based Incentive Payment System (MIPS). The financial incentives for accountability and the use of electronic medical records, are not as generous, but the risk is not as great. However, physicians who don't submit any data to Medicare in 2017 risk a "negative 4% payment adjustment."
Slavitt said MIPS is designed to allow physicians "to focus on patients not paperwork. We've made major steps which will continue over the coming year, but cutting the number of measures in half and simplifying how the program works."
Medicare is expected to pay about $1 billion in bonuses for high-quality care to clinicians in both Advanced APMs and MIPS in 2017, in addition to a positive payment adjustment of .5% under MACRA.
CMS estimates that 380,000 clinicians will be exempted from the new payment models because of their low volume of Medicare patients and billing.
To broaden participation to include small practices and specialties, CMS in 2018 will roll out an Accountable Care Organization Track 1+ model that provides more flexibility for clinicians. CMS is also considering reopening some existing Advanced Alternative Payment Models for application to allow more clinicians to join these types of initiatives. Slavitt said about 25% of eligible clinicians will be a part of the second path of Advanced APMs by 2018.
MACRA also provides $20 million each year for five years to train clinicians in small practices of 15 clinicians or fewer and those working in underserved areas. Beginning December 2016, local organizations will offer free, on-the-ground, specialized help to small practices using this funding.
CMS has also launched a Quality Payment Program website to explain the program and help clinicians identify the measures most meaningful to their practice or specialty.
In a conference call with reporters, Slavitt stressed that MACRA was very much a work in progress that would evolve with the practice of medicine, and with new medical technologies.
"The bottom line is we are trying to get doctors back to what they do best, care for patients, through a lot of simplification and support," Slavitt said. "We view these coming years as the first steps into a program that will continue to improve, not an attempt to create a perfect system."
When weighted for enrollment, more than 68% of enrollees in plans with prescription drug benefits are in contracts with four or more stars, a three percentage point drop from 2016.
Nearly half of the nation's 364 Medicare Advantage plans with prescription drug benefits (MA-PD) earned four stars or higher in the Centers for Medicare & Medicaid Services five-star scoring scheme for 2017, CMS reported Thursday.
When weighted for enrollment, more than 68% of MA-PD enrollees are in contracts with four or more stars, a three percentage point drop from 2016. In addition, the number of active and rated contracts, and the percent of MA-PD enrollees weighted by enrollment in contracts with four or more stars in 2017, is approximately the same as in 2016.
When weighted by enrollment, more than 90% of MA-PD enrollees are in contracts with ratings of 3.5 or more stars, CMS said.
Sean Cavanaugh, deputy administrator and director of the Center for Medicare, said in a blog post this week that Medicare's prescription drug programs have improved significantly in the past decade. In 2009, for example, only 27% of enrollees were in plans with four stars or more.
"Plans that are rated higher deliver a higher level of care, such as improving the coordination of care, helping enrollees to manage diabetes or other chronic conditions more efficiently, screening for and preventing illnesses, or making sure people get much-needed prescription drugs," Cavanaugh said.
"A high rating also means that these plans give better customer service, with fewer complaints or long waits for care."
For the 55 Medicare Part D Prescription Drug Plans (PDPs) rated in 2017, 49% (27 contracts) received four or more stars. When weighted by enrollment, 41% of PDP enrollees are in contracts with four or more stars, which represents a nine percentage point increase from 2016, CMS said.
Two plans were slapped with a low-performing Icon:
Phoenix Health Plans, Inc., a subsidiary of Tenet Healthcare Corporation, with 13,777 enrollees
GHS Managed Health Care Plans, Inc., a subsidiary of Health Care Service Corporation, with 4,550 enrollees.
Both plans received summary ratings of 2.5 stars or less from 2015 through 2017, which means that their contracts with Medicare could be terminated in 2017 if they don't improve.
As in past years, non-profit plans continued to outperform for-profit plans in the 2017 Star Rankings for MA-PDs. Approximately 70% of non-profit plans received four or more stars, compared with only 39% of for-profit MA-PDs. And, just as in 2016, 63% of non-profit PDPs received four or more stars, compared with only 24% of for-profit PDPs.
As in prior years, the length of time that a particular plan had with Medicare Advantage was another key indicator of success. More than 56% of the MA-PD plans that earned four or more stars have been involved with the program for more than 10 years. None of the 59 MA-PD contracts with five years or fewer experience in Medicare Advantage earned five stars, while more than 47% of earned three or fewer stars. View full details.
Methodology
For the 2017 Star Ratings, CMS said outcomes and intermediate outcomes continue to be weighted three times as much as process measures, and patient experience and access measures are weighted 1.5 times as much as process measures.
For the 2017 Star Ratings, outcomes and intermediate outcomes are weighted three times as much as process measures, and patient experience and access measures are weighted 1.5 times as much as process measures. CMS assigns a weight of 1 to all new measures. The Part C and D quality improvement measures receive a weight of 5 to further reward contracts for care improvements provided to Medicare enrollees.
For the past eight years, Sevier County in East Tennessee has partnered with a federally qualified health center to provide remote access to basic acute- and primary-care services for more than 14,000 students in the county's public school system.
The promise of telemedicine is delivering now in East Tennessee.
For the past eight years, the public schools of Sevier County, located just east of Knoxville, have relied on Cherokee Health Systems to provide more than 11,000 acute and primary care episodes and screenings for the system's 14,000 students.
In the 2015–16 school year alone, there were 1,631 visits across 23 schools in Sevier County, the largest rural school district in the Volunteer State,
It's a program that measures its return on investment with metrics such as reduced absenteeism and improved access to care. Before the affiliation, it was not uncommon for as many as 20% of the students and educators at Sevier County schools to be stricken during flu season, forcing school-wide closures.
In the past five years, however, there have been no school closings in the county due to the flu, and program organizers at the federally qualified health clinic and the school system credit the partnership.
