The transaction cleared a key sticking point when Glenview Capital Management, which owns 14.5% of Health Management Associates stock, agreed to the sale. Community Health Systems is expected to complete its acquisition during the first quarter of 2014.
A $7.6 billion deal that would create the nation's largest for-profit hospital company moved closer to completion when the board of directors at Health Management Associates, Inc. announced Wednesday that it unanimously endorsed the sale of the Naples, FL-based hospital chain to Community Health Systems, Inc.
"After conducting an extensive review in conjunction with our legal and financial advisors, we are confident that this transaction provides maximum value to HMA stockholders and represents the best path forward for the Company," HMA Board Chairman Steve Shulman said in prepared remarks.
"HMA and Community Health Systems are stronger together. The combined entity will be better positioned to address healthcare trends and challenges. In addition, the combined organization will have a greater local and regional market depth, expanded physician relations and physician footprint, and solid clinical operations infrastructure. The transaction remains on track to close during the first quarter of 2014, as scheduled, and we appreciate the patience of all our stakeholders as the board conducted its review."
The deal, expected to be finalized in the first quarter of 2014, cleared a key sticking point when Glenview Capital Management, which owns 14.5% of HMA stock gave its approval.
"We believe in the compelling strategic rationale driving the transaction and believe CHS is acquiring high quality assets whose fundamental performance will be significantly enhanced through the combined efforts of HMA and CHS leaders," Glenview said in prepared remarks. "CHS is well positioned to apply its best practices in core operational areas like physician relationships and recruiting, vendor contracting and clinical management to further stabilize and improve HMA's quality, service delivery and financial performance."
Under terms detailed by the two companies, HMA will be acquired by CHS for approximately $7.6 billion, including outstanding debt. CHS will acquire each issued and outstanding share of the common stock of HMA for $10.50 in cash, 0.06942 of a share of CHS common stock and a Contingent Value Right, which could yield additional cash consideration of up to $1 per share. HMA stockholders will own approximately 16% of the shares of the combined company following close of the transaction, the two companies said in a joint press release.
Franklin, TN-based CHS is already one of the largest publicly-traded hospital companies in the nation and operates 125 mostly general acute-care hospitals in nonurban and mid-size markets in 29 states with approximately 20,000 beds. HMA through affiliates owns and manages 71 hospitals and ambulatory surgery centers in small cities and selected larger urban markets in 15 states with approximately 11,000 licensed beds.
"We are excited to combine these two organizations to create a hospital company with more than 200 facilities and leverage our relative strengths and combined scale to better serve our patients, physicians and communities. We are pleased to have the full support of HMA's new board of directors as we move forward to complete this transaction in the first quarter of 2014," Wayne T. Smith, chairman/president/CEO of CHS said in prepared remarks. "This transaction will broaden our footprint into new geographic markets, allow us to form stronger networks and improve access to care, and strengthen our position for greater benefit and success under health care reform."
The HMA board had already approved the deal in July. However, Glenview raised concerns about the competence of senior leadership and the board at HMA and whether or not they had secured the best deal from CHS. Glenview ousted the board and installed a new board in August.
Since then, the new board has met 11 times, conducted 18 committee meetings, and hired independent analysts to conduct a review of the deal. The board also assumed short-term oversight of the company after a period of upheaval that included the departure in July of CEO Gary Newsome.
Adam Powell, a healthcare economist and president of Boston-based Payer+Provider Syndicate, says the new company that emerges from the acquisition "will have a larger footprint than any other company. Given the massive scale of the combined entity, it is likely to achieve both economies of scale and negotiating strength that HMA could never have achieved independently."
"It has been reported that building a hospital costs roughly $300 per square foot. Thus, spending $7.6 billion on hospital construction would yield about 25 million square feet of hospital space. If a large hospital has an average of about 600,000 feet of floor space, spending $7.6 billion on new hospital construction would yield about 40 hospitals. Thus, receiving 71 hospitals for the price seems like a deal," Powell says.
"That being said, not all of the hospitals may be optimally situated, and some may need to close, making them less valuable than new constructions. However, the hospitals have reputations and referral networks that new hospitals would not have. These intangibles add value, and may offset some of the drawbacks associated with acquiring a few undesirable hospitals."
Healthcare has become "a surrogate for all the other problems of the country," and "patients have been disenfranchised in the process," says the leader of a Johns Hopkins study on factors that drive healthcare cost growth.
We've been told that key drivers for healthcare cost growth are an aging demographic and the large numbers of tests and treatments in a fee-for-service world.
That's not necessarily so, say researchers from Johns Hopkins University. In a study released this week in the Journal of the American Medical Association, they place considerable blame for healthcare cost growth on the increasing prices of drugs, medical devices, and hospital costs, which doctors, patients and insurers usually don't even know about until the money has been spent.
The study found that since 2000:
Hospital charges have gone up 4.2% annually; professional services have gone up 3.6%; drugs and devices have gone up 4%; and administrative costs have gone up 5.6%, and are all responsible for 91% of cost growth.
Personal out-of-pocket spending on insurance premiums and co-payments has declined from 23% to 11%; while chronic illnesses account for 84% of costs overall among the entire population, not only the elderly.
Three factors have produced the most change: Consolidation, with fewer general hospitals and more single-specialty hospitals and physician groups, producing financial concentration in health systems, insurers, pharmacies, and benefit managers; Information technology, with considerable investment but elusive results; And the patient consumer movement, which goes outside traditional channels, using social media, informal networks, new public sources of information, and self-management software.
Unfortunately those key drivers often are not a central part of a substantive national dialog on what is pushing healthcare cost growth, says study leader Hamilton Moses III, MD, because the debate over healthcare has become politicized, polemic, and poisonous.
