In other news: Two western New York state hospitals are affiliating, and in Oregon, publicly owned and financed OHSU says it will convert a $50 million debt from Moda Health Plan Inc. into a 25% equity stake in the privately owned, financially troubled insurer.
Providence, RI-based Care New England Health System and Southcoast Health System, Inc., based in Fall River, MA are discussing a "strategic partnership" that, if consummated, would create one of the largest not-for-profit health systems in New England.
"We believe the complementary services of Southcoast and the geographic span of their service area will enable us to advance the high quality, high value continuum of care we have been building," CNE President/CEO Dennis D. Keefe said in a joint media release.
"We already see the common ties to community and an unwavering commitment to mission and values both our organizations share, and we look forward to further study of the partnership potentials that could come to fruition in a new vision for healthcare delivery for our region."
CNE's four hospitals saw about 228,000 inpatient days and generated more than $1 billion in revenues in 2014, and finished the year $8.5 million in the black. The slightly smaller four-hospital Southcoast Health recorded 178,000 inpatient days and generated about $968 million with $5 million in surplus.
A unified healthcare system would include eight hospitals, a network of ambulatory sites, two accountable care organizations, more than 1,700 aligned physicians and providers, and a continuation of the academic relationship with The Warren Alpert Medical School of Brown University.
"Southcoast has long been focused on providing the very best care within our region of Southeastern Massachusetts and Rhode Island, finding ways to remain highly competitive, cost effective, and at the forefront of technological and strategic change," Southcoast President and CEO Keith A. Hovan said. "We believe that Southcoast can be a strong and complementary partner for Care New England, and that together our respective organizations could form the foundation of a highly competitive, community-based and value-driven integrated health care system throughout southern New England."
Care New England was founded in 1996, and today it is the parent organization of Butler Hospital, Kent Hospital, Memorial Hospital of Rhode Island, Women & Infants Hospital of Rhode Island, the VNA of Care New England, The Providence Center, CNE Wellness Center and Integra, a certified ACO created in collaboration with the Rhode Island Primary Care Physicians Corporation. Care New England includes 970 licensed beds and 216 infant bassinets.
Southcoast Health System includes Charlton Memorial Hospital in Fall River, St. Luke's Hospital in New Bedford and Tobey Hospital in Wareham; and Southcoast Behavioral Health in Dartmouth, a joint venture hospital with Acadia Healthcare, an international leader in psychiatric and addiction care.
Oregon Health to Buy 25% Stake in Moda Health Plan
Publicly owned and financed Oregon Health & Science University said it will convert a $50 million debt from Moda Health Plan Inc. into a 25% equity stake in the privately owned, financially troubled insurer.
Last year, OHSU said invested $50 million in Moda to promote vertical integration of its health care system. The investment was in the form of a 4% surplus note—a common financial instrument in the insurance industry specifically designed to provide capital. The note matures in 2024. Under a letter of intent, OHSU may convert the surplus note into an equity position in 2016. Any final agreement would require approval by the boards of directors of both OHSU and Moda, and regulatory approval from the Oregon Insurance Division.
Moda borrowed the money from OHSU last December, but suffered a large financial hit this year when the government reneged on the risk corridor program created under the Affordable Care Act. Moda was anticipating nearly $90 million from the payments, but received only $11 million.
In October, the insurer was placed "under review with negative implications" by the insurance rating firm A.M. Best Co.
Two NY Hospitals Join UR Medicine
Jones Memorial Hospital, a 70-bed hospital in Wellsville, NY, and Noyes Health, a 67-bed hospital in Dansville, NY will join UR Medicine now that affiliations have been unanimously approved by each hospital's board. With the affiliations, UR Medicine's network now includes five hospitals in western New York state, including Strong Memorial, Highland Hospital, and Thompson Health.
UR Medicine is also working with St. James Mercy Hospital in Hornell to preserve its inpatient services and to obtain state funding to build a new outpatient services facility that would also provide 15 inpatient beds for complex patients.
Jones, Noyes, and St. James Mercy hospitals already collaborate to bring UR Medicine oncologists, cardiologists, neurosurgeons and other specialists to all three communities. Two weeks ago, construction began on the new Ann and Carl Myers Cancer Center in Dansville, part of the Wilmot Cancer Institute that will provide oncology services for the region.
"The changes taking place in America's healthcare system have significant implications for rural hospitals and the communities they serve," University of Rochester President Joel Seligman said in prepared remarks. "The regional approach of UR Medicine ensures that these hospitals remain the cornerstone of local healthcare and also an economic anchor for their communities."
Financial terms were not disclosed, but when the deal is finalized Avera will become the second-largest health insurance company in South Dakota, serving nearly 200,000 people. However, Avera will operate Avera Health plans and DAKOTACARE as two separate organizations.
DAKOTACARE's provider network includes 100% of South Dakota's hospitals and more than 98% of the state's physicians and pharmacies.
"Avera is committed to maintaining the DAKOTACARE brand, the broad network of providers, and the positive relationships with the more than 400 insurance agents across the state," said Rob Bates, senior vice president of Avera Health.
With the acquisition, Avera says it can now offer consumers a choice provider network through DAKOTACARE and a value network plan through Avera Health Plans.
Avera has more than 16,000 employees and physicians in more than 330 locations and 100 communities in a five-state region.
Northwestern's KishHealth Acquisition OK'd by IL
The Illinois Health Facilities and Services Review Board has unanimously approved Northwestern Medicine's previously announced plan to acquire DeKalb-based KishHealth System.
With the regulatory approval in place, Northwestern Medicine will grow to more than 90 locations, including six hospitals, with a combined workforce of 26,500 employees and physicians in eight Illinois counties. Kevin Poorten, president and CEO of KishHealth, will remain in that role after it becomes part of Northwestern Medicine.
With regulatory approval in place, Northwestern Medicine said it anticipates KishHealth joining the health system before the end of this year.
Newly Merged VHA, UHC to Be Called 'Vizient, Inc.'
VHA Inc. and UHC merged this Aprilto create the nation's largest member-owned healthcare company, and on Jan. 1, 2016 the new company will be known as Vizient, Inc.
"The new name represents the full capabilities of the combined organization, from supply chain expertise to forward-thinking insights into cost and quality performance," the Irving, TX-based company said in a media release. "The comprehensive products, services and expertise of Vizient will help members significantly improve their financial, clinical, and operational performance and achieve greater value for patients and communities."
The merged company represents more than $50 billion in annual purchasing volume and serves more than 5,200 health system members and affiliates and 118,000 non-acute healthcare customers, from independent, community-based healthcare organizations to large, integrated systems and academic medical centers.
Unlike many rural hospital closures that occur despite public outcry and angst, the people of Bowie, Texas had the opportunity to save their hospital. They literally elected not to.
Nearly 50 years after it opened, the doors have finally closed for good at Bowie Memorial Hospital, a 51-bed independent community hospital serving Bowie, TX.