Deb Murph, RN, COO at Knoxville-based Cherokee Health Systems, says the main emphasis of the telemedicine program is to keep children in school by addressing health issues early and pre-emptively inside the school walls and eliminating travel time to clinicians' offices.
"If they were having to leave and get checked for an acute illness they would have to leave school and that usually means a half-day missed or more than that," Murph says. "The ideal was to place the services where the children are located and address their acute healthcare needs on the spot instead of having them leave."
Providing access to care inside the school also means that a parent or another relative in the more isolated areas of Sevier County (with a median family income of $40,000, about $4,000 below the state average) may not have to take time away from work to either bring a student to a clinician's office, or stay with them at home.
Tallying the Cost
Murph says the cost of the telemedicine visits are about 15% to 20% higher than an office visit, but that does not account for the saved travel time, avoided absenteeism on students and teachers, and time away from work for their parents.
Under the program, which requires parental consent, students are screened for acute and potentially contagious health issues such as strep throat and flu by a school district nurse, who decides if an uplinked telemedicine visit over a secure site for the students with a Cherokee Health nurse practitioner is needed for a more comprehensive exam.
The Cherokee Health nurse practitioner can provide real-time diagnoses and treatment plans, or refer students for more complex care, all of which is coordinated with the school nurse, the students and their families.
In addition, the telemedicine visits are used to monitor chronic conditions for some students, such as high blood pressure and diabetes, and to promote sound preventive medicine, and proper nutrition. As part of routine exams, students are often examined for lice, bed bugs, and other skin irritation issues during the tele-conferences.
When we talk about the potential of telemedicine to improve access to care for isolated patients in rural America; to provide pre-emptive primary care that addresses health issues early and before they become more problematic; and to engage patients in their own health, that is exactly what is happening in this relationship between Sevier County's public schools and Cherokee Health.
The results of a survey of physicians practices "can be seen as a referendum not just on the current state of quality measurements of physicians, but also of electronic medical records," says the lead study author.
This article was originally published on March 9, 2016.
Physician practices spend more than $15.4 billion each year reporting quality measures that nearly three out of four physicians believe do not reflect the best measures of quality, according to a study this week in Health Affairs.
Researchers from Weill Cornell Medical College and the Medical Group Management Association surveyed 394 physician practices from across the nation found that physicians and their staff averaged 15.1 hours per physician per week processing quality metrics, which is the equivalent of 785.2 hours per physician per year, at an average cost of $40,069 per physician per year.
The survey, funded in large part by The Physicians Foundation, found that physicians spent 2.6 hours per week dealing with quality measures, time that could have been used to provide care for an additional nine patients. The times spent processing data varied greatly depending upon the practice specialty.
Specialists spent considerably less time and money on reporting data when compared with primary care physicians. For example, primary care doctors averaged 3.9 hours per week dealing with quality measures, compared with 1.1 hours for orthopedists, with an average annual cost of $50,468 for PCPs, compared with $31,471 for orthopedists.
"To some extent our survey can be seen as a referendum not just on the current state of quality measurements of physicians, but also of electronic medical records," says study lead author Lawrence Casalino, MD, with the Department of Healthcare Policy and Research at Weill Cornell Medical College. "We are talking about substantial amounts of time—$40,000 per physician per year, almost three hours a week, and a lot more time from staff. That's not trivial."
Casalino spoke with HealthLeaders Media about the survey findings. The following is an edited transcript.
HLM: Why did you do this study?
Casalino: I do a lot of research involving physicians. Having to deal with [quality measures] is one of their chief complaints. There have been a lot of anecdotes, but not much evidence over the years about how much time this is really taking from them. We thought we would take a look at that.
HLM: What are physicians telling you?
Casalino: We had a free text area in the survey where anyone could write what they wanted. Here's one person: 'You get so focused on making sure that you are clicking the right fields in the (electronic medical record) that you lose touch and connection with the patients. It is very sad what medicine has come to.' That's a family practice physician. An orthopedic surgeon wrote: 'The current system for measuring 'quality' is simply a reporting mechanism for documenting check boxes, not really an indication of a person's health.'
HLM: Your survey found that only one-in-four physicians believe that the quality measures moderately or strongly represent quality of care. Please explain that disconnect.
Casalino: The physicians' view is that some of the quality measures record things that are real, but maybe not as important as things that aren't measured. It's like looking for the keys under the lamppost because that's where the light is better. For example, diagnosis, how well a physician does diagnosis is not measured by any quality measure, but that may be the most important single thing a physician does.
Physicians understand that and they respect other physicians who are good diagnosticians. They don't necessarily respect other physicians who remember to check all the right boxes in the EMR.
I don't mean to imply that these quality measures are useless. Diabetics should get annual retinal exams. They should get A1Cs checked regularly. Women should get mammograms. Those things are measured by quality.
But the general physician perception is that only 27% of practices thought the measures were moderately or highly representative of their quality of care. The percentage that actually used the measures to improve quality in their practice was similar.
In the long run, the idea of using systematic processes to improve the health of your entire population of patients in your practice is the right idea. Simply doing the best you can for whatever patient is in front of you while they are in front of you isn't enough anymore. But from the individual physician's point of view they see it as more hassles interfering with their ability to spend time with their patients and an unfunded mandate.
HLM: How do you strike a balance between reporting quality measures and reducing hassles for physician practices?
Casalino: We need better measures and there is a lot of work going on in that area. We need more measures for specialists, because right now the burden is very heavy on the primary care physicians. The measures for specific specialties, there are very few of them.
It'd be nice if these measures evolve so that they better measure quality. Some of the things that might count, such as avoidable readmissions, you can't really measure that at the level of an individual physician.
The numbers of patients aren't large enough to get statistically reliable results. The more meaningful the measure is, the harder it is to do for all but the very largest and really large organizations. That is a real problem. Therefore, the measures tend to be things that you can measure and get statistical reliability. So the measure isn't 5% one year and 80% the next year and 30% the next year for the same physician, which is what can happen if you only have measures for seven patients.