"Healthcare has become a surrogate for a host of other factors, primarily the role of the federal government and the respective roles and responsibilities of states," says Moses, a consultant with Alerion Advisors, LLC, and an adjunct professor of neurology at Johns Hopkins University School of Medicine. "This surrogate issue comes at a time when the country has confronted a series of economic crises and wars and forces that are very difficult for us as a country to control and very difficult for us to grapple with."
Ironically, Moses says that his team's research has found that all the news isn't necessarily bad. For example, while the pace of healthcare cost growth remains unsustainable, it has "moderated substantially since early 2000." Even at 3% annual cost growth, healthcare outstrips any other industry, and overall growth as measured by the Gross Domestic Product.
"The untold story here is that beginning in the 1970s but particularly in the 1990s, when cost control measures became routine, the rate of yearly increase has substantially moderated, so much so that if the economy had grown as it had historically before the 2007–08 recession, healthcare as a percentage of GDP would have leveled off or even declined," Moses says.
"Secondly, we point out that the cost of care is really for chronic illness among those under age 65, whereas most of the political attention has been paid to those over 65 in Medicare, which is not surprising since the government share of the payment is about 43% of the total," he says.
Also, most wage earners who glance at their pay stubs each week would be surprised to learn that the individual's share of his health insurance coverage—both in government and commercial plans—has actually declined from 23% of the cost in 1980 to 11% in 2011.
"The consumer has lost a great deal of the say in the debate over healthcare by virtue of the fact that the individual is not directly purchasing care," Moses says. "Public opinion polls have shown consistently since the 1990s that though patients trust their physicians they are progressively less likely to trust insurance companies or hospital systems. That trend has only accelerated since 2010 and the Affordable Care Act."
Why?
"At some level, patients realize that the system is very badly broken in the sense that they have an indirect say, costs are not clear, [and] prices are not transparent," Moses says. "That is all the more important because prices have driven the increases we have seen over the past decade. The patient therefore has in large measure been marginalized in this process. In our view that is what is behind the politicization of healthcare. First, healthcare is a surrogate for all the other problems of the country, but secondly patients have been disenfranchised in the process."
Moses notes that the politicization of healthcare began in the mid-1960s with the advent of Medicare, decades before the Affordable Care Act. "It took 20 years, fully until the mid 1980s, for the full effect of Medicare to become clear," he says. "We expect the same now with the ACA. And in the meantime there is a great deal of political rancor and discussion long before the effects of this legislation are known and long before the effects of previous changes have been completely assimilated."
"We felt the reason for this study was that there needed to be in one place the facts and figures relative to the healthcare debate. Our motivation was that healthcare is a topic that has been deeply politicized over the past two or three decades by really all of the forces and all of the factors that are involved in healthcare. We felt strong as did JAMA that there needed to be a reasoned dispassionate conversation in the country based on real data, real information. That is the gap that we tried to fill."
With that in mind, Moses says he and his fellow researchers made sure that their study would take no positions on any political point. "In fact, among the six authors we've never discussed the politics," Moses says. "The remarkable thing about this process which has gone on now a number of months is that we have avoided politics. I suspect we each have very different views of the role of the federal government and all of the contentious issues that we confront. Our goal was to be decidedly non political but to be as objective as possible in putting together an array of publicly available information that can be used by anybody for any purpose."
So how can we create a substantive dialog on the real factors pushing healthcare cost growth? Rather than looking to the politically paralyzed federal government for solutions, Moses says healthcare executives and clinicians must take the lead, particularly on issues such as improving care processes.
A good starting point, Moses says, is to press for adding more primary care physicians into the healthcare system to direct wellness regimens and coordinate treatment when patients become ill. His study notes that while 4% of healthcare spending goes to biomedical research, only 0.1% goes to improving the process of care.
"The innovation that has to occur here to solve any of these problems in my view, personally, should come from the private sector," Moses says. "The private sector has largely not been a participant in care process innovation. There are very few appropriations for it. The question is 'will innovations in health services occur by virtue of investment by health systems?' The Mayo Clinic, Geisinger Health System, [and] my own institution at Johns Hopkins have historically, for decades, invested in care process innovation. However it has not been widespread. It must be now."
The American Academy of Actuaries is warning that delaying the individual mandate could affect risk pools and claims in 2014 and beyond. Health plans say they cannot work without this key provision of the Patient Protection and Affordable Care Act.
Insurers and actuaries are warning that extending the enrollment period and delaying the individual mandate under the Affordable Care Act will create "potentially adverse consequences" for the law.
A letter to Congress [PDF] from the American Academy of Actuaries' Health Practice Council noted that the individual mandate and limited open enrollment period were included in the law to bring in a broad cross-section of risks—the young and the old, the healthy and the sick—to ensure the markets are viable and premiums are stable. The group said the approved premium rates for 2014 were based on the assumption that the individual mandate and limited open enrollment period would be in effect.
"If either provision is delayed, there would be an incentive for lower-cost individuals to delay purchasing coverage. If predominantly higher-cost individuals purchase coverage, 2014 premiums may not be adequate to cover that population's costs," the actuaries said.
"Further, as a result, the ACA risk-corridor mechanism would more likely be triggered and the U.S. Department of Health and Human Services would have to make payments to insurers if losses due to insufficient premiums exceeded a certain threshold."
The actuaries said that the adverse selection that would occur as a result of delaying these provisions could affect not only the risk pools and claims in 2014, but also the premiums for 2015, since enrollment information from 2014 would factor in to the development of 2015 rates.
"Irrespective of your views of the ACA, the individual mandate and limited open enrollment periods are integral components of the law, and delaying their implementation could have significant implications for health insurance coverage and costs," the letter said.