Employees gathered Monday morning for a brief closing ceremony that included lowering and folding the flags at the entranceway, goodbye hugs and handshakes for colleagues, and locking the doors to the emergency room that since 1966 had provided this community of about 5,100 souls 24/7/365 access to care. A handful of administrators will spend the next two weeks in the empty building clearing up paperwork before the lights flicker off one last time.
Larry Stack
The closing means that many of the hospital's 138 employees will have to find jobs elsewhere, and many are expected to leave this town located midway between Fort Worth and Wichita Falls. Other town residents who require easier access to care are also likely to uproot to leave.
The Bowie residents who stay and require hospital or emergency care must now travel either 19 miles northeast to Nocona General Hospital or 28 miles southeast to Wise Regional Health System. Hospital closings have become far too common in non-urban America these days. Researchers at the University of North Carolina report that at least 59 rural hospitals have closed since 2010, almost all under financial duress. Bowie Memorial reported that it had lost $900,000 last year.
Unlike many of these rural hospital closures that occur despite public outcry and angst, however, the people of Bowie had the opportunity to save their hospital.
They literally elected not to.
A Nov. 3 referendum to create a hospital taxing district that would have raised property taxes by 17 cents (about $150 a year on a $100,000 house) was defeated by 53% of the voters.
Local media reported that Bowie residents who opposed the tax hike feared that there were no guarantees that the hospital wouldn't come back in future years with demands for more.
Bowie Mayor Larry Stack says he remains "totally baffled" that town residents did not support the tax increase, even though town and Bowie Hospital Authority officials made it clear that the hospital would shutter without the new revenue stream.
"We were one of two rural hospitals in Texas that did not receive tax support," Stack says. "Really, it's pretty amazing that the hospital was able to remain operational for as long as it did. It's hard to get that point across to people about how the payment system works, especially when you have a high Medicare census that's nearing 80%."
Mayor Stack spoke with HealthLeaders Media about the closing and its effect on the community. The following is an edited transcript.
HLM: What do you do now? Stack: That's a good question! We have only one choice currently and that is to transport our citizens to Nonona or Decatur. Our city medical director has told us to continue to use the same medical directives that he had provided previously, which is to take the patients to the closest adequate facility.
Now as far as what we do with the hospital, the hospital board is working on that. I don't know what is possible at this time. Our hospital is needed here because of the large amount of Medicare patients and uncompensated care we have.
The long-term fix was tax support to generate the revenue to keep the hospital viable, and of course that did not happen. My suspicion is that an urgent care clinic at some point will come to Bowie, but I don't know how that business model will fit in here. It's my understanding that urgent care clinics' emergency rooms are not recognized by Medicare. Only emergency rooms associated with hospitals are recognized by Medicare.
And when the hospital was open, the Medicare census was nearing 80%. I don't see how that would be viable for an urgent care center here. I know they do that in urban areas where the population is younger and you have a higher percentage of private insurance."
HLM: How did Bowie Memorial find itself in financial straits? Stack: I served on the hospital board for 16 years until 1996. This hospital opened in '66. It was chartered as a non-taxing entity. So the hospital always operated close to the vest and kept costs real conservative. We cash-funded our depreciation. It was very financially successful.
In 1993 when the government passed the Medicare Reform Act, the board knew at some point it was going to greatly affect the revenue of the hospital because we didn't have any room to cut costs. In '94 we told our administrator to set up a hospital taxing district. We weren't going to have a vote right then, but we wanted it in place because at that time you had to go to the state legislature to get that set up and our legislature meets every other year.
We didn't know when we needed to have that vote but we wanted it taken care of. The mistake we made then was not to have a referendum right then for a very small tax increase.
We decided to come up with all other ways to generate revenues. We started a physical therapy program. We started a home healthcare program. We started durable medical equipment rental. We built an assisted living center that was very profitable that offset our loss of revenues and it all worked pretty good. But as time went on, the payments got less and less and the Medicare census grew. So, that was a problem.
HLM: Why did voters reject the tax increase? Stack: We had our first vote four years ago and it didn't pass. So the hospital really struggled to get to this point. In addition to all that stuff, our economy is heavily oil field related. Over the past six to nine months, there is one large employer here who had 600 people and now it's down to 300 and that was spread to a lot of other people who were doing oil field-related activities.
So, a lot of people didn't have jobs, or had their hours cut way back. It was hard for those people to support the tax increase because honestly, they didn't have the money.
And then the opposition bunch, which was basically citizens that lived outside the city limits, ran a hard campaign against it. A lot of the information they put out was not entirely accurate and the bunch here that was running the 'for' campaign tried to combat it as best they could.
But sometimes it's difficult to change people's minds. If you take all that into consideration, it's the perfect story type deal. But for the life of me, I cannot understand why people in a town this size of over 5,000 would not want to have a hospital. I don't know if people just thought it wouldn't close, but I am baffled. I am totally baffled.
HLM: How will local government respond to the closure? Stack: This will have to be paid back in some other way. There is no free lunch. One of the things we had done, if you are a citizen of Bowie proper and our ambulance picks you up to takes you to the city hospital and let's say that trip is $1,500 and your insurance only pays $500 we accept that as full and final payment. We don't hassle you for the difference. That is a benefit you get for paying your taxes. Or if you don't have insurance we do the same thing. We don't hassle you. We let it go.
Well, that costs us about $350,000 to $400,000 a year and you can kind of justify that by the fact that you are taking those patients to your hospital. That is going to go away. Now we cannot afford to create a deficit to take people to places further away. The city council is considering an ordinance change that says you have to pay your own tab when you go to the hospital, and we will file liens. That's a perfect example of what is going to happen.
Montague County only pays us $18,000 a year to provide ambulance service for the southern half of the county. Well, we are going to have to take a hard look at that. That doesn't even begin to cover the associated costs.
HLM: How do you think not having a hospital will affect Bowie's ability to recruit new businesses?
Stack: It's going to be difficult. Available medical care is one of the top things people look for. My first line of defense is to look at every possible avenue. I am writing letters to our state and federal elected officials to see if there are programs they can help us with and get this thing put back together as some sort of hospital of some size. I don't know at this point, but it is a definite negative.
Unfortunately most of those people who worked at the hospital with their specialties will not be able to find work here if they decide to stay in that same field, so we are going to lose population too. It's a gut punch.
HLM: Is there anything else you'd like to mention? Stack: Only that if anybody has any suggestions about what we might do I'd be more than happy to listen to them.
Despite some differences based on size, academic medical centers, community hospitals, and for-profit and not-for-profit hospitals have all seen quality improvements since 2002, says the head of The Joint Commission.
Nearly one-in-three hospitals that submitted quality and performance data to The Joint Commission earned a coveted spot on the accreditor's Top Performers on Key Quality Measures list.
"Achieving top performer status is not easy and for many hospitals it took years of hard work," Joint Commission President Mark R. Chassin, MD, said on a Tuesday conference call. "More than ever, hospitals are focusing on what counts. This represents real progress. We clearly have a long way to go on these and other measures of healthcare quality."
The Joint Commission's 2015 report used 49 accountability measures to determine how hospitals perform on evidence-based care processes for conditions such as heart attack, surgical care, inpatient psychiatric services, perinatal care, pneumonia and stroke.