That is a particularly big problem because the [Sustainable Growth Rate] fix mandates value-based payments going down to the level of the individual physician. [The Centers for Medicare & Medicaid Services] is grappling right now with the Congressional mandate to do that, and how they are going to carry that out.
The two biggest things that would help are first of all, standardization of the measures. We didn't go into too much detail in the study, but it just drives practices crazy when you have lots and lots of different measures for diabetes that are almost the same, but not quite coming from different health plans. There is no excuse for that. It just kind of happened, and once it happened there is a cost for everyone to make a change, particularly payers.
The Core Quality Measures Collaborative goal of standardizing measures would be a big help. The other thing that would be a big help is that if EMR are better designed so that quality data could be either sucked out of them by external entities, or easily generated by the practices themselves and easily sent to the external entity.
The more that things can be measured without anyone having to do extra work, the better this will be. But we are a long way from that right now.
HLM: How do you see this playing out over the next five or 10 years?
Casalino: It's hard to predict a timeframe, but eventually we will get to a place where the measures are fairly standardized. And the measures ought to keep getting better and more meaningful, and where it is possible, to get them out of the EMR when it's possible. That is the direction we're moving. The frustration is that there hasn't been a lot of rapid progress with EMRs and measures not being standardized.
In the meantime, if you wanted to dramatize it, a whole generation of physicians is being sacrificed. It's great to measure things. It's great to have EMRs. The reorganization of the healthcare system is by and large a good thing. But for the hundreds of thousands of physicians who have to live through it this is very tough.
For them, it's all burden and no benefit as far as they can see. It's a lot of work that they don't get rewarded for, and they're not convinced that it is making care better for their patients. It's been that way for a while, and it doesn't look like it is going to change soon.
The TN-based not-for-profit health system more than doubled its size this week with the acquisition of four hospitals in Mississippi and Florida.
Curae Health, Inc.CEO and President Steve Clapp spoke with HealthLeaders Media this week about the acquisition of four hospitals, what it will mean for the not-for-profit hospital chain, and the communities that these hospital serve.
Curae executives believe these small community hospitals will benefit from an affiliation with a smaller company that specializes in operating in rural settings.
The following is a lightly edited transcript.
HLM: These acquisitions will more than double the size of Curae. What is prompting this?
Clapp: When we formed Curae Health in 2014, the intent was to help identify and work with small rural hospitals such as this, and that has been the opportunity that was presented to us.
We've looked at nearly 50 hospitals over the past year, which illustrates the challenges and the desire for hospitals to align with larger institutions. With us being a nonprofit, rural-focused-only company, that has created a lot of interest.
HLM: Do these hospitals make money?
Clapp: They are profitable facilities, but it is probably CHS's place to comment on that.
HLM: How do you make this work financially?
Clapp: As a non-profit organization, we are not paying corporate federal income tax, so we get some relief there. We are able to participate in the 340B Drug Pricing Program as long as we meet the criteria.
These are cost-reduction strategies that are not available to the for-profit sector, so we are able to lower our operating expenses below what for-profit organization can realize.
The second strategy has been focusing on the revenue opportunities and the volume retention inside the community. Our company is purely focused on what services we can provide and patients we can retain in our communities.
When they leave the community for tertiary level services, we don't necessarily concern ourselves with where they go. We are trying to move to what probably and more properly could stay in the community. We are trying to develop that service and expand the outpatient side so we can reduce the outmigration.
The third thing is, we are a smaller company, so we can provide lower overhead costs as well.
HLM: Do you have economies of scale, or will these hospitals be independent of one another?
Clapp: We will be able to realize some economies of scale. We've already got an executive team, so you're not adding to the C-suite leadership. Now, it's a matter of adding staffing and management position, but we aren't going to have add a whole lot of higher ups.
HLM: Changing these hospitals to nonprofit means a loss of tax revenues for these communities. How have they responded?
Clapp: We are talking with them. There is a potential loss of some of that revenue, but some of the property will continue to pay property taxes, for instance on the medical office building. We also hope to add jobs back in, so there is a larger employee base in the community as we build up the complement of services.
We hope to offset the potential tax loss with an increase number of jobs in the local community, as well as allowing patients to stay home for more services.
If you look at the number of rural hospitals that have closed across the country, a lot of people don't want to be in that boat.
So while there is a chance that it could affect part of the property taxes, we are trying to position these things so we can keep the hospitals open longer for the community benefit. These hospitals are usually the largest employer in a community. They pay the highest wages in the market, and they are a vital piece to recruit industry in a community.
HLM: What changes will the people in these communities see at these four hospitals in the months ahead?
Clapp: Being a nonprofit, we have a responsibility to be good stewards of the assets. Part of our model is we keep the local boards in place. They will continue to have the local authority for oversight of medical staff, budget approval, credentialing, and strategic planning approval.
Our model is very integrated with the local medical staff, the local boards, to help us develop the direction for the hospital that is needed in that community.
I see it as a community partnership approach. This is the business that we are responsible for taking care of, and it requires all of our input. We're hoping that it is a more open and participatory process as we go through it.
HLM: Where does Curae get its funding?
Clapp: We were able to acquire the original hospitals from LifePoint through bank loans. We were able to refinance some debt at the end of last year to add some capital to acquire services and equipment for these hospitals.
We are working with our bank partners to grow and add the capital and financial resources we need. We also have used a real estate investment trust to help us with financing, to raise capital as part of our strategy.
HLM: What is the value of the CHS acquisitions?
Clapp: I have agreed with CHS that that is their area to comment on.
HLM: What has to happen for Curae to succeed?
Clapp: What we add to the equation is a working and living knowledge that says 'we understand small towns and the challenges they face. We can relate.' If you're not from a small town, sometimes it is hard to relate. I know that sounds odd, but from my perspective it's a big deal, because I know what it is like to live in a town of 8,000 because I have all my life.