However, the actuaries did not entirely rule out delaying a reconfiguration of the implementation dates and deadlines if the technical issues that have hobbled the "marketplace enrollment process persist over a longer period of time."
Payers' Reaction
America's Health Insurance Plans on Monday flatly stated that the PPACA cannot work without the individual mandate[PDF].
"The ACA includes a broad array of insurance market reforms, such as guaranteed issue, community rating, and prohibiting pre-existing condition exclusions that are intended to work in tandem with new insurance marketplaces, subsidies, and the individual coverage requirements to extend coverage to 30 million Americans," AHIP said.
"However—absent the individual mandate—these reforms will result in higher premiums, more uninsured, and disruption in coverage for millions of Americans due to adverse selection. That is the conclusion of independent, non-partisan experts— including the Congressional Budget Office (CBO), the Urban Institute, and the RAND Corporation."
Senators Request Delay
The AHIP and AAA letter comes as a growing number of lawmakers in both parties call on the Obama administration to take some sort of action to alleviate the bungled rollout of the health insurance exchanges. Sen. Jeanne Shaheen (D-NH) has asked the White House to "extend the open enrollment period past March 31, 2014 to give Americans more time to obtain coverage."
"Further, in light of the difficulties individuals may be having with enrolling through healthcare.gov, I ask that you clarify how the individual responsibility penalty will be administered and enforced. If an individual is unable to purchase health insurance due to technical problems with enrollment, they should not be penalized because of lack of coverage," Shaheen said. Ten senators, all Democrats, signed Shaheen's letter.
So far, the Obama Administration has rejected calls to significantly modify critical deadlines for the law.
"Delaying the Affordable Care Act wouldn't delay people's cancer or diabetes or Parkinson," Health and Human Services Secretary Kathleen Sebelius told the Senate Finance Committee last week. "It doesn't delay the higher cost all of us pay when uninsured Americans are left with no choice but to rely on emergency rooms for care. So, for millions of Americans, delay is not an option."
A lack of standards, privacy concerns, and proprietary and competition issues are just a few of the hurdles hampering the interoperability of EHR data among participants in health information exchanges.
Healthcare providers have made solid progress over the last decade building in-house electronic health records systems to share patient data within their networks. However, interoperability with outside providers and payers remains a significant barrier, according to eHealth Initiative's 10th annual survey of health information exchanges.
Three-quarters of the nearly 200 eHI survey respondents said they've had to build numerous time-consuming and expensive interfaces between different systems to facilitate information sharing, including 68 organizations that said they had to build 10 or more interfaces with different systems. More than 140 respondents cited interoperability as a pressing concern.
Jennifer Covich Bordenick, CEO of the nonprofit, independent eHI, says the results of the survey are "mixed," but adds that it would be a mistake to say that no progress is being made.
"If you look back five years you can see huge leaps in progress, but when you are looking year-to-year it is very slow. It is hard to look at these things in such a small period of time," she says. "The type of problems we are having now is a sign of moving in the right direction. These issues wouldn't have arisen five years ago because we didn't have enough knowledge or we weren't connected enough. Now we're having connection issues, which is a good thing, whereas before we were just trying to convince people that they should do this."
Bordenick says the hurdles in front of interoperability aren't necessarily technical.
"There are proprietary and competition issues where people don't want to share data with other organizations," she says. "While we are all focused on the patient there are a lot of concerns that competitors are going to use their data to their advantage. So competition is one barrier and the other is standards."
"We talk about standards all the time," she says, "but really requiring standards on some of these simple areas would be helpful because right now you have a lot of systems that are proprietary. You have vendors who don't necessarily want to interface with their competitors. So you have competition both with the groups with data, and completion just with connecting. There are all kinds of different politics involved here."
To her surprise, Bordenick says the survey also shows that many HIEs have not yet developed ways to allow patients to enter or view their own data in the health exchanges. As part of the federal EHR Meaningful Use Program, patient engagement is a critical step for providers looking to receive incentive payments for using EHRs.
This could change in future years, as 102 organizations reported that they have plans to offer patients access to their data. However, only 31 organizations currently offer patients access to their information. Even simple patient engagement services, like tools for managing appointments or prescriptions, are rare Bordenick says.
"I would love to know what people in the field think about this," she says. "It's not clear why it's not moving. Is it because somebody else is doing it? Are the exchanges relying on providers, the individual doctors? Somebody has to be doing it. So, is it that we don't know who is doing it or is it that they're not doing it because of privacy concerns?"
"While it's a little disheartening to see such low patient engagement, overall I think we're in a better place than we were last year. Awareness around healthcare reform has helped build the business case for data sharing and engaging consumers."
Bordenick rejects suggestions that the federal government step in to play a greater role in setting interoperability standards. "The last four years have shown us that HITECH has done some wonderful things and Meaningful Use has pushed the envelope, but it has to come from the market," she says.
"The more that customers or consumers or providers [push] for these connections, the more likely it is that vendors are going to do it because we have the capability to do it. Again, it is not about not having the capability. It's about everyone having the same desire to connect."
A Moody's Investors Service executive says she expects downgrades will continue to outpace upgrades in the fourth quarter of 2013 for many of the approximately 500 not-for-profit hospitals and health systems that it rates.
Declining patient volumes and other bottom line pressures continue to pose a challenge for not-for-profit hospitals and there is no indication that things will get better any time soon, Moody's Investors Service says.
The bond rating agency reported 10 ratings downgrades affecting $2.7 billion in debt in the third quarter of 2013 that were due primarily to declines in admissions averaging 5.3% when compared with fiscal 2011-2012. Providers cite the ongoing shift away from admissions and toward reimbursement-drainingobservation stays as the key driver behind the decline, followed by rising co-pays and deductibles that are causing patients to defer medical care.