The report will not be published in 2016, Chassin said. "For 2016 we've decided to take a one-year hiatus and assist our accredited hospitals in managing the journey and evolution of electronic clinical quality measures. In January the Joint Commission will launch Pioneer in Quality, a program focused on helping customers reach top performer status in the electronic clinical quality measures world."
Of the more than 3,300 hospitals that submitted data for the 2015 report, 1,043 hospitals (31.5%) made the Top Performer list, which required them to achieve a cumulative performance of 95% or above across all reported accountability measures.
Chassin cautions that while the Top Performer program identifies hospitals that provide superior performance on specific measures, it is not a blanket endorsement of all services provided at any particular hospital.
"The evidence is crystal clear that quality varies quite a lot within individual hospitals from one service to another and from one measure to another," he says. "That is why we are very careful to specify in this report exactly which measures resulted in each top performer achieving their recognition."
This year's report added accountability measures for tobacco treatment and substance use, and inpatient psychiatric services.
Chassin says academic medical centers, community hospitals, and for-profit and not-for-profit hospitals all are seeing quality improvements.
"There are remaining some differences between hospitals depending upon how large or small they are. But the main trend is that everyone has improved dramatically, especially if you go back to 2002," he says.
Chassin said he doesn't think the financial incentives imposed by CMS have played a huge role in improving quality.
"The time during which the most dramatic improvement in performance occurred (was) well before the financial penalties were put in place by CMS," he says. "The only financial penalty that was in place in this period was the penalty for not reporting any data at all. Specific penalties attached to specific measures came long after hospitals had achieved the vast majority of this improvement. And that temporal observation is consistent with a bunch of research that shows that financial penalties tied to specific measures didn't really add much to the improvement that had already taken place."
Instead, Chassin credits The Joint Commission with providing the platform that empowers and incentivizes hospitals to measure and monitor their quality markers.
Standardized Measures
"The principle driver is that The Joint Commission going back to 2002 established the first standardized set of information that hospitals could collect across the nation," he says. "Indeed, we required them to as a condition of accreditation to measure quality in a selective number of conditions, and that number has gone up over the years. We were the first organization to publicly report the results of those data collection on quality measures. [Centers for Medicare & Medicaid Services] followed shortly after, and for a number of years in the 2000s, The JC and CMS were nearly perfectly aligned in the definition of measures, in the public reporting of those measures, and the public reporting really drove a huge amount of improvement."
Since then, he says, a lot of other organizations have jumped on the hospital ratings bandwagon.
"Now we have lots and lots of organizations reporting on quality," he says. "Leapfrog, Health Grades, Medicare's measures derived from their billing data, which we don't believe are valid measures of quality. So there are a lot more sources of information. We believe these accountability measures are still the best, but that public reporting period in the early and mid-2000s was the major driver that got hospitals' attention and they learned how to improve on these measures."
How TJC Criteria Differ
Chassin says the Joint Commission has a strict set of criteria that distinguish its ratings from other hospital raters.
"For example, we will not use measures like CMS uses that are derived from data from hospital bills because they don't pass our criteria for accurately identifying complications, or some patient subgroups," he says.
"We also will not use outcome measures like CMS and Healthgrades and others use because they rely on billing data to do risk adjustment. Those billing data don't have any information on the severity of the condition which is one of the most important things you have to adjust for in comparing different patient populations."
"Another player out there likes to label hospitals with one letter grade. That's demonstrably misleading. Quality varies enormously within hospitals, from one service to another, and from one measure to another," he says. "It just flies in the face of decades of hospital research which shows that variability does not allow that kind of measure to be accurate."
"There is a lot of noise out there in the hospital quality measurement field," he says. "We encourage hospitals to tune out the noise and to focus on measures that are most important to their own patient populations. The most important quality improvement that hospitals can do is to understand what risks their patients are facing, what improvements are necessary for their patients, and to act on those incentives."
In other recent business developments, Henry Ford Health has signed a letter of intent to acquire Allegiance Health, Tenet Health is exiting the North Carolina market, and the FTC is delaying a hospital deal in West Virginia.
The American Medical Association is asking the federal government to block two proposed mega-mergers involving four major health insurance companies, deals that the physicians' association say would drastically reduce competition and increase healthcare costs for consumers.
James L. Madara, MD
AMA President James L. Madara, MD, said in a letter to Assistant Attorney General William Baer, with the Department of Justice's antitrust division, that the proposed acquisitions of Humana by Aetna and of Cigna by Anthem would create "significant concerns with respect to the impact on consumers in terms of health care access, quality, and affordability."
"The proposed mergers are occurring in markets where there has already been a near total collapse of competition," Madara said. "Under the U.S. Department of Justice/Federal Trade Commission merger guidelines, the proposed mergers are presumed to enhance market power in a vast number of commercial and Medicare Advantage markets. Because of persisting high barriers to entry in health insurance markets, the lost competition through these proposed mergers would likely be permanent and the acquired health insurer market power would be durable."
Aetna and Anthem issued statements challenging the AMA's assertions.
"We believe the combination of Aetna and Humana will improve the healthcare system and offer consumers more choices and greater access to higher quality, more affordable care," Aetna said. "Our proposed transaction is primarily about the Medicare marketplace, where there is robust competition and choice. We are confident that our transaction will receive a fair, thorough, and fact-based review from the Department of Justice and the states."
Anthem said the letter "merely reiterates the comments the AMA has made previously and does not reflect the actual facts regarding Anthem's acquisition of Cigna."
"Together, Anthem and Cigna, which have limited overlap in a highly competitive industry, will be in a better position to improve consumer choice and quality," Anthem said. "Additionally, we will deliver for consumers by operating more efficiently to reduce our own costs, while enhancing our ability to manage the cost drivers that negatively impact affordability for consumers.
Anthem argued that a combined Anthem/Cigna would accelerate the transition from volume- to value-based payments, and that the bigger company would have more leverage to negotiate lower rates from physicians and hospitals, which would be passed on to consumers.
"Consolidation among hospitals and physician groups is a real and growing concern for consumer affordability," Anthem said. "A recent analysis found that physician prices for groups acquired by hospital systems jumped by 14%, on average. A separate study showed that large, self-insured employers paid lower prices for care in markets where insurers had a better negotiating position."
Henry Ford Health to Acquire Allegiance Health
Jackson, MI-based Allegiance Health will be acquired by the Henry Ford Health System, a five-hospital system based in Detroit. The two health systems signed a letter of intent this month and if all regulatory hurdles are cleared the acquisition should be completed in early 2016.
Georgia Fojtasek
"Joining with Allegiance Health is an important strategic step for Henry Ford as we broaden our expertise and reach beyond southeast Michigan," Henry Ford president Wright Lassiter, III, said in prepared remarks. "We appreciate how important Allegiance is to the Jackson community, and how dedicated its staff and physicians are to the health of their neighbors. We look forward to working with them to expand and enhance the services they provide to Jackson County and the entire south central region."