The second thing is we have to be a disciplined operator of hospitals. We have to have a successful team that has the experience of managing multiple facilities. We are identifying the best processes to put in place. We are trying to build that management team that has the broader experience to grow this company and manage it properly.
Third, we have to perform. We have to execute on the strategies we have that we have developed with the medical staff, the management team and the local communities.
HLM: What will be the common traits of Curae hospitals?
Clapp: First and foremost, we are a rural hospital operator. We will not be in metropolitan markets. The second thing is we want to be a well-run hospital company. Our model is focused on retention of patients and recapturing the patients back into the community and building the confidence of those individuals who are seeking services outside.
To do that we have to have a good plan and know what we are and what we are not. We won't most likely ever be doing open-heart or neurosurgery in our hospitals.
But what we should be doing is outpatient cardiac, outpatient oncology, and the predominant primary care hospital services; general surgery, GI, inpatient medicine, swing beds, general psych, medical detox, etc. There is going to be a certain core set of services that are going to be developed and provided in our hospitals that maybe tertiary doesn't focus on.
You talk about a culture around a hospital company; we want to be extremely good corporate citizens and community stewards of the assets.
As a nonprofit we have an obligation to our communities and to our board that says we are a good community partner. Whether that is working with students who may want to come in, or fundraising activities, we also have a role as a community citizen.
HLM: Do you anticipate affiliations with larger health systems?
Clapp: Yes. As we go into these markets we look for the opportunities for clinical affiliations that would benefit our hospitals and the communities they serve.
HLM: How big can Curae get?
Clapp: Curae is going to have a southeastern footprint. We have had opportunities to look at hospitals outside of the region, but we realized that here's where you get the efficiencies of operations and management and the ability of sharing resources, and that would include medical staff between two hospitals that are close to each other.
But, we have some more hospitals that we are looking at. So, there is an opportunity for us to have more hospitals within the network.
A federal prosecutor blasts Tenet for 'taking advantage of vulnerable pregnant women in clear violation of the law.' A kickback and bribe scheme allegedly helped the hospital chain obtain more than $145 million in Medicaid and Medicare funds based on illegal patient referrals.
Tenet Healthcare Corporation and two subsidiaries will pay more than $513 million to resolve criminal charges and civil whistleblower suits for a kickback scheme that illegally steered more than 20,000 undocumented, pregnant Medicaid recipients to Tenet Atlanta-area hospitals, the Department of Justice said Monday.
Two hospitals that were managed under subsidiary Tenet HealthSystem Medical Inc. will plead guilty to conspiracy to defraud Medicare and Medicaid, and to paying kickbacks and bribes in violation of the Anti-Kickback Statute as part of the investigation. The deal was announced in August and finalized this week, but awaits a judge's approval in U.S. District Court in Atlanta.
In criminal and civil complaints, federal and Georgia state prosecutors alleged that in 2013 and 2014 THSM Inc.'s Atlanta Medical Center Inc., North Fulton Medical Center Inc., Spalding Regional Medical Center Inc. and Hilton Head Hospital paid bribes and kickbacks to the operators of Clinica de la Mama prenatal care clinics serving primarily undocumented Hispanic women in return for the referral of those patients for labor and delivery medical services at Tenet hospitals.
These kickbacks and bribes allegedly helped Tenet obtain more than $145 million in Medicaid and Medicare funds based on the resulting patient referrals, DOJ said.
Prosecutors said expectant mothers were told at the clinics that Medicaid would cover the costs associated with their childbirth and the care of their newborn only if they delivered at Tenet hospitals.
In some cases, the women were told that they were required to deliver at Tenet hospitals, leaving them with the false belief that they could not pick the hospital of their choice. As a result, prosecutors said many expectant mothers traveled long distances from their homes to deliver at Tenet hospitals, putting their health and safety and that of their newborn babies at risk.
Prosecutor: 'Tenet Cheated' Medicaid
"Our Medicaid system is premised on a patient's ability to make an informed choice about where to seek care without undue interference from those seeking to make a profit," John Horn, U.S. Attorney of the Northern District of Georgia, said in prepared remarks.
"Tenet cheated the Medicaid system by paying bribes and kickbacks to a pre-natal clinic to unlawfully refer over 20,000 Medicaid patients to the hospitals," Horn said. "In so doing, they exploited some of the most vulnerable members of our community and took advantage of a payment system designed to ensure that underprivileged patients have choices in receiving care."
In the civil settlement, Tenet, the nation's third-largest for-profit hospital chain, will pay $368 million to the federal government, the state of Georgia and the state of South Carolina to resolve claims in a whistleblower lawsuit filed by Ralph D. Williams.
The federal share of the civil settlement is $244 million; Georgia will recover $122.8 million; South Carolina gets $892,125; and Williams gets $84.4 million. Tenet will also retain an independent compliance monitor for at least three years to address and reduce the risk of any recurrence of violations of the anti-kickback statutes by any of its hospitals, DOJ said.
Other Tenet Actions
Tenet Chairman and CEO Trevor Fetter said Monday his for-profit hospital chain's "conduct in this matter was unacceptable and failed to live up to our high expectations for integrity."
"The relationships between the four hospitals and Clinica de la Mama violated the explicit requirements of our compliance program and were inconsistent with the strong culture of compliance we've worked hard to establish at Tenet," Fetter said in prepared remarks.
"We take seriously our responsibility to operate our business in accordance with the highest ethical standards, every day and in every interaction."
The criminal complaint against Tenet notes that the executives who worked at Atlanta Medical Center, and North Fulton Medical Center "concealed material facts" of the scheme from Tenet lawyers and outside counsel "because they knew that the agreements would not be approved if the true nature of the Clinica arrangements were disclosed to lawyers." Tenet said that the executives involved in the scheme no longer work for the hospital chain.