Moody's Senior Vice President Lisa Martin expects that downgrades will continue to outpace upgrades in the fourth quarter of 2013 for many of the approximately 500 not-for-profit hospitals and health systems that it rates.
"The activity that we are seeing is consistent with the outlook that we have on the sector, and one of the factors in our negative outlook for the sector is the decline in patient volumes," Martin says. "That is not the only reason but one of the main reasons for the rating downgrades in this last quarter. And in 2013 we are seeing large variations in volume trends and in some markets significant declines in admissions that are due to a number of different factors."
Offsetting the downgrades were eight upgrades affecting $2.4 billion in debt in 3Q 2013, mostly driven by improving patient volumes and cost cutting strategies. Of the eight upgraded providers, six had positive volume trends and multiple years of financial improvements and were considered market leaders in their regions. Five of the upgrades had average admissions growth of 3.7% from FY 2011 to FY 2012.
Martin says downgrades signal the continuing difficulty that some, but not all, hospitals and health systems have with the fundamental shift away from fee-for-service volume-based care and towards reimbursements that reward outcomes and population health.
"It really varies by market," she says. "That is very difficult to quantify because it is a very slow start in terms of the industry trying to make this shift. We don't think it is going to happen quickly. But in certain markets where the volume declines are disproportionately large, there may be some of that dynamic going on."
Martin says lower volumes are not a temporary phenomenon that will improve with a rebounding economy, but are "more related to a fundamental shift in the industry."
"As we have emerged from the recession, technically you would have expected volumes to at least stabilize, because during the recession part of the volume decline was related to higher co-pays and higher deductibles," she said.
"While that may be still the same reason, it is because employers are fundamentally changing their commitment levels to providing healthcare insurance. Some of that early evidences of that are what you are starting to hear about in terms of employers turning to private exchanges. It is still very early on, but that is an example of an underlying shift in the industry. While caused by a number of issues, it is more of a fundamental change in the industry than a temporary one."
With three quarters in the books, Martin says 2013 is meeting predictions that it would be a "difficult year for the industry as a whole."
"Once we get the numbers for the whole year, our expectation is that volumes are down, obviously, and revenue growth rate is going to be down. We are expecting to see margins decline," she says.
Moody's reports that:
Over the first three quarters of 2013, there have been 30 downgrades affecting $10.3 billion in debt affected, nearly double the 18 upgrades affecting $4.8 billion in debt for a ratio of 1.7 to 1.
18 rating changes were made in 3Q 2013, one fewer than 3Q 2012. Downgrades outpaced upgrades by a ratio of 1.3 to 1, compared to an anomalous 0.6 to 1 in 2012 when there were 12 upgrades and seven downgrades.
As of Sept. 30, six ratings were under review for downgrade, affecting $1.3 billion of debt. One rating is under review for upgrade, impacting $22.5 million of debt.
72 ratings were affirmed, which represented 80% of all rating activity, affecting approximately $42.5 billion of debt and consistent with the long-standing historical trends. Of the 72 affirmations, seven were accompanied by negative outlook changes and four by positive outlook changes.
"There are some health systems that are doing well and are generally stable or maybe slightly improving and that is in part due to their efforts around cost reductions to offset some of the revenue challenges. In some cases it's due to operating in favorable markets where there is limited competition and/or population growth."
With healthcare reform and bottom line demands favoring economies of scale and market share that come with size, Martin says mergers and acquisitions "will continue at a high pace because of these pressures."
"There are some smaller hospitals that maybe because of their dominance in their market may be able to go it alone for a certain period but in the long run they may need to partner."
Chris Van Gorder, Scripps Health CEO, explains why his organization would want to shoulder the challenges of buying an acute care hospital in a small farming community. The potential deal is appealing he says, because from a "population health basis, we need to grow."
San Diego-based Scripps Health and El Centro (CA) Regional Medical Center announced this week that they are in acquisition talks.
Chris Van Gorder, President and CEO of Scripps Health
It's pretty clear why ECRMC would want to join Scripps. Tucked into the southeastern corner of the state, the 161-bed city-owned acute care hospital is located in Imperial Valley in the middle of the desert, 100 miles east of San Diego. It serves a farming community of about 43,000 souls just north of the Mexican border with a challenging patient mix that includes a substantial number of undocumented workers and uninsured U.S. citizens, and an unemployment rate close to 25%, one of the worst in the nation.
ECRMC earned an "F" in its Fall 2013 hospital safety score from the Leapfrog Group, and scored at or near the bottom of the pack on a number of measures including surgical site infections, ICU physician staffing, and falls and trauma injuries.
David Green, CEO at ECRMC, said the medical center had explored affiliations with more than 30 organizations before deciding to negotiate exclusively with Scripps. "Their mission and values align with the mission and values of El Centro Regional Medical Center, and we feel that together the city, the hospital, and most importantly, patients will greatly benefit from this affiliation," Green said in prepared remarks.
All of this makes perfect sense from ECRMC's perspective. What's not so clear is why blue chip Scripps Health would want to shoulder the challenges and liabilities presented by ECRMC. Scripps Health CEO and President Chris Van Gorder addressed those questions in an interview this week.
HLM: Why did you do this? What's in it for Scripps?
CVG: Actually El Centro reached out to over 30 organizations. I have no idea who else they approached but I know they reached out to others in San Diego… we are the largest metropolitan area near Imperial County and the hospitals out there.
These days it is going to be extremely difficult, if not impossible, for a freestanding hospital to survive and develop the necessary infrastructures around accountable care and economies of scale and everything that is going to be required in the future. They recognized that they were going to need to reach out and they did.
