The FDA commissioner delivered strong words to a room full of health plan representatives about the impact of their rebating and contracting practices on patients.
Scott Gottlieb, MD, who has been commissioner of the U.S. Food and Drug Administration about 10 months, delivered a speech Wednesday morning during a national health policy conference hosted by America’s Health Insurance Plans (AHIP).
Gottlieb’s remarks included some strong words that were sure to challenge his audience to ponder how the current drug market’s structure impacts competition and consumers, especially as it pertains to the burgeoning of biologics.
Marketplace senior healthcare reporter Dan Gorenstein paraphrased the speech in a tweet: “#gauntletthrown.”
Here are some of Gottlieb’s key points, according to his remarks as prepared for delivery:
1. Drug pricing is overly complex and opaque.
Gottlieb denounced the drug industry’s rebating and contracting practices as too complex and opaque, referring to them as “Kabuki drug-pricing constructs” that hide profit-taking at various points in the supply chain, drive out-of-pocket spending among consumers, and hamper competition.
“Current rebating and contracting practices—combined with the increased consolidation that we’re seeing in many segments of the drug supply chain—has produced some misaligned incentives,” Gottlieb said, noting that three pharmacy benefit managers (PBMs) control more than two-thirds of their market, three wholesalers control more than 80% of theirs, and five pharmacies control more than half of theirs.
“Too often, we see situations where consolidated firms—the PBMs, the distributors, and the drug stores—team up with payors. They use their individual market power to effectively split some of the monopoly rents with large manufacturers and other intermediaries rather than passing on the saving garnered from competition to patients and employers.”
Because these arrangements are difficult to understand and not terribly transparent, their “rebating and contracting schemes" are "all that more pernicious,” Gottlieb said.
2. The market structures are penalizing patients inappropriately.
A patient should not be penalized because he or she needs a particular drug that isn’t available on formulary, and yet that’s often what happens, Gottlieb said.
“Patients shouldn’t face exorbitant out of pocket costs, and pay money where the primary purpose is to help subsidize rebates paid to a long list of supply chain intermediaries, or is used to buy down the premium costs for everyone else,” he said.
“After all, what’s the point of a big co-pay on a costly cancer drug? Is a patient really in a position to make an economically-based decision? Is the co-pay going to discourage overutilization? Is someone in this situation [voluntarily] seeking chemo?”
Gottlieb said high-dollar copays and rebates have been used by insurers to offset their payments for costly drugs, enabling them to lower premium costs—which means, in essence, that sick people are subsidizing the healthy.
“Now I understand that there’s a perverse incentive to use that rebated money to lower premium costs, since most health plans compete on the sticker cost of their premiums,” he added. “But we’re living in a world where financial toxicity is a real concern for patients. And every member of the drug supply chain needs to take responsibility for addressing it.”
3. Let biologics mimic our success with generics.
Gottlieb pointed to generics as one success story in which PBMs have used cost-saving contracting practices.
“The buying power of large PBMs and formulary design is one reason that 81% of all small molecules drugs are available in generic formulations, and prices can fall by up to 80-90% after FDA approves multiple generic competitors,” he said.
In 1980, only 13% of the prescription drugs dispensed in the U.S. were generics; although that number has risen to nearly 90%, generics still comprise only 26% of prescription drug costs, Gottlieb said, touting the FDA’s record number of generic drug approvals last year.
Despite this success, Gottlieb said some of his “most significant concerns about the long-term impact of the pricing and rebating mischief” pertain to another area: biosimilars.
“We must do more to ensure that the current pipeline of biosimilar products reaches patients as safely and efficiently as possible, and that the full potential of biosimilar products to improve patient health is realized once products meet the FDA’s high standards for approval,” Gottlieb said.
“This is why we’ve challenged ourselves across the agency to consider what additional steps FDA can take to encourage biosimilar competition.”