This week's settlement marks the latest brush with the law for Tenet, which in 2012 was fined $42.7 million after the company self-disclosed overbilling Medicare for services provided by inpatient rehabilitation facilities. In 2006, Tenet agreed to pay more than $900 million to settle an investigation of alleged unlawful billing practices, primarily through improper "upcoding," and "outlier" payments for inflated charges.
Atlanta Medical Center, North Fulton Medical Center, were sold to WellStar on April 1.
Healthcare leaders need to find the right partners and strategies as they take the leap into value-based care.
This article first appeared in the October 2016 issue of HealthLeaders magazine.
Hospital consolidations have become a weekly event across the United States, and the pace and scope of these consolidations is getting faster and bigger. In 2015, the number of hospital transactions increased to 112, up 18% over 2014's 95 deals, which, according to a study from consultants Kaufman, Hall & Associates, LLC, includes mergers, acquisitions, joint ventures, and joint operating agreements. Such activity is more than 70% greater than the 2010 level of 66 deals.
Hospital leaders say these consolidations are driven by a big push from the Patient Protection and Affordable Care Act and commercial payers toward population health and risk-bearing, value-based care, which require economies of scale.
"When the ACA said you had to have an electronic health record and the ACA expects everyone to move to population health, that doesn't come cheap," says Christopher G. Dawes, president and CEO of Lucile Packard Children's Hospital Stanford and Stanford Children's Health in Palo Alto, California. "You have to buy these very sophisticated computer systems. We are a moderately sized hospital, and we purchased an electronic health record system that cost us more than $110 million, with the acquisition price and training. That is obviously a lot of money."
Creating the infrastructure to provide population health is also labor intensive.
"That is dozens and dozens of people who are focused on population management, doing the analytics, and involved with sales and managing activities and managing utilization," Dawes says. "If you are going to get into population management, you can't do that as a small player. You don't have the critical mass to make the math work. The pediatric and adult world are being pushed into larger entities, and they need to get some value out of the scale."
Even as the pace of hospital consolidations is accelerating, the process is evolving, and that means hospital leaders must adapt.
"Historically there were two kinds of mergers and acquisitions," says Michael D. Williams, founding president and CEO of Plano, Texas-based Community Hospital Corporation. "It was the investor-owned sector looking for those hospitals that had been poorly managed, that they could gain low-hanging fruit in a short period of time. It was acquisition for the purpose of growing the revenue stream and the bottom line.
"On the not-for-profit side," he says, "it was that spoke-and-hub mindset of 'If we can go out and acquire enough of the surrounding smaller hospitals, we can get a greater percentage of the referrals and we are the tertiary center, we can be more successful.' "
What has changed, Williams says, is that both the investor-owned and not-for-profit sectors have become more selective about the hospitals they're acquiring.
"They are looking for the already high-performing hospitals that can be acquired to complement their own portfolio," he says. "The not-for-profit sector organizations are saying, 'No longer can we afford to go out and acquire smaller hospitals or community-based midsize institutions and accept the liability associated with their bottom line. We have to be creative in determining new types of relationships that will bring us what we need and want, but without accepting that liability.' "
Examining the options
University Hospital in downtown Newark, New Jersey, exemplifies many of the challenges threatening the survival of stand-alone hospitals in an evolving healthcare delivery landscape.
The money-losing, state-owned, 325-staffed-bed academic medical center serving some of the city's poorest neighborhoods controls about 14% of an over-bedded five-hospital market that since 1999 has seen six hospitals close.
A 2015 state-commissioned report found significant duplication of services in a Newark regional market that serves 670,000 people. The report noted that UH and the four other hospitals lost a combined $32 million in 2013 and would lose $190 million by 2019, excluding a state charity care subsidy, under an unsustainable status quo. As the state moves toward a population health model, the report said, action is needed to reduce the number of inpatient beds, consolidate specialty care in certain hospitals, and better coordinate outpatient and primary care.
This is the challenge that John N. Kastanis accepted when he took over as CEO at UH in March 2016. A turnaround specialist, Kastanis was lauded for his leadership at Temple University Hospital in Philadelphia, where, in less than five years, he stanched the red ink at the 722-bed academic medical center and improved quality rankings.
While he expects to face many of the same challenges at UH in the coming months, Kastanis says he doesn't expect a cookie-cutter response as the hospital considers its affiliation options. "You've heard the adage: When you've seen one academic medical center, you've seen one academic medical center. We're all unalike. We all have our separate histories, different traditions, and the cultures vary."
The common factor at Temple University Hospital and Newark's University Hospital is a committed medical staff that understands the link between margin and mission, and is willing to adapt to new care models, he says.
"When you have a solid core of medical staff who remain dedicated and committed to the hospital where they are affiliated, you still have potential," Kastanis says. "The medical staff are very excited about the new leadership of the hospital. They all have great ideas about expanding their existing respective clinical programs and adding new ones. That was one of the main reasons I took the job."
Another reason why Kastanis took the job was to develop a population health collaborative—called for by the state report—with Rutgers Health and the newly merged, 11-hospital RWJBarnabas Health.
"We need the capital to keep pace with all the new technological advances, and we are going to need significant dollars to upgrade and possibly replace our facilities. That is all going to come from collaborations and partnerships."
"I'm excited about the chance to work from a regional strategic plan that improves on the delivery of care on all levels, not just the tertiary and quaternary care that UH provides," Kastanis says, "but also at the primary care level and preventive level and reaching out into the community and aligning ourselves better with each other and with other providers, whether it is the federally qualified health centers or other community-based providers."
One key challenge will be determining where to provide care and where to trim inpatient services in a region that is over-bedded. Another problem is money.
"We want to continue to promote academic medicine at University Hospital, but where do you find the financial resources to make this happen?" Kastanis says. "Also, we need the capital to keep pace with all the new technological advances, and we are going to need significant dollars to upgrade and possibly replace our facilities. That is all going to come from collaborations and partnerships. It gets a little tricky with us being a public, state-owned hospital. There are ways to do it, perhaps a public-private partnership, but those models are out there and they can be replicated."