For us, we have been preparing for growth for the last decade and we also recognize that to gain economies of scale and meet patient needs from an accountable care perspective and a population health basis we need to grow.
HLM: The hospital is on the border with Mexico and the community has high numbers of uninsured. Why would you take this on?
CVG: I would reverse that and say that it is obvious that they need a quality healthcare organization to help them. We have that capability. Scripps Health right now has the closest hospital to the border in San Diego so we are very familiar with handing cross-border issues and dealing with what can be a challenging payer mix.
Anybody who is an American citizen is going to be required to have insurance of one kind or another under the Affordable Care Act, so we fully anticipate that a lot of the people there will have one form or insurance or another. They will still have the undocumented issue. But from our perspective we are a community health provider with an excellent tertiary care capability and our job is to meet the healthcare needs of our communities. This is an expansion of what we define as our community.
HLM: Will population health be a priority, and how might you go about improving population health?
CVG: Population health is going to be an issue for everybody across the country. We are in this era now where we need to look at value. Today's healthcare system I often describe as a sick business. If you're not sick we are out of business. We are moving into an era where we focus on keeping people well and that requires population health management. That means intervening earlier in our patients lives to try to do everything we can to keep them well.
We anticipate that we will reach out with wireless technologies, video conferencing, and other [telehealth] capabilities to lower costs of care, reach more patients in that community and bring more services to that community. I have never believed that it is the best for a patient to have to leave their community to receive care. Certainly they are not going to have every tertiary and quaternary service.
A number of patients will still come to San Diego. But under Scripps leadership, we think we can bring new services to that community and meet that community's much closer to their homes. It's the right thing to do… assuming we can put this transaction together.
HLM: Do you anticipate cutting some services or downsizing ECRMC?
CVG: Over time, every inpatient hospital is going to shrink. But there will clearly be an expansion of ambulatory services. El Centro understands that already and they have already invested in a number of ambulatory sites. I would anticipate growth in that area. We still have to do some work under the California Seismic Safety Law out there and eventually, probably, we will build a brand new hospital. When that happens, we will work with the community to determine what their needs are for inpatient and ambulatory care.
HLM: Are you committed to keeping some sort of inpatient acute-care hospital in El Centro?
CVG: Absolutely. That hospital is 120 miles away from Scripps and that community absolutely has to have an inpatient capability. I would have no interest in shutting down the inpatient capacity out there.
HLM:Are you going into these negotiations looking for an outright acquisition?
CVG: El Centro is looking for an outright acquisition. That is what we will be approaching it as. It's a city-owned hospital. The city recognizes that running healthcare facilities of the future requires an enormous amount of expertise that elected city council members might not have necessarily. Certainly it needs a very large organization these days to meet the broad range of community needs. They are looking for an acquisition so we would look for the very same thing, not just a loose affiliation.
HLM: Does the fact that ECRMC is city-owned complicate things?
CVG: I don't think it matters. City-owned hospitals were not unusual a few decades ago, but it is my understanding that El Centro is the last city-owned hospital in California, or there may be two of them, and El Centro is the largest in the state. They recognize that it is no longer the kind of business that a municipality ought to be running.
HLM: What can ECRMC leadership and physicians expect with this deal?
CVG: They are looking for more services to be delivered in their community. They are very excited about the way Scripps works with its physicians [and] with our physician leadership cabinet and care board. We really engage our physicians. I know the doctors are excited about that.
We also have a very robust graduate medical education program at Scripps. We have a couple of internal medicine residency programs and a family practice residency program and we have the opportunity to rotate some of our physicians-in-training out to Imperial County. It will give them a very different look at medicine in a very different community and potentially some of those physicians might stay in that community at well.
HLM: Are physicians in El Centro interested in joining Scripps Health Foundation?
CVG: At this point I have not heard any physicians out there express an interest in joining our foundation. I think they actually enjoy their independence. And to put it in perspective, while we have around 2,600 physicians at Scripps, about 700 of them are in the integrated model and the rest are independent.
Its ability to improve inpatient admissions has helped for-profit Hospital Corporation of America post healthy earnings. Tenet, despite an 8.4% increase in net operating revenues, experienced a "volume decline on the inpatient side and flat-ish volume for outpatient," says one analyst.
For-profit hospital giant Hospital Corporation of America (HCA) continues to post strong earnings even as the industry contends with the complex, myriad, and expensive mandates around healthcare reform, lower inpatient admissions, and reduced Medicare reimbursements.
For the third quarter of 2013, the Nashville-based company reported:
Total revenues of $8.4 billion, an increase of 4.9% over the third quarter of 2012;
Same facility equivalent admissions increased 1.1%
Same facility admissions increased 0.7%,
Same facility revenue per equivalent admission increased 3.4%;
Cash flows from operations increased $245 million, up $900 million from $655 million
Not surprisingly, HCA Chairman/CEO Richard M. Bracken said in prepared remarks that he was "pleased with the results of the third quarter." He credited the company's "many clinical and operating initiatives continue to position our facilities to effectively compete in this changing healthcare environment."
HCA reported that revenue per equivalent admission increased 3.9% in the third quarter of 2013—a 3.4% increase on a same hospital basis, reflecting increasing acuity and changes in payer mix. Same facility inpatient surgeries increased 2.9% while same facility outpatient surgeries increased 0.4% compared to 3Q 2012.
Operating expense per equivalent admission increased 3.1% from 3Q 2012, with a 1.9% increase on a same hospital basis. During the third quarter of 2013, salaries and benefits, supplies and other operating expenses totaled $6.9 billion, 82% of revenues, compared to $6.6 billion, or 82.7% of revenues, in 3Q 2012, HCA reported.