My remarks at #AHIP today highlight substantial public health benefit of a competitive market for biosimilars; strong market incentives are critical to future biosimilar development in same way incentives are key for development of innovator drugs https://t.co/VfyO1nOt1f
— Scott Gottlieb, M.D. (@SGottliebFDA) March 7, 2018
The FDA has approved nine biosimilars, five of them last year. But only three are being marketed currently.
“Delays may be attributed, in part, to ongoing litigation,” Gottlieb said.
“The rigged payment scheme might quite literally scare competition out of the market altogether,” he added. “I fear that’s already happening.”
During a speech Monday, the HHS secretary called for the healthcare sector to embrace market forces and value-based payment models.
Health and Human Services Secretary Alex Azar spoke Monday during a Federation of American Hospitals conference in Washington, where he emphasized four areas in which he aims to change the way healthcare works.
Azar, who was sworn in five weeks ago after serving as an Eli Lilly & Co. executive, called for public and private stakeholders alike to embrace competitive market forces and value-based payment models.
“Providers have been understandably reluctant to charge into a completely new payment paradigm. Massive new processes and data-gathering requirements have been instituted, without any fundamental changes to our delivery system. Results for the early stages of federal efforts to encourage accountable care organizations have been, to be honest, underwhelming,” Azar said, according to his remarks as prepared for delivery.
“But there is no turning backto an unsustainable system that pays for procedures rather than value.”
Azar signaled that he and President Donald Trump are looking to take drastic measures to accomplish their agenda in the healthcare sector.
“We are unafraid of disrupting existing arrangements simply because they’re backed by powerful special interests,” he said.
This effort—which aims to reorient the healthcare market around patients and, when necessary, their third-party payers—unites all four areas of emphasis outlined Monday.
1. Give consumers more control over health info
During the HIMMS conference in Las Vegas on Tuesday, Centers for Medicare and Medicaid Services Administrator Seema Verma will join White House Office of American Innovation representative Jared Kushner to announce a number of actions by the Trump administration, Azar said.
Verma and Kushner will unveil plans to promote private-sector innovation and grant consumers more control over their own health-related data, he said.
“Too often, doctors and hospitals have been resistant to giving up control of records, and make patients jump through hoops to get something as basic as an image of a CT scan. The healthcare consumer, not the provider, ought to be in charge of this information,” Azar said.
2. Encourage price transparency
Drawing from his personal experience figuring out how much an echocardio stress test would cost him with a high-deductible plan in an Indiana hospital, Azar said the healthcare industry’s opaque pricing system is “simply wrong.”
“I believe you ought to have the right to know what a healthcare service will cost—and what it will really cost—before you get that service,” he said.
Azar noted that providers and payers aren’t the only ones who are cagey about their prices. Those who sell prescription drugs fall into the same pattern of behavior.
“So this administration is calling on not just doctors and hospitals, but also drug companies and pharmacies, to become more transparent about pricing and outcomes of their services and products,” he said. “And if that doesn’t happen, we have plenty of levers to pull that would help drive this change.”
In a statement Tuesday, Azar praised UnitedHealth Group for its plan to pass drug rebates along to consumers as "a prime example of the type of movement toward transparency and lower drug prices for millions of patients that the Trump Administration is championing."
3. Use experimental payment models to drive value, quality
The federal government spent more than $1 trillion in 2016 on Medicare and Medicaid, one-third of the nation’s healthcare spending, Azar said Monday, which is why he aims to use innovation in these programs to push for change across the entire healthcare system.
“We already have a range of tools for using these programs to pay for value, many created by 2015’s MACRA legislation,” Azar said. “The Center for Medicare and Medicaid Innovation, alongside these tools, vests HHS with tremendous power to experiment with new payment models.”
As an example, Azar pointed to accountable care organizations (ACOs), saying the results exhibited thus far “have been lackluster”—which he attributed to insufficient latitude being given to providers to experiment.