Allegiance Health includes a 480-bed community-owned health system in Jackson, with a strong emphasis on community partnerships.
Allegiance Health President and CEO Georgia Fojtasek said that joining Henry Ford will allow for greater access to new technologies and enable clinicians from both systems to develop new approaches to patient care. It will also enable Allegiance Health to expand its services and build clinical capacity, as well as improve facilities and technology.
Under the deal, Allegiance Health leaders and community leaders will continue to represent local interests on the board of trustees and governance committees. Allegiance will adopt Henry Ford's Epic electronic medical records system.
FTC Delays WV Hospital Acquisition
The Federal Trade Commission says it will block Cabell Huntington (WVA) Hospital's proposed acquisition of St. Mary's Medical Center.
"The combination would create a dominant firm with a near monopoly over general acute care inpatient hospital services and outpatient surgical services in the adjacent counties of Cabell, Wayne, and Lincoln, West Virginia and Lawrence County, Ohio likely leading to higher prices and lower quality of care than would be the case without the acquisition," the FTC said in an administrative complaint.
The FTC will also seek a temporary restraining order on the merger pending an administrative hearing. On the local level, the merger has received the approval of the West Virginia Attorney General's office but is still awaiting approval from the West Virginia Health Care Authority and the Catholic Church.
"If this proposed acquisition goes forward, it would eliminate important competition that has yielded tremendous benefits for Huntington-area residents," Steve Weissman, deputy director of the FTC's Bureau of Competition, said in prepared remarks. "The merged hospitals would have a market share of more than 75%, and local employers and residents are likely to face higher prices and reduced quality and service at the combined hospital."
The complaint alleges that the two hospitals are each other's closest competitor for health plans and patients, and that the acquisition would substantially lessen competition between the hospitals for patients and for inclusion in health plan networks. The complaint also alleges that, at times, the parties have attempted to limit their intense head-to-head competition through collusive conduct, such as restrictive marketing agreements.
CHH and SMMC issued a joint statement of disagreement with the FTC's findings.
"It is our opinion that the FTC's action announced today misreads the highly competitive landscape in our Tri-State region and overlooks the enormous community benefits that would result from the combination of CHH and SMMC," Kevin N. Fowler, president/CEO of CHH said in prepared remarks. "Despite the FTC's decision, we remain committed to this acquisition as we believe it assures quality medical care for the residents of our region."
Keith Pitts
West Virginia Attorney General Patrick Morrisey signed off on the deal in July.
Tenet Healthcare Leaves NC
Tenet Healthcare Corporation will sell its two hospitals and other operations in North Carolina to Duke LifePoint Healthcare.
Financial terms were not disclosed for the sale, which is expected to be finalized by mid-2016. The sale includes the 137-bed Central Carolina Hospital in Sanford, NC, and the 355-bed Frye Regional Medical Center in Hickory, NC, and 19 physician practices.
"Tenet has long enjoyed serving the Sanford and Hickory communities through our network of trusted hospitals and caregivers," Tenet Vice Chairman Keith Pitts said in prepared remarks. "As we evaluated strategic alternatives to ensure the long-term success of these operations, we chose Duke LifePoint because of their growing statewide network, impressive leadership teams and focus on quality and value."
William J. Fulkerson Jr., MD, executive vice president of Brentwood, TN-based Duke University Health System, says the acquisition means that Duke LifePoint will expand to nine hospitals in North Carolina and14 hospitals nationwide.
William J. Fulkerson Jr., MD
"Tenet and Duke LifePoint share a commitment to high-quality, patient-centered care, and we look forward to a seamless integration as we bring these facilities into our network," he said.
As part of the deal, Duke LifePoint will maintain all services provided at both hospitals, and offer jobs to all employees of the hospitals.
Navicent, Mercer U. Create 'Disruptive' Center
Macon, GA-basedNavicent Health is partnering to with Mercer University to create a Center for Disruption & Innovation to promote innovation and collaboration among healthcare leaders in the drive toward evidence-based research and value-driven processes.
Ninfa M. Saunders
"We call it disruptive because to have a new space we have to disrupt the current space," says Ninfa M. Saunders, president and CEO of Navicent Health. "If you are trying to change something, you have to mess it up first. Unfortunately, you can't just do that in the middle of everything else going on in healthcare because there are patients there and we must continue to innovate without completely messing up everything."
Saunders says the center will focus on optimization healthcare delivery and reducing practice variation, "disruptive innovation" to generate new approaches to processes, and develop and commercialize new products in conjunction with Mercer's schools of biomedical engineering and business.
"We are developing a laboratory where we can look at what is going on in the current space and what are the different models that we could try," Saunders says. "Today in healthcare we don't have a research and development office. We think of something, we implement it, we test it, and hope it works, and we continue to tweak. This will allow us to do some of the concept development in a lab."
If an EPC does enough big projects, "one or two or three a year, you more than pay for your entire budget," says the head of Penn Medicine's Center for Evidence-based Practice.
Evidence-based practice centers in hospitals can facilitate and accelerate the use of best practices to improve care and save money, research suggests.
Penn Medicine has had an EPC since 2006. A recent review of the center's first eight years found that nearly 250 analyses were produced mainly at the request of clinical departments, purchasing committees and CMOs, primarily for drug and device performance.
The researchers analyzed an internal database of evidence reviews performed by Penn Medicine's Center for Evidence-based Practice and then conducted an anonymous web survey of all of those who requested a report during the last four of the Center's eight fiscal years.
Craig A. Umscheid, MD
The survey data of 46 respondents found that 98% of report requestors said the scope of the review and level of detail was "about right," and 77% said reports confirmed their tentative decision. When asked whether the report informed their decision, 79% "agreed" or "strongly agreed." The survey respondents also found the reports easy to request, easy to use, timely, and relevant, resulting in high requestor satisfaction, Penn Medicine reported.
The most common reasons cited for requesting a report was the EPC's skills in identifying and synthesizing the available evidence, and the EPC's objectivity.
Study lead author Craig A. Umscheid, MD, director of Penn Medicine's Center for Evidence-Based Practice, and a practicing internist, says the EPC's credibility underscores the value of a neutral center in an environment where clinical departments and hospital committees may have competing interests, and where politics and external influences such as industry may negatively influence institutional decision making.
Umscheid spoke with HealthLeaders Media about the value of EPCs. The following is an edited transcript.
HLM: Can you call Penn Medicine's EPC a success?
Umscheid: It all depends on how you define success. In our study we were able to show that if you have a center available and it is positioned within a layer of a health system that is responsible for decision making, people will access the center, use the center for a variety of topics, and when they access us we can get the work done so that it can be used in a timely manner. So if you define success in that way, we have demonstrated you can be successful.
HLM: Generally speaking, how long does it take for best practices to be commonly adopted?
Umscheid: Traditionally, this is referred to as the knowing/doing gap; the gap between what we know works and what we actually do on the ground. Oftentimes you will see a number such as 17 years before research that is published is translated into practice. I think that number is incredibly outdated.