HCA is the largest investor-owned hospital corporation in the nation and owns and operates 162 hospitals and approximately 114 freestanding surgery centers in 20 states. It also has operations in the U.K.
Sheryl R. Skolnick, managing director and co-head of research at CRT Capital, says HCA's results were "very strong" and demonstrate that the corporation has found the right formula to improve inpatient admissions in an industry that has largely seen fewer heads in the beds.
"HCA positions itself to be dominant in certain service lines that are growing and necessary, like stroke—not elective—and they are dominant in markets where the population is growing. It's the 'where' and the 'what,'" Skolnick says.
"They continue to have volume increases when everybody else doesn't or their volume increases are better than others. A lot of that has to do with the strength of their networks, the positioning in faster growing markets and the work that they've done to be very important for certain types of care in their communities."
Tenet Earnings
Also this week, Dallas-based Tenet Healthcare Corp. [PDF] reported an 8.4% increase in net operating revenues for the third quarter 2013, fueled in part by a 3.5% increase in outpatient visits, and a 3.1% growth in emergency department visits, that helped offset a 0.5% decrease in admissions.
Total net patient revenue per adjusted admission was $11,928, an increase of 3%. Tenet reported adjusted EBITDA of $288 million, an increase of $19 million, or 7.1%, as compared to $269 million in 3Q 2012.
"We achieved another solid earnings increase in the third quarter as we continued to control costs and drive significant revenue growth," Tenet CEO/President Trevor Fetter said in prepared remarks. "We delivered strong growth in outpatient visits, emergency department volumes, and total surgeries in the quarter, all of which are areas of strategic focus."
Fetter noted that Tenet's Conifer Health Services consultant arm reported a 50% increase in EBITDA compared to 3Q 2012. Conifer recorded revenues of $225 million, an increase of 84%.
"On Oct. 1 we completed our acquisition of Vanguard Health Systems, which further strengthens our competitive position for future growth. The integration of Vanguard's operations is proceeding smoothly and we are excited about the additional strengths this acquisition brings to our Company," Fetter said.
Skolnick said Tenet's results for the third quarter "were OK. They certainly weren't as impressive as HCA's."
"They did have volume decline on the inpatient side and flat-ish volume for outpatient," she says.
"The story there is that they have been growing their outpatient surgery center capacity and that has been helping them an awful lot. It has been the application, their capital spending discipline to get growth in markets that offset the natural attrition of patients and population changes as well."
Challenging Markets
Skolnick says other investor-owned hospital chains such as Community Health Systems and LifePoint Hospitals are also experiencing problems with operations in challenging markets. "They both suffered from markets where their populations are declining. Admission volumes grow in lockstep with population, so if you are in a declining market you really don't have a choice but to show these kinds of results," she says.
Skolnick says investor-owned hospital corporations such as HCA and Tenet are surviving if not thriving in a tough healthcare economy because "cost discipline remains a laser focus of every single publically traded company with the possible of exception of (Naples, FL-based Health Management Associates, Inc.) because they are in somewhat disarray right now."
"For Tenet and HCA it has certainly helped them in the quarter. I'd argue that for HCA, it probably helps them a little bit more and you see a little bit more because they have more heads in the beds."
In the news: Enrollment in medical schools has hit record levels. Not-for-profit small hospitals' median financial ratios were mixed in 2012, and research finds that older cancer survivors in rural areas are more likely to forgo medical care for financial reasons than their counterparts in urban areas.
A lot of interesting news items cross my desk, but don't make onto the Web site because I simply lack the time to get to them all. Today I'll play catch up by offering quick takes on a handful of recent such stories.
Med School Applicants, Enrollment Reach New Highs
For all the talk about physician job dissatisfaction, there appears to be no shortage of people who want to attend medical school. The American Association of Medical Colleges reports that a record number of students have applied to and enrolled in medical schools in 2013. This is especially good news for rural and exurban hospitals and health systems, which have been particularly hard hit by the physician shortage.
AAMC says the total number of applicants to medical school grew by 6.1% to 48,014, surpassing the previous record set in 1996 by 1,049 students. First-time applicants, another important indicator of interest in medicine, increased by 5.5% to 35,727. The number of students enrolled in their first year of medical school exceeded 20,000 for the first time (20,055), a 3% increase over 2012.
"At a time when the nation faces a shortage of more than 90,000 doctors by the end of the decade and millions are gaining access to health insurance, we are very glad that more students than ever want to become physicians," AAMC President/CEO Darrell G. Kirch, MD, said in prepared remarks. "However, unless Congress lifts the 16-year-old cap on federal support for residency training, we will still face a shortfall of physicians across dozens of specialties."
"Students are doing their part by applying to medical school in record numbers. Medical schools are doing their part by expanding enrollment. Now Congress needs to do its part and act without delay to expand residency training to ensure that everyone who needs a doctor has access to one."
AAMC credits the overall growth in medical student enrollment in part to the creation of new medical schools as well as existing schools' efforts to expand their class sizes after the AAMC, in 2006, called for a 30% increase in enrollment to avert future doctor shortages.
In 2013, 14 medical schools increased their class sizes by more than 10%. Four new medical schools welcomed their first classes this year, contributing to about half of the overall enrollment increase. Since 2002, medical schools have increased the number of first-year students by 21.6%.
Small Hospital's Financial Ratios Show Effects of Industry Reforms
This may sound obvious, but Standard & Poor's Ratings Services is reporting that not-for-profit small hospitals' median financial ratios were mixed in 2012, in alignment with the degree of success these hospitals have had in responding to sweeping reforms in the healthcare industry.