Just last week, CMS announced up to $30 million to support such experimentation for up to three years. The agency will partner directly with clinicians, patients, and other stakeholders, as CMS Chief Medical Officer Kate Goodrich, MD, wrote in a blog post Friday.
4. Remove the impediments of government burdens
Azar’s final point echoed the Trump administration’s deregulatory agenda. The federal government’s fondness for heavy-handed policies, he said, has made introduced unneeded complexity into the problem-solving process for healthcare.
“As just one tangible example, one not-insignificant challenge in modern medicine is simple but persistent: How do we get patients to show up to their appointments?” Azar said.
“Many providers have taken advantage of the recent rise of ride-sharing services to provide reliable, low-cost transportation to appointments. But an array of federal regulations has limited the degree to which this can occur: The amount of free rides that can be provided to a patient in a given year, for instance, is strictly limited.”
Addressing such simple patient needs can improve quality at low cost, Azar said, vowing to find ways to make these options available to providers.
“This won’t be the most comfortable process for many entrenched players,” he concluded. “But those who are interested in working with us to build a value-based system will have the chance to take advantage of a market where consumers and patients will be in charge of healthcare.
“We believe that is a system that will serve patients first, but it will be fair for providers and payers, too.”
Editor's note: This story has been updated to include a statement Secretary Azar made Tuesday.
To win an Everest Award, a hospital must not only rank in the Top 100 but also rank among the top for rate-of-improvement over five years.
IBM Watson Health published a list Monday of its 100 Top Hospitals® for 2018, using publicly available data for 2,740 short-term, acute care, non-federal hospitals to identify top performers on a variety of quality metrics.
"The country's best hospitals have proven that an unrelenting focus on quality, supported by constant measurement against peer performance benchmarks, can drive improved outcomes while reducing costs and growing profit margins," Jean Chenoweth, an IBM Watson Health senior vice president, said in a statement.
Among those that made the list, 13 were named Everest Award winners. The additional honor is bestowed on those that, in addition to ranking among the top for current performance, also rank among the fastest-improving over five years.
The winners of this year's Everest Awards are as follows:
Advocate Sherman Hospital in Elgin, Illinois — large community hospital
Banner - University Medical Center South in Tucson, Arizona — major teaching hospital
BSA Health System in Amarillo, Texas — teaching hospital
Butler Memorial Hospital in Butler, Pennsylvania — large community hospital
Cone Health in Greensboro, North Carolina — teaching hospital
East Liverpool City Hospital in East Liverpool, Ohio — small community hospital
Mercy Health - St. Rita's Medical Center in Lima, Ohio — large community hospital
Mercy Hospital Oklahoma City in Oklahoma City, Oklahoma — large community hospital
Mount Carmel St. Ann's in Westerville, Ohio — teaching hospital
Sentara Leigh Hospital in Norfolk, Virginia — teaching hospital
Spectrum Health Zeeland Community Hospital in Zeeland, Michigan — small community hospital
St. Joseph's Hospital in Tampa, Florida — large community hospital
The full list of IBM Watson Health's 100 Top Hospitals—formerly known as the Truven Health Analytics® 100 Top Hospitals—is available in the company's announcement.
Executives at loggerheads over who would lead, questions from the North Carolina attorney general, and other business opportunities all contributed to the noise around the since-suspended merger discussions.
Talks of a potential merger between Atrium Health and UNC Health Care fell apart Friday, when the North Carolina-based organizations released separate statements reflecting the power struggle that had plagued their negotiations.
Atrium, the Charlotte-based nonprofit formerly known as Carolinas HealthCare System, said it suspended the discussions with UNC Health Care in a letter Friday from Atrium President and CEO Gene Woods and Board of Commissioners Chairman Ed Brown.
The statement that followed from UNC Health Care suggested, however, that the matter was more of a joint decision.