It is much more rapid nowadays. That can be a good thing and that can be a bad thing. In terms of whether doctors practice current medicine, it is variable. It could vary by the provider within an institution. Some physicians are more conservative. Some specialties are more conservative.
Other physicians and specialties are more interested in being on the leading edge. That is their culture, whether that is best for their patients or not. And then institutions have their own cultures of being conservative or leading edge cultures. It is difficult to generalize.
HLM: Do you see EPCs accelerating the adoption of best practices?
Umscheid: I absolutely see them as such. I see our work as for the most part implementation work. People come to us with questions that are informed by a variety of events. Whether it is news media, patients, or problems that are identified on the ground. They want to know what are the best practices for achieving 'X' or is 'A' really better than 'B.'
We can help synthesize that for them quickly, or find syntheses that are already available and get that to them to inform the decision-making for their unit or their clinic or their hospital.
So often people say physicians need to read their studies more or guidelines have to be more updated, but the systems that we have in place are exactly the systems that create the outcomes we are seeing. That's a Don Berwick quote. If we want to change the outcomes we have to change the systems. The types of centers we are describing have the potential to provide infrastructure to assist not just individual providers, but institutions and integrating evidence into practice to improve care.
HLM: Could a hospital or health system with fewer resources create an EPC?
Umscheid: Most institutions could do this. It doesn't have to be on as large a scale as we have. Most corporate layers of institutions could probably hire or redeploy someone with a skill set for assessing evidence to do this in a more explicit way for high-priority decisions. In fact, there are probably many institutions that do this, but it is less formal or publicized or evaluated.
HLM: Do you believe these EPC fosters culture of improvement?
Umscheid: That is a change we have seen over time and it's a palpable change; people asking for the evidence in a position to make important decisions. It's really gotten a foothold and we have been able to catch the ear of people who are respected in their hospitals and clinics and it has slowly changed the culture here.
HLM: Are you able to determine a return on investment?
Umscheid: We don't have a systematic assessment of our ROI. What we have done, particularly over the first few years and particularly for large projects that are amenable to this, is estimate impact on outcomes that have direct links to costs.
For example, in the past we did a large review comparing different products to prevent surgical site infection so one of the products was a standard Betadine that you put on your skin versus a new product call Chlorhexidine, which costs more money, but which dramatically reduced surgical site infections when compared with Betadine.
We found about a $400,000 savings for one hospital for the use of that product, and for a number of different projects we have done those types of estimates. And if you do enough of those big projects, one or two or three a year, you more than pay for your entire budget, which is about $1 million a year.
That is particularly true nowadays because in the past few years the policy environment in the U.S. has focused much more on value-based purchasing and pay for performance. If we don't meet these process or outcome metrics, we lose money or reimbursement. If we are able to actually implement a process and outcomes or measures improve all of these things can result in increased reimbursements or savings.
HLM: Should EPC researchers continue to practice medicine or should they remain separate?
Umscheid: It is absolutely critical for someone who is leading a center like this to be practicing clinically, to be seeing patients regularly and working with colleagues in the clinical context regularly. If you don't do that, your credibility is lacking and your perspective when you're helping to inform staff about these reviews isn't as robust and realistic and relevant as it should be."
HLM: How has the role of the EPC evolved since it started?
Umscheid: It's been gradual. When we set up this center back in 2006 we assumed we would be looking at drugs and devices and mostly informing the formulary committee, or the health system purchasing committee about buying 'Device A' versus 'Device B.' As we developed more traction, and gained more colleagues and fellowships, much of the work we do now is about best practices and processes of care, helping different groups identify those best practices for achieving better outcomes be it in an outpatient or inpatient setting, and many of those colleagues are clinician or nurse colleagues. It's become less about drugs and devices and more about processes of care.
The annual list of health technology hazards from the ECRI Institute identifies the potential sources of danger that warrant the greatest attention for hospitals in the coming year. Eight of the top 10 hazards for 2016 are new to the list.
Contaminated flexible endoscopes is No. 1 on the annual list of Top 10 Health Technology Hazards that hospitals and other providers could confront in the coming year, according to the ECRI Institute.
"Clinical alarms has been at the top for the last four years consecutively. This year it got bumped down to No. 2," says Rob Schluth, senior project officer in the health devices group at ECRI, an independent nonprofit group with a focus on improving patient care.
"I wouldn't say that is because alarm hazard isn't critically important. It certainly is, but it's gotten a lot of attention over the years. The Joint Commission's National Safety Goals has helped create a lot of movement. We are aware of a lot of healthcare facilities that have done a lot of good work trying to address that hazard."
Schluth says improper flexible endoscope reprocessing "bubbled up to the top" with the scores of consultants and analysts at ECRI who composed the 2016 predictor.
"In 2014 and 15 there was a fair amount of press about CRE [Carbapenem-resistant Enterobacteriaceae] infections as a result of endoscopes that weren't properly disinfected between uses," he says. "In addition, ECRI Institute for the past several years has done a number of investigations at healthcare facilities where things could have been handled better. It's a process problem in a lot of cases. If you are doing things incorrectly consistently you could end up affecting a lot of patients. That, coupled with the press the CRE was receiving all helped add to bumping that topic to the top of the list."
ECRI's Top 10 Health Technology Hazards list identifies the potential sources of danger that warrant the greatest attention for the coming year. Schluth says the list reflects ECRI staff's judgment about the risks that should receive priority consideration.
"It's a judgment process. It's not a mathematical process" that involves about 100 analysts, says Schluth. "We ask them to nominate topics. What are they seeing? What are they reading about? What are people reporting to them? And, from what they know, what do they think are worthwhile topics for this list?"
Forward-Looking
The analysts weight their predictions by considering factors such as the severity, frequency, breadth, and preventability of the hazard.
"Some people will stumble on 'isn't it the most number of reports you get?' but one of the purposes for this list is not to tell a history of what happened in the past. It's to help predict what you need to worry about next year," Schluth says. "In doing that you can't rely on the numbers of reports. You have to use the judgment that you've gotten based on testing medical devices, which the people in this group do, and investigating incidents and reading the literature and that kind of thing."
Eight of the top 10 hazards for 2016 are new to the list. "Some of those are related to topics we have covered in the past. There may be different angles. There are certainly persistent issues out there," Schluth says. "We've been doing this list about nine years and clinical alarms has been either No. 1 or No. 2 every year. That in particular is a very complex issue for healthcare facilities to get their arms around."
"With every year we toss out the last year's list and start from scratch. The fact that we do that makes it even more interesting that some of the same topics still get covered," Schluth says. "A lot of times these are complex problems, difficult to correct. There may be new information that comes out each year that we want to share with people to help them make better progress toward addressing the issue."
One new item on this year's list includes a warning on the misuse of USB ports on medical devices. "That was an interesting suggestion. Certainly it wasn't anything that had occurred to me, but that is the type of issue that you see happening more frequently as you go forward as information and medical devices merge," Schluth says.
"USB ports are on these medical devices so that information can be shared back and forth. It's almost a consumer electronics things, but for a medical device, if someone plugs in a smartphone to recharge it at the USB port, there have been reports of that causing problems with the software of the medical device. Things you wouldn't think were an issue with new technologies or new uses for technology can cause problems, especially in a software driven device."