S&P credit analyst Avanti Paul said in the report that median revenues, cash flow, and other measures of financial health reflected two diverging trends.
"Some hospitals were able to improve their margins and maintain balance-sheet flexibility despite their limited revenue base while others have been unable to cope with volume declines, physician turnover, or the costs of implementing electronic health records," Paul said.
S&P reports that higher-rated hospitals' financial profiles are getting stronger, while lower-rated hospitals are weakening. "We expect this trend to continue in the next two years if, as we believe, incremental credit pressures, such as continued volume declines and reimbursement constraints will continue to build and as a result test hospitals' performance, and likely lead to more mergers," S&P said.
Older, Rural Cancer Survivors Face Financial Woes
A new report shows that older cancer survivors in rural areas were much more likely to forgo medical and dental care because of financial concerns compared with older cancer survivors living in urban areas.
The study published in Cancer Epidemiology, Biomarkers & Prevention, shows that cancer survivors in rural areas age 65 or older were 66% more likely to forgo medical care and 54% more likely to forgo dental care because of cost, compared with their urban counterparts.
Study author Nynikka Palmer with the Department of Social Sciences and Health Policy at Wake Forest School of Medicine in Winston-Salem, NC, says the research found a wide disparity among older survivors "for whom health insurance coverage through Medicare is almost universal, while no disparity was found for younger survivors after controlling for various factors. This suggests that health insurance coverage alone may not ensure equal access to health care."
Palmer says older cancer survivors in rural areas may have to travel farther to reach a medical provider, causing them to incur greater out-of-pocket costs associated with travel and lost wages. They may also face challenges with social support and transportation issues if younger family members leave rural areas for better economic opportunities in cities.
"While insurance coverage may not have fully explained rural-urban disparities in older survivors, we did observe strong associations between health insurance and forgoing care," Palmer said. "With the expected changes in health care policies in the forthcoming year, it will be important to assess the impact on rural and urban cancer survivors."
Nobody had ever heard of a hospital having a chief experience officer until just a few years ago. Now qualified clinician-executives are at a premium. So are chief strategy officers, familiar in other industries, but new to healthcare and hospital administration.
Healthcare reform and its many permutations are creating new and more specialized leadership roles into the C suite.
Nobody had ever heard of a chief experience officer until Cleveland Clinic coined the phrase just a few years ago. Now qualified clinician-executive candidates for the post are in high demand, says Travis Singleton, senior vice president at Irving, TX-based physician recruiters Merritt Hawkins.
"It's an example of a provider executive that didn't exist two years ago [or] maybe even one year ago, and now it is one of the best paid, most common, and popular executive positions—and necessary—in this new environment," Singleton says.
"Those infrastructure C-level positions get more into the profit center management and it's highly complex. You may have had a large health system two and three years ago, but it only employed 10% to 15% of physicians, whereas now they can employ 70% to 100% of physicians. That brings on a whole other realm of experience, management oversight, compliance, and integration."
Singleton says the chief experience officer looks at hospital operations "through the patients' eyes," managing flow and care contact points.
"They are going to be centered around things like patient satisfaction and HCAHPS scores," he says. "For example, these large academic medical centers are grappling with the fact that nobody wants to drive 45 minutes into town, spend 20 minutes parking, go through the maze of hallways and floors when you can be seen in a tertiary or regional type system. They are competing now for that experience."
In addition, these chief experience officers are dealing with healthcare metrics in the age of transparency with the government, the public, and competitors.
"You have this information so readily accessible and so open—at least it will be—as far as what these patients are encountering," Singleton says. "I know we are only at 1% but that is soon going to rise to 3% on readmissions. These are real dollars now. These are potentially tens if not hundreds of millions of dollars that these health systems will face. You not only need an executive in place to manage the process, you also need someone with provider experience, management experience, and infrastructure experience. All of those things."
Physicians First
Right now qualified chief experience officers are at a premium, and Singleton says he doesn't see that changing anytime soon. So, where are these new chief experience officers coming from?
"There is a renaissance of physician leadership we have seen over the last two or three years," Singleton says. "It used to be a small segment of the market with providers that usually came up through academia. They were usually deans and vice chairs and they would go on to manage health systems in some cases. The other cases would be physicians who worked their way up."
"Now we see physicians who understand the need for additional schooling," he says. "They are going back to get their MBA, their MHA. They are going to get specialized training on how to run these clinical networks. They are going through apprenticeships. There are now career tracks that are almost explicitly nonclinical that these physicians are recognizing. There is more of a systematic way to prepare them for it. It's a growing candidate segment, but I would be lying if I said there are enough of them out there. There aren't. They are hard to find."
Revenue Finders Wanted
Another up-and-coming C-suite title in healthcare is the chief strategy officer. That position has been around for decades in other industries, but has only recently gained a broader beachhead in healthcare and hospital administration.
Rachel Polhemus, a senior partner at the executive search firm Witt/Kieffer, says CSOs are rapidly becoming key players at the highest levels of hospital leadership as health systems become more complex and competitive. "You are not getting the same types of revenues you once did on fee-for-service model in a bricks-and-mortar hospital setting," Polhemus says.
"Finding new ways of generating additional revenue is a huge factor. If it's no longer about bricks and mortar, maybe it's about building a physician enterprise, or a post-acute care service line, or affiliations and joint ventures, staying competitive, having that market advantage over your competition, and looking at the health plan side of things, the risk side of things, and driving innovation."
Polhemus says many of the CSO are coming to healthcare from outside industries and are not afraid to challenge basic assumptions and standard operating procedures. "They have much more of a for-profit mindset as far as what is true strategy," she says.
"They don't understand healthcare and so they are able to ask questions and poke holes and look at things differently where healthcare leaders traditionally have not."