"After months of discussions and due diligence, UNC Health Care and Atrium Health have determined that we cannot satisfy our mutual organizational goals through a proposed partnership and joint operating company," UNC Health Care System CEO William L. Roper, MD, MPH, and UNC Health Care Board of Directors Chairman Dale Jenkins said in a statement.
The news comes after talks between the two organizations hit a snag last month over which would retain a top leadership role after the merger, as The News & Observer reported.
Sarah E. Wilson, principal analyst of market access insights at Decision Resources Group in Nashville, said this contention over which leadership team would steer the joint operating company appears to be the main issue that sank the Atrium-UNC deal.
"You have two powerhouse systems in their respective markets, and I think neither system wanted to give up any control," Wilson told HealthLeaders Media.
"There were also questions as to how this merger would impact patients in North Carolina," Wilson added. "That may have added pressure to the negotiations, though that has not been stated by either party outright."
Neither Atrium nor UNC Health Care responded to follow-up questions submitted Friday.
Questions from the attorney general
In addition to conflict between the two organizations, the potential merger faced pressure from North Carolina Attorney General Josh Stein, who sent a letter last month to the CEOs of both hospital systems, as the Charlotte Observer reported.
“Experience cautions that large-scale health system mergers are often not in the public interest,” Stein wrote in the letter. “The State and the public have a right to know the facts behind your proposal. Therefore, we seek information to assess whether the proposed combination would increase prices for health care, reduce choices available to patients and payors, or otherwise harm North Carolina patients, North Carolina businesses, or the State itself.”
Stein included a civil investigative demand for a wide range of documentation dating back to 2015 pertaining to the proposed merger, and he set a deadline of 5 p.m. March 16.
A spokesperson for Stein’s office told HealthLeaders Media that Atrium and UNC Health Care had not produced any records responsive to the demand, although there were still two weeks left before the deadline.
“Now that their proposed deal is off, I will suspend my investigation,” Stein said Friday in a statement on Twitter.
The Atrium-UNC deal had also faced opposition from BlueCross BlueShield of North Carolina.
“After a thorough review of independent research which shows that when health care systems combine costs for consumers go up, Blue Cross NC cannot support your proposed combination,” President and CEO Patrick H. Conway, MD, MSc, wrote to each system’s CEO in January. “However, we are open to continued dialogue if you can demonstrate how this combination will lower costs and improve quality over the long-term.”
Major partnerships
Let’s not forget that Atrium has other irons in the fire. The day after it announced its name change last month, the system reached across state lines to partner with Navicent Health in Macon, Georgia.
“We are committed to being an organization that is agile enough to respond to the quickly changing dynamics of our field, and also serve as an effective platform for growth that will attract other like-minded partners committed to the same goals to transform care together,” Atrium said in its statement Friday.
One of the big lessons healthcare executives should learn from the demise of the Atrium-UNC deal is that “the devil is in the details,” Wilson said.
“Figuring out certain aspects of the deal, including control and culture, before moving too far along in the process can save a lot of heartache and money in the long run,” she said. “I also think employee and community buy-in when merging is a definite consideration, not just with this deal, but any consolidation deal.”
The statements released Friday by Atrium and UNC Health Care are published in full:
Atrium Health statement
The following statement was released by an Atrium Health spokesperson:
"Atrium Health has suspended discussions with UNC Health Care to form a joint operating company. Atrium Health Board of Commissioners Chairman Ed Brown and Atrium Health President and Chief Executive Officer Gene Woods informed UNC Health Care’s leadership in a letter sent earlier today.
"Atrium Health is committed to the patients and communities of North Carolina more than ever and remains committed to creating an organization that will serve more people in better ways and enhancing our ability to address our state’s most pressing issues including rural care, behavioral health, and affordability.
"In our letter sent to UNC Health Care today, we informed them that while we have not been able to reach an agreement, our respect for UNC Health Care, its team and UNC Health Care's accomplishments has grown through this process. Their desire to work collaboratively to improve the health of every North Carolinian is something we highly value and to which we are also committed.