There's no such thing as an "ideal ratio" of physicians per state, and many factors have to be taken into consideration to get an accurate assessment of physician access, says a Merritt Hawkins executive familiar with the data.
Northeastern states, led by Massachusetts, score highest in the nation on a new assessment of physician access.
The Physician Access Index, released Wednesday by Irving, TX-based physician recruiters Merritt Hawkins looks at 33 variables that could affect access to physicians, including, physicians per capita in each state, percentages of the state populations with health insurance, household income, access to urgent and convenient care, and Medicare/Medicaid acceptance rates.
Kurt Mosley, vice president of strategic alliances for Merritt Hawkins, says there's no such thing as an "ideal ratio" of physicians per state, and that other factors have to be taken into consideration to get an accurate assessment of access.
"It's one of those things depending on the state," he says. "In Massachusetts they have the highest physician to population ratio, but in our wait time survey they were the highest because 97% of the state is insured. There are always those factors. That is why we wanted to get our point across."
The Better the Metric, the Lower the Score
Massachusetts, which has 324 physicians per 100,000 population, finished first in the scoring with 442 points, while Oklahoma, with 182 physicians per 100,000 population, came in 50th with 1,096 points.
Using close to three dozen variables from sources as varied as the U.S. Census and the Association of American Medical Colleges provides interesting nuances to physician distribution and access to care. New York, for example, trains one-in-four physicians in the United States, yet is ranked 11th in physician access. New Mexico finished third from the bottom in the overall rankings, but ranks sixth in patient encounters per capita in Federal Qualified Health Centers.
Atul Grover, MD, chief public policy officer for the AAMC, says the high physician per capita ratio in Massachusetts and New York are accurate, but doesn't tell the whole story. He credits Merritt Hawkins with attempting to provide a more detailed picture.
"They may appear to have a lot more physicians in the workforce, but that workforce may not be as available," he says. "Or if you look at the per capita numbers, the demographics of the people that are in that per capita population maybe very different, [and] may have higher healthcare needs."
"Think about some of the inner cities in Massachusetts and New York. Those needs may be very different in terms of high chronic disease, low health literacy, high minority populations, more people on Medicaid, than you have in say Dubuque, Iowa. This study tries to capture some of that by looking at rates of Medicaid and poverty. Those are all steps in the right direction.
In addition, Grover says, more than 50% of physicians in Massachusetts are on the faculty of some medical school or institution. "They may be able to offer only 20% to 30% of their time clinically and the rest of their time is spent teaching or in research, both of which are important, but aren't going to factor into access in the same way that a non-faculty community physician is providing care in a rural setting."
Emphasize State Strengths
Mosley says it's important that states understand their strengths and weaknesses as they try to recruit more physicians.
"Oklahoma has to look at this and say, 'we have to be more aggressive,'" he says. "The four factors that doctors always relocate for are quality of life, quality of practice, geographic location, and financial compensation. What can that hospital in Oklahoma do? Can they affect quality of practice? Absolutely. The issue of lifestyle and geographic location they can't do anything about. They're where they are. You focus and work aggressively on the opportunities you can control."
Mosley cited Texas as a state that has become "smart about recruiting doctors."
"Five years ago they did tort reform. Pain and suffering was limited to $250,000 and doctors started coming back into the state," he says. "They just refunded their state loan repayment program and it's better compensation than national health services corp. And the state is starting to fund their own residency programs."
"Our big issue has been to raise the cap on residency slots, nationally, but it's not getting done. Bills have been on the floor in Congress since 2007 and nothing has happened," Mosley says. "States are starting to see it's not going to come from Medicare funding, so they have to grow their own. The idea is to grow your own and keep them. And states like Texas are responding by trying to increase autonomy for nurse practitioners and physician assistants, and expand telehealth."
With a dallying dysfunctional Congress, Grover agrees that it may be time for states with acute physician shortages to start funding their own residency slots.
"States are going to have to at least take part of the burden," he says. "We have seen some action on that front in Florida, Texas, and Georgia state legislatures if not fund the positions then at least fund the hospitals that are willing to start training programs until they can build up to a Medicare cap and get some sort of a reimbursement from the feds as well."
One thing Congress definitely should not do, Grover says, is take away residency slots from states such as New York and Massachusetts and give them to other states with lower physician-patient ratios.
"When you talk about a lack of residency slots in Texas or Florida, it is not a zero-sum game where you can afford to take away resident training positions from New York, Minnesota, or Pennsylvania," he says. "Those states are now supplying a lot of physicians to states like Idaho and Wyoming and Montana. The challenge is there are not enough training slots, so places like Florida and Texas need to think about how they grow their training, whether through the creation of new teaching programs at prior nonteaching hospitals, which Florida and Georgia are doing, or working on legislation on the state and federal level to expand funding for residencies."
"There is more training going on in the Northeast because they've established those programs and made those commitments for a long time," Grover says. "If 50% of the hospitals New York are teaching hospitals and only 17% of the hospitals in Arizona are teaching hospitals, then there are a whole lot of hospitals there that could choose to start training residents."
Research shows that in six out of seven specialties, higher-spending physicians faced fewer malpractice claims, suggesting that defensive medicine might protect doctors from litigation. But there is no definitive cause and effect.
Physicians who spend more money and resources treating patients are less likely to face malpractice claims than their more frugal colleagues, a Harvard Medical School study shows.
Study lead author Anupam Jena, MD, an internist at Massachusetts General Hospital, and an associate professor of healthcare policy at Harvard Medical School, says the findings suggest that defensive medicine might protect "higher-spending physicians" from litigation, although there is no definitive cause and effect.
"We don't know whether or not higher-spending physicians are in fact motivated by defensive medicine, so we can't specifically say that this is defensive medicine at work," Jena says. "All we know is that it is higher spending doctors getting sued less than lower spending doctors."
Anupam Jena, MD
Jena and his colleagues examined more than 18 million hospital admissions in Florida from 2000 to 2009 with data on the malpractice histories of the 24,637 physicians who treated those patients during their hospital stay. The studyfound that in six out of seven specialties, higher-spending physicians faced fewer malpractice claims, accounting for differences in patient case-mix across physicians.
Among internal medicine physicians, the 20% in hospital spending (approximately $19,000 per hospitalization) faced a 1.5% probability of being involved in a malpractice incident the following year, compared to 0.3% in the top spending quintile (approximately $39,000 per hospital admission).
"In addition, we found that if you follow the same physician over time and use that same physician as their own control, when that physician spent more, he or she was less likely to be sued than in years in which he or she spent less," Jena says.
"The last finding was in a specific case study of obstetrics, in which we found that doctors who perform more C-sections get sued less often. That is notably because C-sections have often been thought of as being in part defensively motivated in the United States."
Jena spoke with HealthLeaders Media last week about his study and what the findings suggest. The following is an edited transcript.
HLM: What prompted this study?