As UH builds affiliations with Rutgers Health, RWJBarnabas Health, and other providers in the region, Kastanis says the academic medical center cannot afford to lose focus on improvement.
"This can be achieved, for example, by combining existing high-acute and specialty services at other hospitals with University Hospital, while possibly repurposing the new affiliate hospitals into ambulatory sites. Also, current New Jersey assets and liabilities (e.g., facilities, property, pension plans) can be retained by the state while University Hospital is managed by a private corporation, allowing for more versatility in management, planning, and financing, and functioning more effectively in an ever-evolving competitive healthcare marketplace," he says.
"We have to be a lot more efficient in the way we provide care, even at the high-acute, tertiary, quaternary levels," he says. "That's high cost, but we have to learn, being an academic medical center, to be that much more cost efficient. That is a big challenge. I did it at Temple in a pretty successful way, and I plan to do it here. I have medical staff who are willing to see what they can do to change their practice patterns, to redesign and try to be more efficient in patient throughput at the academic level."
Physician integration is inherent in hospital partnerships and affiliations to achieve clinical efficiencies. After Rutgers Health launched in April 2016 the faculty committed to a transformation process that included best practice reviews, redesign, and new, value-based clinical pathways.
Creating different models for physician integration should also be in the mix when collaborating with physicians. At Temple University Health System, for example, Kastanis says community-based physicians were hired part-time and full-time to cover off-site ambulatory care facilities and medical homes through a separate corporate enterprise called Temple Physicians Incorporated.
Finding the right fit
For many stand-alone or independent hospitals, a common way to adapt to population health and value-based care and to enjoy virtually instant economies of scale is to merge into a larger health system.
CHC's Williams says smaller, midsize, and community hospitals looking for the right partner or partners must first understand out-migration to learn where their patients are being referred by the physicians who practice at the hospital.
"If those referrals are to multiple sites for cancer, cardiac work, etc., yes, the relational iterations of specialization could create an organization with more than one partner," he says. "But it has to be based upon the medical staff relationships—historically and where they are going to be going in the future."
Smaller hospitals that want to merge with larger systems must remove emotion from the process, Williams says, and focus on optimizing the bottom line.
"Before anything happens, before you put yourself on the market for any type of relationship, you have to be assured that you are optimally performing," he says. "When you sell, it's going to be a multiple of your cash flow or EBIDTA. If you have multiple organizations competing for you, you want to be optimally performing so that when they look at you they want to include you in their population health provider base. All of that has got to be fact-based."
Once the financial assessment is completed, the smaller hospital has to determine what it needs from a merger. Williams riffs on a handful of questions that hospital leaders should ask themselves: "Do you need clinical collaboration, and if so in what areas? Do you need managed care clout and negotiation clout in working with the major payers based on what you think your reimbursement might be? Do you need access to medical staff, for either rotational or a full-time presence in your community? Do you need continuing education for your team? What do you need and who can provide that within the organizations that are looking to acquire or create some relationship with you?"
Increasingly in the not-for-profit sector, larger organizations are less inclined to acquire smaller hospitals, and instead are more interested in clinical collaborations and physician recruiting.
"We have one client for whom the tertiary center was able to provide a group of cardiologists who were willing to come to the community and staff an outpatient center," Williams says. "The presence of those cardiologists in that market has been a significant financial benefit to that local hospital. But that larger institution saw a great opportunity to grow their cardiac business if in fact they did something differently."
"If your hospital doesn't have a strong pediatric program, how do you move into this population health management arena, which is driving a lot of these consolidations and partnerships? How do you do that to attract young families, the part of the population you want to serve?"
Doing it "differently" meant that the larger institution saw the opportunity to partner with the cardiology group to enhance the continuum of care rather than compete with it in the secondary market. An integrated IT infrastructure between the two organizations also enhanced the relationship, says Williams.
Developing a modified hub-and-spoke model
The traditional brick-and-mortar acquisitions are still occurring, but, increasingly, the more-nimble affiliation models are fulfilling the same objectives without limiting opportunities to collaborate with several providers on a broader array of services.
Dawes says the Stanford Children's population health model provides excellent opportunities to expand its pediatric specialty and OB-GYN footprint in the Bay Area. "If your hospital doesn't have a strong pediatric program, how do you move into this population health management arena, which is driving a lot of these consolidations and partnerships? How do you do that to attract young families, the part of the population you want to serve?" he says.
Stanford Children's has joint ventures with five adult acute care hospitals in the Bay Area, using a variation on the hub-and-spoke model. "We are the central hub, but the difference is the spokes have little hubs on the ends," he says. "We reach out to a place like John Muir Medical Center, for example, and they become a hub for the local community, and the more complex stuff comes back to the central hub, which is us." The John Muir facility is about 50 miles north of Palo Alto in Walnut Creek, California.
The widespread shortage of pediatric specialists in virtually all parts of the United States also furthers the drive to affiliate with children's hospitals. "Because of that we are seeing, in certain cases, partnerships are being formed with major children's hospitals to get the access to pediatric expertise so you can manage the population of pediatric patients," Dawes says.
He describes Stanford Children's as "a freestanding children's hospital that is accessing the ACO world with our partnership with our sister hospital Stanford Healthcare, but also partnerships with others around the Bay Area.
"In other areas, you're seeing children's hospitals, such as ours, who are seeking partners because we want to be able to play in the ACO world, and in order to do that we need access to adults as well," he says. "So, both sides are motivated in that regard."
The key to success with any joint venture, Dawes says, is that the deal has to benefit everyone. "The host hospital gets the value of first-class pediatric care. They don't have to pay for it directly because it's part of the JV, but they get first-class pediatric care in their communities so they can attract patients to their hospitals. Keep in mind that women make most of the key healthcare decisions in a family, and the first experience that a young family has with a hospital is typically the birth of their first child. This is a way for these entities to attract young families."