Polhemus says C-suite status is critical for the success of a strategy executive. "They should be the CEO's right-hand person because together they are helping to drive innovation and growth and where the organization is going in the future," she says. "So to be a few layers down wouldn't have that influence."
Experience Matters
Chief experience officers usually have a clinical background, which winnows the selection process considerably. However, Polhemus says many CSOs come are MBAs and MPHs who come with backgrounds in consulting.
"But it's not necessarily about the credentials or education. It's about the experiences they have had and the organizations they have been a part of and whether or not the organization they are looking to move to values what knowledge and skills and experience they have," she says.
The need for big changes driven by healthcare reform brings tremendous opportunities for community hospitals to play an even greater role in the health and welfare of the people they serve. Having a leadership strategy is crucial.
Hospital and physician leaders across the country have expressed legitimate concerns about the population health movement and their responsibilities for controlling health outcomes that are almost entirely determined by what happens outside of the hospital walls.
Clinicians can provide the best medical care in the world and can give a patient explicit post-discharge instructions and a medication regimen only to see that patient return to the emergency department a week or so after discharge back into his reality. In the brave new reimbursement world, providers will have a financial stake in that readmission.
Fair or not, that is the new reality of healthcare reform and to their credit most hospital and physician leaders have that I have spoken with have accepted their new responsibilities.
The good news is that change of this magnitude will bring with it tremendous opportunities for community hospitals to play an even greater role in the health and welfare of the people they serve. Improving population health will require that everyone in the community play their part, and that someone takes the lead.
And there are few more-trusted or qualified people in most communities to play a leadership role than hospital executives and physicians.
If you're stuck for ideas about how you can improve your community's health, the Trust for America's Health and the New York Academy of Medicine have released a new report detailing 79 evidence-based disease and injury prevent programs from around the world that have been shown to work.
The report, A Compendium of Proven Community-Based Prevention Programs, includes peer-reviewed studies that evaluated the effectiveness of community-based programs to reduce tobacco use, injuries, asthma, alcohol abuse and sexually-transmitted infections, increase physical activity and improve eating habits.
Jeffrey Levi, executive director of TFAH, says the initiatives are designed to take place outside of the hospital walls. "That is deliberate … because we are seeing growing evidence that what happens inside the clinic has to work hand-in-hand with what happens outside the clinic."
"When you think about the biggest cost drivers for the healthcare system you think of things like obesity and diabetes. You can do the best diabetes management or prevention in a clinical setting. If you are sending someone out into a community where fresh food isn't available or it's difficult to walk you are not going to achieve those goals," Levi says. "We also know that things like a diabetes prevention program, which is a community-based activity, has been more successful than medical interventions."
"Similarly, if you have a problem with falls among the elderly, look at what happens in the community. You can do the best diagnostics in the world in the healthcare setting or you can be in the hospital dealing with the consequences of those falls, but the real prevention is going to happen in the community."
There are many good reasons to embrace these community-based initiatives. First of all, they're not a bunch of touchy-feely gobbledygook. These are concrete, common sense ideas that have been shown to work.
For example:
The Partnership for an Active Community Environment steering committee in New Orleans, LA installed a six-block walking path and school playground in a low-income neighborhood. The proportion of residents who were active increased significantly in the neighborhood with the path and playground, where 41% of those engaging in physical activity were moderately or vigorously active, compared to 24% to 38% of residents in similar neighborhoods without the path.
Nearly 300 urban, poor children with asthma from four zip codes were identified through logs of emergency department visits or hospitalizations, and offered enhanced care including nurse case management and home visits. One year of data show a significant decrease in any asthma ED visits and hospitalizations, and any days of limitation of physical activity, patient missed school, and parent missed work. There was a significant reduction in hospital costs compared with the comparison community, and a return on investment of $1.46.
The report features community health initiatives from across the United States, and across the world, including China, France, Australia, and Wales. Levi says the common denominator for all of these proven strategies is leadership.
"If you are talking about community hospitals, many of which are non-profit and have new requirements under the Affordable Care Act around community benefit this compendium is certainly a place to look," he says. "After hospitals have done their own health needs assessment and have identified a particular area where they would like to work this report is a good resource for identifying the kinds of interventions we know will make a difference."
"The only caveat I would put in there is that each of these initiatives needs to be adapted to a local community in some way. And it is important both as a direct resource and also sometimes we have to convince hospital CEOs and other leaders that actually this community prevention thing works. And this shows that there is a good deal of evidence to suggest that it does."
Even better, many of these proven strategies won't costs hospitals anything beyond time and commitment, and when they work the improved population health will be a net positive for the hospitals' bottom line.
Plus, many of these strategies involve local leaders working with one another to improve their communities. This is not about some federal mandate. This is about hospital leaders working with their local United Way and other civic leaders to provide tangible improvements to the communities they love and serve.
And finally, perhaps most importantly, many of these strategies engage the people in the community to take an active role in improving their health. Nobody wants to be morbidly obese. But if you're a low-wage manual laborer who comes home after dark to unlighted streets with no sidewalks in a crime-infested neighborhood, it is hard to muster enthusiasm for a walk around the block. Likewise, it's hard to eat fresh vegetables and other healthy food if the only nearby shopping is cans on a shelf at theKwik-E-Mart.
"Everyone wants to be healthy and sometimes it's for different reasons. But they also face obstacles. If we remove those obstacles, I think people will make the healthier choices," Levi says. "Personal responsibility is certainly paramount, but you cannot expect people to exercise that personal responsibility in an environment that doesn't support it. We need to be making the healthy choice the easy choice."
And now, more than ever, hospital and physician leaders have the opportunity to make that happen for the people they serve, their neighbors.