Jena: If you think about what doctors worry about most in their careers malpractice rises to the top of the list. We had done some work in TheNew England Journal of Medicine a few years back that showed that in high-risk specialties, 100% of physicians are sued by the end of their career. And even in low-risk specialties, 70% of physicians are sued by the end of their career. From a lifetime perspective, that means that malpractice is extraordinarily salient to the physician.
As a result of that salience, a number of studies over two decades have looked at defensive medicine, which is the ordering of tests and procedures and other medical services solely to reduce the risk of malpractice liability. That is a different issue than what I would call good deterrent medicine, meaning that if malpractice liability leads a doctor to more appropriately order screening colonoscopies to detect colon cancer, we wouldn't want to call that defensive medicine. That's actually the intended effect of the malpractice system. Whereas if there is additional ordering of tests and procedures but there is no benefit, then we think of it as being defensive medicine.
Either way, as long as there is an effect of spending on malpractice risk, it could help explain why it is that doctors are reluctant to reduce utilization in the face of healthcare reform efforts that are asking them to do so.
HLM: Does this study validate defensive medicine?
Jena: No! It suggests that defensive medicine might "work" but it is not conclusive evidence. This is the first study to even look at this question. For many years we have presumed that defensive medicine works, meaning that if doctors do more and spend more they're less likely to be sued. Yet, it is entirely plausible that malpractice claims actually stem from the patient-physician relationship as opposed to how many tests or procedures a doctor orders. It's not a foregone conclusion to find this negative association that we did.
Nonetheless, we do find that higher-spending doctors get sued less often than lower-spending doctors. It could be either because that higher-spending actually improves outcomes or reduces errors, which would reduce malpractice claims. Alternatively, it could be that higher spending signals to patients and others that a more exhaustive workup was done, and that is reassuring in a sense that it reduces malpractice claims. Of course, the big issues is we don't know why doctors who spend more do so. We don't know if it is defensively motivated. All we know is that if they spend more and they get sued less often.
HLM: Can we equate higher spending with better care?
Jena: From this paper we can't necessarily do that. The literature has varied thinking on this. Some studies will show that higher spending is not associated with better care. There are a number of other studies that show just the opposite. In fact, we have a paper underway now that shows that higher spending is associated with better care when we look at individual physicians.
HLM: What are some of the other limitations of this study?
Jena: We don't know the mechanism by which higher spending is associated with fewer malpractice claims. It could be that higher spending is again associated with higher quality of care. Or, it could be that higher spending is simply reassuring to patients, attorneys, judges, and juries, and that prevents malpractice claims. We just don't know what the mechanism of our findings are.
HLM: What can be done to reduce defensive medicine?
Jena: From a research perspective, we have to better understand the mechanisms involved. From a policy perspective, it is important to recognize that our ability to get doctors to reduce utilization in healthcare services has been somewhat limited in the last few years, even though we've been doing a lot to try to get them to do so.
There could be a trade-off that physicians have to make between lowering utilization, which is good for the healthcare system and could even be good for the patient, certainly good financially, against the potentially higher risk of malpractice.
HLM: Do you see a role for tort reform?
Jena: If you live in an environment were almost all doctors are practicing defensive medicine, then a change in tort reform may not have any effect because even in states where tort reforms exist or in states where the liability environment is "favorable" you still see physicians reporting that they practice defensive medicine. It could be that tort reforms don't really reduce defensive medicine, but that doesn't mean that there is not a lot of defensive medicine already going on.
HLM: Why is malpractice such a hot-button issue for physicians?
Jena: What we most certainly cannot insure against are the non-financial costs of malpractice; the anxiety over being involved in a lawsuit, and the possibility that your name will be publicly recorded for having been sued and lost a malpractice case. All of these things are extraordinarily difficult. If you talk to a physician who's been sued, many of them will tell you it was the worst experience of their life.
In a small North Dakota community, a community health center and a CAH have found a way to work together in what they're calling a patient-centered medical neighborhood.
Health policy think tanks, rural health advocates, state hospital associations, and local providers are trying to find more efficient delivery models that create optimum use of scarce resources for remote populations.
One success story can be found in Beulah, ND, pop. 3,152 or so, located about 77 miles northwest of Bismarck, and whose town motto is "Small town appeal... Big city looks."
"We were the poster child for competition and conflict," says Darrold Bertsch, CEO of SMC since 2009. "It was most evident in the duplication of primary care and ancillary services. Each of those was done to protect the market and to protect each other's turf. It resulted in a waste of resources and a duplication of services."
The competition proved particularly detrimental for CCCHC, which in 2011 found itself in financial straits and with a leadership vacuum. "The health center reached out to the hospital through the encouragement of the health center's medical director, to see if I might provide some interim leadership to find out what was going on with some of the revenue cycle and cash flow issues, and what we could do to stabilize staff and improve morale," Bertsch says.
He accepted the job, but not a salary. He is considered a health center employee under a joint administrative services agreement that sells services back to the hospital. That helped assuage local fears that SMC was taking over CCCHC.
The two providers also worked with the Health Services and Resources Administration, which oversees funding for FQHCs, to gain approval of the interim relationship that began formally in March, 2011. HRSA generally frowns upon hospital, municipality, or 501(c)(3) ownership of a FCHC. They make exceptions, however, if the health center has its own independent board of directors.
After familiarizing himself with the health center's operations, Bertsch says he hired consultants to determine how the goals of the boards of directors for both providers meshed with the reality on the ground and how they could move forward together. "We wanted a fresh, independent set of eyes come in to take a look at our situation and they provided some recommendations, some of which we had already implemented, and others that we implanted afterwards."
"We ended up eliminating some of the duplication in ancillary and primary care between the two organizations," he says. "We placed two reciprocating board members, meaning that there are two board members from the hospital board that sit on the health center board, and vice versa so that there is total transparency with the CEO. And me, as the CEO, I report independently to each board and have responsibility to each board of directors for each organization."
Darrold Bertsch
Bertsch says the partnership has avoided conflicts of interest or collusion largely by making patient need a priority. "My point always was that if you put patients' needs to the forefront and you have vision to optimize the programmatic benefits of the critical access hospital program and the federally qualified health center program, the conflicts of interest should not be that prevalent," he says. "That is all fine and dandy to say, but it has truly worked for us here."
That spirit of cooperation and coordination has spilled over to include other providers to take part in the community needs assessment.
The Patient-centered Neighborhood
"Many times organizations do their community needs assessments because it's a programmatic or IRS requirement," Bertsch says. "We truly took it to the extent that 'let's get all of the local providers, the hospital, the health center, the ambulance provider, the nursing home, public health' and we all came together to do the community health needs assessment. When we had the results of that, we also developed a collaborative strategic plan. And now we have a collaborative community health improvement plan. We have our individual responsibilities as organizations, but we also have the responsibilities of the group as a whole and we meet quarterly to review those goals."
"By working together in what I call the patient-centered medical neighborhood, we know that we are able to provide care in a better, more organized and coordinated way because we are doing care coordination with the clinic and the hospital," he says. "We've also improved the financial position of both organizations. They both have a better bottom line because of our collaboration. We are no longer fighting for the resources in the area. Like all areas, the workforce is limited and the market share is limited, but we are optimizing the programs for the betterment of the patient."