These affiliations also require a common set of values and a strong sense of trust between executive and clinical leaders, and a strong governing and operations structure that sets priorities and metrics. "Lastly, we have to deliver pediatricians and pediatric specialists to these hospitals so we can fulfill our commitment," Dawes says.
Dawes describes the JVs that Stanford enters into with other hospitals as a hybrid that attempts to garner all the advantages of a traditional merger while maintaining the autonomy of each hospital. It is stronger than a mere referral network because Stanford specialists work in these JV hospitals with their employed or affiliate physicians to coordinate care, as opposed to merely accepting referrals.
The JVs give Stanford Children's access to nearby markets without having to buy them. "We create a partnership, and now we are in a community and we can serve that community," Dawes says. "We attract less-acute patients to their local host hospital, and the high-end cases come to us. It gives us greater market share in these communities. It remains local, but in some cases the business comes to us. And it's been very effective and been the impetus for us to substantially increase our market share in the Bay Area."
While the rewards are enticing, Dawes says the process is difficult. "It takes a lot of energy and time," he says. "One could argue that it is easier to acquire. But from our viewpoint, our ability to JV with multiple parties allows us to access a much bigger market."
Evolving payer models
As the provider side consolidates, so too has the payer side, which has led to a chicken-or-egg argument about who's responsible for all this merger, acquisition, and alignment activity.
"It takes a lot of energy and time. One could argue that it is easier to acquire. But from our viewpoint, our ability to JV with multiple parties allows us to access a much bigger market."
Michael T. Rowan, president of health system delivery and chief operating officer at Englewood, Colorado-based Catholic Health Initiatives, says it's been interesting to watch how payers evolve.
"If you look at some of the payers, there are three things that historically they do," Rowan says. "One, they put together a network of providers, so you start to get larger health systems and they have a natural network of providers. Two, the payers historically have managed benefits. Larger and more sophisticated organizations may be keen to do some of that for themselves. Three, they put together various products to sell out there, and more and more if you have an integrated delivery network you can begin to put together a product which includes long-term care, ambulatory care, diagnostic services, and inpatient care and home care and primary care and the like.
"So, you can begin to start to see some of the friction because some of the things that historically the payers have done, larger and more sophisticated integrated networks are capable of doing that now," Rowan says.
Dawes at Stanford Children's says payers' enthusiasm for provider consolidation swings both ways. "Sometimes payers encourage it because they are focused on building networks," he says. "Other times payers are less enthusiastic because we are a high-end place and it gives us access to more markets, which means it gives us more leverage as well. Overall, the payers certainly haven't responded negatively."
Robert A. Marino, chairman and CEO of Horizon Blue Cross Blue Shield of New Jersey, says payers are simply adapting to the new market created by the ACA's push for population health, and the consequent consolidation of provider networks. While leverage was once a key motivator for providers and payers, Marino says other factors are coming to the fore.
"If you were to ask me three years ago, I would have said the main motivator for provider consolidation is market share and leverage with payers," he says. "But, over the past three years as this value-based movement has gained traction, there are hospitals and health systems out there that are trying to consolidate to create greater value in terms of acquiring a full continuum of healthcare access for inpatients/outpatients, doctors' offices, and freestanding facilities, as well as positioning themselves to be able to move toward value-based payments.
"Many of these systems that have consolidated in New Jersey are working with us to move toward population management with the ultimate goal of accepting risk for managing a population of patients and keeping them healthy," he says. "The proof for me as I see hospital consolidations in our market has been the fact that those systems that have consolidated are truly motivated toward moving to a value-based system."
In fall 2015, Horizon launched a preferred provider network in New Jersey called OMNIA Health Alliance that includes six of the largest hospital systems and one large multispecialty practice group.
"It's an innovative approach that changes the historical relationship between the payer and provider from one that was based on an annual fight over rates, to a longer-term view of how do we move this system toward a value-based system in which the focus will be on population management, keeping patients well, keeping patients out of the hospital, engaging the patients in their care, engaging them in preventive care, and lastly the ability of all of that to lower the total cost of care," Marino says. "Another aspect of what we believe is very innovative about this partnership is that over a period of time these providers will actually assume financial risk for the well-being of their populations that are assigned to them."
For OMNIA's partner providers, Marino says Horizon provides a pathway to full capitated risk that begins with shared savings, transitions to risk corridors after two years, and then transitions to full global capitated risk several years after that.
Marino describes OMNIA as a tiered network, "not a narrow network."
"We took our largest managed care network, and we created tiers within that network. This was done in response to a tremendous amount of research the company has done over the past several years, where our customers have told us that healthcare costs in New Jersey are unaffordable and they were looking for a lower-cost quality options," he says.
Horizon customers who select an OMNIA product will see an average premium reduction of 15%. "If they choose to do that, they will see little, if any ... out-of-pocket costs in terms of even a deductible or coinsurance," Marino says. "If they use a provider in the broader network of what we classify as Tier Two, they will have out-of-pocket costs that are very similar to the out-of-pocket costs they pay today."
Since its launch in late 2015, more than 235,000 of Horizon's 3.8 million members have joined OMNIA. "When you look at these 235,000 members, 175,000 of them are individual consumers who write a check every month to pay for their healthcare," Marino says. "That is the market that has been crushed by healthcare costs and 41,000 of those 175,000 individual consumers were previously uninsured in the state of New Jersey."
Hospitals that were invited to join Tier One had to meet key metrics. "Obviously, quality was important, as was their history and ability to demonstrate past performance in value-based care, the scope of services offered, the ability and readiness of the hospital systems to accept risk," Marino says.
When OMNIA launched, hospitals that were not in Tier One complained that they were placed at a competitive disadvantage with their top tier competitors, a claim Marino disputes.