"Atrium Health’s priority will always be its patients and communities. We are committed to being an organization that is agile enough to respond to the quickly changing dynamics of our field, and also serve as an effective platform for growth that will attract other like-minded partners committed to the same goals to transform care together. We will remain steadfast in our mission to improve health, elevate hope and advance healing – for all, and committed to ensuring the people of the Carolinas and beyond have access to world-class care."
UNC Health Care statement
The following statement was signed by UNC Health Care System CEO William L. Roper, MD, MPH, and UNC Health Care Board of Directors Chairman Dale Jekins:
"After months of discussions and due diligence, UNC Health Care and Atrium Health have determined that we cannot satisfy our mutual organizational goals through a proposed partnership and joint operating company.
"In late August, UNC Health Care and Atrium Health (Carolinas Healthcare System at the time) announced our intention to form a partnership that would bring our two organizations together in a joint operating company.
"We have agreed that the best path forward for both organizations is to identify specific opportunities to work together, as we have previously, to improve health care across the state and region. Though we will not form a joint operating company, UNC Health Care and Atrium Health will continue to partner on important issues such as improving rural health care and expanding medical education.
"As we have said since the beginning of this process, UNC Health Care remains focused on the best interests and health of the people of North Carolina.
"We would like to express our gratitude to the leadership teams at Atrium Health, UNC Health Care, and the UNC School of Medicine for the time and effort spent working on the joint operating company proposal.
"We are also grateful to our respective boards of directors, UNC Chapel Hill and UNC System leaders, the UNC Chapel Hill Board of Trustees, the UNC Board of Governors, and State leaders for their support of our continued efforts to improve health across North Carolina."
Editor's note: This article was updated to include the full statements released Friday by Atrium Health and UNC Health Care.
The addition of the two-campus system brings Piedmont's hospital count to 10, up from five just three years ago.
A ribbon-cutting ceremony officially marked Piedmont Healthcare's acquisition of Columbus Regional Health on Thursday, with leaders from both systems joining employees and community members for the occasion.
The addition of the two-campus system, which will now be known as Piedmont Columbus Regional, brings the Atlanta-based system's hospital count to 10, up from five just three years ago. And it gives Piedmont a footprint in western Georgia, where the organization is looking to establish a third regional hub around which to grow its operation.
“We are excited about the many possibilities and new opportunities the partnership with Piedmont will bring to our patients, our employees, our medical staff partners and our community as a whole. We have worked hard to put our patients and our employees first over the past number of years, in addition to positioning our organization for growth and improvement," Piedmont Columbus Regional CEO Scott Hill said in a statement.
“Being a clinical hub within Piedmont will make that a reality for us in many ways,” Hill added. “We know Piedmont is the right partner for not only Columbus Regional Health, but for the entire Chattahoochee Valley Region. Today is a great celebration of this partnership.”
The two systems signed a letter of intent last May, which the boards and hospital authority governing each organization approved last October. Approval from the Federal Trade Commission came in January, and the Georgia Attorney General's Office signed off last month.
Piedmont committed to taking on about $280 million in Columbus Regional’s debt and investing heavily in the Columbus market, while other organizations pursue mergers and acquisitions of their own in the region.
Healthgrades released its annual lists this week of America's Best HospitalsTM, based on clinical outcomes over the past five years.
A list of the top hospitals in the United States for 2018, as determined by Healthgrades, was released this week.
Each year, the organization identifies the top 50 and top 100 hospitals by assessing their clinical outcomes for common inpatient conditions and procedures. Patients treated at these facilities exhibit a 22.3% lower risk of death than those who receive treatment elsewhere, Healthgrades says.
Gary S. Kaplan, MD, chairman and CEO of Virginia Mason Health System, which was named among the top 50 hospitals, said achieving the results his team has seen required a broad-based approach.