What was once a poster child for harmful competition has evolved into a model for cooperation, and the success has not gone unnoticed.
Last spring the National Rural Health Association took the unusual step of naming the two providers its winner of the Outstanding Rural Health Organization award. "In a healthcare culture where the need for healthcare organizations to collaborate and cooperate is often discussed, this critical access hospital and community health center serving patients in rural North Dakota have combined efforts resulting in a higher quality of care and improved financial gains," NRHA said of the co-winners. "This success story demonstrates what can come from strong leadership, innovation and collaboration."
Guidelines for Future Collaborators
For any providers looking to emulate the Coal Country/Sakakawea collaborative, Bertsch says a few things need to be in place.
"First of all, there needs to be collaborative assessment of the healthcare needs of the area," he says. "All too often I hear independently that the hospital has done their health assessment and the health center has done theirs and they are not sitting at the table doing it together so they learn more about the role each other plays in those needs. Just as importantly, they need to use that information to create a collaborative strategic plan."
He also recommends transparency in the process.
"Granted, not every community will have a shared CEO and it's not the right model for everybody," he says. "It was the right one for this sized community, but what can be in place is transparency in governance. To have that reciprocating governance where the same information is shared with each organization and it helps provide more of a unified vision in that particular community."
While understanding that all healthcare delivery is local, Bertsch says he would not be surprised if more rural providers develop similar cooperative models.
here are more that need to be developed, but sometimes personalities and other reasons get in the way," he says. "As we're all shifting from volume to value, we are going to need to work together. Here, we feel so blessed because of the relationship we have between these two organizations."
The Wheaton acquisition strengthens Ascension's market share in Wisconsin. Meanwhile, federal antitrust scrutiny of the Walgreens-Rite Aid combination is likely to come down to a city-by-city review.
Ascension, the nation's largest nonprofit health system, is getting bigger.
The St. Louis-based Catholic health system announced that its Wisconsin subsidiary has signed a letter of intent to acquire Wheaton Franciscan Healthcare in Glendale, WI. The deal is expected to be finalized by March 2016.
When completed, Ascension Wisconsin will comprise 27 hospitals and 150 clinics employing more than 24,000 associates, including 1,000 medical group physicians, bringing in $3.5 billion in annual operating revenue.
For Wheaton Franciscan, the deal ensures a continuation of its mission. "This decision came after a lengthy discernment process by the Sisters as we are aging and our numbers are getting smaller in the United States," Sister Pat Norton, Chair of the Sponsor Member Board for Wheaton Franciscan Healthcare, said in prepared remarks.
"We wanted to transfer our corporate ministries while these ministries are healthy, fiscally sound, and have a strong sense of mission and values. The choice to transfer our ministries ensures that the needs of the times will continue to be addressed in each community, as the Sisters have worked to do for more than 140 years," she said.
Allan Baumgarten, a consultant and veteran observer of health system dynamics across the Midwest, says Ascension has been building its Wisconsin presence for several years, starting with Columbia St. Mary's hospitals in the Milwaukee area.
"After Ascension acquired the Ministry Health Care hospitals a few years ago, it became the second-largest hospital system in Wisconsin, although I don't think they are operating as an integrated system yet," Baumgarten says. "Both Columbia St Mary's and Ministry are participating in Integrated Health Network of Wisconsin, the 'everyone but Aurora' delivery network that is seeking to contract directly with health plans and employers."
"Based on my 2014 Wisconsin Health Market Review (2013 hospital data), Ascension had 8% of the southeast Wisconsin hospital market with its Columbia St. Mary's hospitals," Baumgarten says. "If you add the Wheaton Franciscan hospitals in the Milwaukee area—21.3% of the SE Wisconsin market—the combined system is almost 30% of that region. Aurora had 32.9% of the SE Wisconsin market in 2013."
Beyond Wisconsin, Baumgarten says Ascension has been expanding gradually across the Midwest with acquisitions that include Alexian Brothers Health System in the Chicago area and a joint delivery network with the Trinity Health hospitals in Michigan.
Wheaton hospitals in Southeast Wisconsin include five acute-care hospitals and two specialty hospitals, Midwest Spine and Orthopedic Hospital and Midwest Orthopedic Specialty Hospital (a joint venture). The region also includes Wheaton Franciscan Medical Group, with more than 300 physicians in more than 50 locations, a network of outpatient centers, three transitional and extended care facilities, and home health and hospice operations. ?
Walgreens Details Rite Aid Acquisition
Walgreens Boot Alliance says it would divest as many as 1,000 stores with a value of $100 million in its $17.2 billion acquisition of rival Rite Aid Pharmacy if that's what it would take to clear federal antitrust hurdles.
If finalized early next year, Walgreens would acquire 4,570 Rite Aid stores in 31 states, added to the more than 8,200 stores Walgreens already operates, with combined revenues of more than $100 billion annually. Combined Walgreens and Rite Aid would control more than 46% of the $216 billion retail pharmacy market.
Woonsocket RI-based CVS Health, the nation's second-largest retail pharmacy chain, operates more than 7,800 stores, but has also made a concerted push into the pharmacy benefits arena since the 2007 acquisition of Caremark.
In a Form 8-K filing with the Securities & Exchange Commission, Walgreens also said that if it walks away from the deal, it will pay Rite Aid as much as $650 million in termination fees, while Rite Aid would be liable for $325 million in termination fees if it backs out.
In a conference call with analysts, Walgreens Boot Alliance CEO Stefano Pessina expressed confidence that the deal would pass regulatory review.
"We have not done this to increase our negotiating power with payers and [pharmacy benefits managers]," Pessina says. "We have done this because we believe that we can extract a lot of synergies. We are not thinking of really improving our position with the payers because at the end of the day we are in an environment where the margins are decreasing."
Pessina says the retail pharmacy market is flourishing and highly competitive.
"The fact that we put together two companies will not reduce the competition—not just the competition among pharmacies," he says. "Think of other tandems, think of the mail-order, think of the people who are specialized in certain categories. There are many people working this area. I don't believe that these will really give up [because of the Walgreens-Rite Aid deal]. But we have not counted on that when we have put together our numbers."
Jay Levine, an antitrust attorney with Porter Wright's Washington, DC, office, says the Federal Trade Commission will give the deal a localized review.
"What do they say in real estate? Location, location, location! It's going to be somewhat market-specific," Levine says. "They are going to look at market overlaps in various regions, and regions can be a neighborhood, a city, and the like. They are also going to evaluate whether [the combined entities] are going to have too much power on the buying side, such that they can affect competition from the buying side."
"You also have the convenience store side of things, where they compete with big grocers, all of whom have their own pharmacies. I am sure those are all going to be pointed out as competitive constraints," Levine says. "In various market it may be, and in others there may be too much concentration, so they may have to divest. I suspect at a fundamental level it will come down to geographic market by geographic market. What is the level of concentration? It is going to devolve almost city by city."