"We have reached out to every one of those hospitals and said, 'If you are interested in working with Horizon on value-based care and payment innovation models, that invitation is there. It's not a monopoly that the only hospital systems that will have access to payment innovation models are the Tier One hospitals,' " he says.
University Hospital was one of the providers that didn't make the Tier One cut, and Kastanis says he wasn't surprised. "I don't see a lot of Horizon Blue Cross patients here, other than those who come through our emergency department. The elective admissions from that third-party payer are minimal," he says.
Still, Kastanis wants UH to be a Tier One provider. "In my first week here I met with Robert [Marino] and we talked about the criteria they used to categorize the hospitals in New Jersey into Tier One and Tier Two. They articulated very clearly the clinical metrics that they wanted to see from those in Tier One because they were going to create incentives for their beneficiaries to go to Tier One hospitals with no deductibles and reduced or no copays," he says.
"The quid pro quo for the Tier One hospitals is they are going to get a discounted reimbursement rate but they are going to get more volume. Guess what: Places that can do that really need scale to absorb and take at-risk the management of these types of patients who are coming to you with a discounted rate."
Kastanis says UH "doesn't quite have that."
"You have to have the confidence and the know-how to do it, and you have to prove to the third-party payer that you really have good clinical outcomes and great patient satisfaction scores; that is going to convince Horizon that they are going to have a good result and good feedback from their beneficiaries," Kastanis says. "Coming here as a newcomer I have to be realistic. We don't have the scale. We can't take a discounted rate just yet. I can pound my chest and say, 'Hey, I'm the only academic medical center in the whole Newark area. We should automatically be included in Tier One!' But, it doesn't hold water."
Marino says UH has clear challenges as an inner-city hospital serving a poorer, sicker patient population, but that some inroads are being made. "The good news is John and I and our staffs have agreed to do some payment innovation models with them," he says. "We are working with University Hospitals here in Newark on a charity program. There is a very significant problem with preterm births at University Hospital, and we are collaborating to improve the health of the mothers and the babies as well. John recognizes that they may not have all the criteria in place, but we are willing to work with any hospital that wants to move in that direction, and clearly John does."
Kastanis sees Tier One status as a long-term goal, one of many affiliations that University Hospital will work toward as the healthcare landscape evolves.
"Specific to OB-GYN they offered that episode of care and I accepted it. I was showing them I am willing to work with them," he says. "It's going to be a gradual improvement in credibility between the two of us to get into Tier One, and I can live with that."
Hershey Medical Center and PinnacleHealth weigh their options after district court ruling is overturned and appellate judges grant a preliminary injunction to block the merger.
A federal appeals court on Tuesday granted a preliminary injunction that blocks the merger of Pennsylvania's PinnacleHealth System and Penn State Milton S. Hershey Medical Center.
In a unanimous ruling, a three-judge panel at the U.S. Court of Appeals for the Third Circuit overturned a May 9 ruling in district court and said that the trial court "erred in both its formulation and its application of the proper legal test."
The preliminary injunction had been sought by the Federal Trade Commission and the Pennsylvania Attorney General's Office, which had claimed that the merger of PinnacleHealth, a Harrisburg-based three-hospital system based, and Hershey Medical, a 551-bed academic medical center, would create a dominant acute care provider that would hinder competition in the four-county service area.
"The FTC is very pleased with today's ruling from the Third Circuit Court of Appeals, which found that we have a likelihood of success on the merits," said Debbie Feinstein, director of the FTC's Bureau of Competition. "We look forward to proving our case."
PinnacleHealth and Hershey on Tuesday issued a joint statement saying they were "disappointed by the court's ruling. Over the next several days, the leadership and respective boards of both organizations will carefully review the decision, and together we will determine our next course of action."
The preliminary injunction means that, if the two hospital pursue the merger, any further arguments would be heard before an administrative law judge who works for the FTC.
An appeal of that ruling would go to the commission that voted out the complaint in the first place. An appeal of the commission ruling would go back to the appeals court under substantial deference.
The appeals court said it found three errors in the district court ruling, which came after a five-day hearing last spring.
"First, by relying almost exclusively on the number of patients that enter the proposed market, the District Court's analysis more closely aligns with a discredited economic theory, not the hypothetical monopolist test," the appeals court wrote in a 46-page ruling.
"Second, the district court focused on the likely response of patients to a price increase, completely neglecting any mention of the likely response of insurers. Third, the district court grounded its reasoning, in part, on the private agreements between the hospitals and two insurers, even though these types of private contracts are not relevant to the hypothetical monopolist test."
Jay Levine, a disinterested observer and Washington, DC-based antitrust litigator with Porter Wright Morris & Arthur LLP, says the district court's ruling in support of the merger relied in part on the Elzinga-Hogarty test, which was not designed for the task.
The Elzinga-Hogarty Test
"The district court, when it was trying to determine the scope of the geographic market, relied heavily on where the hospitals draw their patients from, and within those ZIP Codes, where do patients go to," Levine says.
"It saw that a lot of these patients are going to other hospitals, which indicated to the court that the geographic market is broader and therefore includes more hospitals, and hence any merger between these hospitals would not restrain competition."
The Elzinga-Hogarty test was a well-used crutch to support the case for merging hospitals in the 1980s and 1990s but has fallen out of favor in the past two decades, Levine says. "The test was originally designed to deal with how much foreclosure of a market there is on exclusionary provisions," Levine says.
"The FTC said it should not be used to define a relevant market because it only focuses on static measures and not on dynamic pressures. Even Prof. (Kenneth) Elzinga said no one should be using his test for those purposes."
Levine says he doesn't see a ripple effect with the ruling. "To the extent that your best argument is patient flow, it probably tells you you've got some issues," he says.
"At the end of the day, we all know how the FTC evaluates these mergers and most of the courts that have evaluated these mergers have evaluated it in that context. This case was a little bit sui generis in that it harkened back to the old days."