“Our journey to transform healthcare and become the quality leader started nearly two decades ago when we began transforming our organization into one where patients are truly at the center of everything we do,” Kaplan said in a statement. “We’ve built a model where quality and safety are foremost, innovation and collaboration are encouraged, lessons learned are shared broadly, and patient engagement is essential to our continuous improvement efforts.”
The top 50 represent about 1% of the hospitals in the country, according to Healthgrades, which published the full lists online.
The transplant surgeon had raised patient safety complaints about the institute’s director, but the hospital argued the plaintiff simply saw himself as ‘more effective and intelligent.’
A surgeon fired four years ago from Florida Hospital’s Heart and Lung Transplant Institute has won $2.85 million in damages following a two-week jury trial stemming from a whistleblower complaint.
Ahmed Chaudhry, MD, accused the institute of putting its business considerations ahead of patient safety. Chaudhry said he repeatedly raised concerns with hospital administrators about allegedly unsafe practices by institute director Hartmuth Bittner, MD, but that his concerns went unaddressed.
In early 2014, Chaudhry threatened to report what he regarded as illegal conduct to the United Network for Organ Sharing ahead of a scheduled site survey, according to his attorneys. A few days later, his employment was terminated.
Under the Florida Whistleblower’s Act, Chaudhry sued in the Ninth Judicial Circuit Court in Orange County, alleging wrongful termination. The jury’s verdict awarded him $1.25 million in lost wages, $1.5 million in loss of future earnings potential, and $100,000 in other damages, according to his attorneys.
"This case lifts the curtain covering Florida Hospital's business practices," said Ratzan Law Group managing partner Stuart N. Ratzan, one of Chaudhry’s attorneys, in a statement. "The simple truth is, hospitals must put patient safety before business revenue and site surveys."
Stuart J. Weissman, a Ratzan Law Group partner who also tried the case, said Chaudhry “stood up against the conspiracy of silence that pervades the medical community.”
Less than two months after Chaudhry’s termination, the Orlando Sentinel reported in April 2014 that Florida Hospital would temporarily close its lung-transplant program due to the departure of a surgeon the hospital declined to name. The story noted that Bittner remained active in the program at that time.
In court documents filed prior to trial, the hospital argued Chaudhry had failed to provide evidence that he engaged in statutorily protected activities and that those activities were what prompted his termination February 4, 2014.
“Instead, the evidence shows that this case is about Dr. Chaudhry’s complaints that he was more effective and intelligent than Dr. Bittner,” the defendants wrote last week in a motion for directed verdict.
“Dr. Chaudhry created a personal battle of wills against personnel at Florida Hospital and asks the jury to declare him the victor,” the motion continued. “Dr. Chaudhry demonstrated that this case is about his opinion of best practices that a heart and lung transplant surgeon should follow, but has not identified a violation of law that occurred.”
An attorney on the defense team referred questions to Florida Hospital’s media relations office, which did not respond Wednesday to emails and a phone call from HealthLeaders Media seeking comment.
Attorneys general unveil plans to pull legal levers in the fight against opioid addiction, placing much of the blame on those who push addictive painkillers.
The U.S. Department of Justice announced Tuesday that it will weigh in on hundreds of lawsuits that have been filed against opioid manufacturers and distributors, seeking reimbursement for costs imposed by the opioid addiction crisis.
U.S. Attorney General Jeff Sessions, who held a press conference Tuesday afternoon with state attorneys general from across the country, said the DOJ will file a statement of interest in a multi-district action regarding the lawsuits filed by states, cities, medical institutions, and others.
Without calling out any defendants by name, Sessions accused the companies of harming public health by employing false and deceptive marketing practices to push their addictive products, which ultimately resulted in a swell of expensive treatment and enforcement needs shouldered by local, state, and federal government agencies.
“We will seek to hold accountable those whose illegality has cost us billions of taxpayer dollars,” Sessions said in a statement, noting that opioid addiction has claimed “hundreds of thousands of precious lives.”
Ohio Attorney General Mike DeWine, a Republican whose state has sued a number of drug companies over opioids, said the DOJ’s contribution to the legal challenges is “a game-changer.”
Also during Tuesday’s presentation, Sessions and his guests discussed a number of other efforts underway to fight this problem.
PIL Task Force: Sessions announced the creation of the DOJ Prescription Interdiction and Litigation (PIL) Task Force, which intends to fight the opioid crisis using criminal and civil procedures alike. The initiative aims to bring all of DOJ’s efforts to combat opioids under a single umbrella.
Sessions said the task force will work in close collaboration with the Department of Health and Human Services and focus on targeting manufacturers and distributors who contributed to the crisis.
“We will use criminal penalties. We will use civil penalties. We will use whatever laws and tools we have to hold people accountable if they break our laws,” he said.
The task force will also assess existing state and local lawsuits to see where the DOJ might assist in efforts to hold drug-makers accountable, Sessions said.
IMD Exclusion: Pennsylvania Attorney General Josh Shapiro, a Democrat, said he was proud to work with DeWine among dozens of state attorneys general who called on Congress and President Donald Trump’s administration to eliminate Medicaid’s decades-old funding exclusion for institutions for mental disease (IMD).
“Doing away with that will open up treatment beds in every state in this union, and it’s critically important that we do that for those who are in need and those who are desiring that kind of treatment,” Shapiro said.
While declaring the opioid crisis a national public health emergency last October, Trump himself referred to the so-called IMD exclusion.
“As part of this emergency response,” he said, “we will announce a new policy to overcome a restrictive 1970s-era rule that prevents states from providing care at certain treatment facilities with more than 16 beds for those suffering from drug addiction.”
The major hospital operator plans to generate more than $1 billion in proceeds from divestitures.
Stock prices for Tenet Healthcare Corporation rose in after-hours trading Monday and were up more than 11% in mid-morning trading Tuesday, despite the Dallas-based company announcing a loss in 2017’s fourth quarter.
Tenet reported a net loss of $230 million, or $2.28 per diluted share in the quarter, compared to a loss of $79 million, or $0.79 per diluted share, a year prior, according to numbers released shortly after the New York Stock Exchange’s closing bell Monday. But, after adjustments, it beat analyst expectations.
The company blamed a large chunk of the loss on the Tax Cuts and Jobs Act, which it says prompted a $252 million non-cash partial write-down on its deferred tax assets.
After adjusting for the tax law’s impact and other factors, Tenet said its adjusted net income from continuing operations was $143 million, or $1.40 per diluted share, during the quarter, up from $23 million, or $0.23 per diluted share, a year prior. That was 7.7% higher than the Zacks Consensus Estimate of $1.30. The performance was helped in part by higher patient admissions, as the Associated Press reported.
A slide presentation for investors published with Monday’s results indicated that Tenet executives would discuss more than $1 billion in divestitures during a conference call with investors Tuesday morning.
“We’ve been making solid progress, including completing the sale of our Philadelphia hospitals and signing a definitive agreement to sell Des Peres Hospital in St. Louis," Executive Chairman and CEO Ronald A. Rittenmeyer said during Tuesday's call. "In line with our expectations, we anticipate completing the sale of MacNeal [Hospital] in Chicago and the restructuring of our joint venture with Baylor in Dallas in March. ... We remain on track to achieve the $1 billion in proceeds outlined last year.”
The sale of the two hospitals in Philadelphia was completed last month, yielding $152.5 million in proceeds, according to the presentation. And the sale of MacNeal Hospital in Berwyn, Illinois, is expected to yield $270 million.
Tenet anticipates more than $300 million in additional divestitures this year, including sales of Des Peres Hospital; Weiss Memorial Hospital, Westlake Hospital, and West Suburban Medical Center in the Chicago market; nine facilities in the United Kingdom; Golden State Health Plan in California; and its minority interest in three Baylor Scott & White’s locations in Texas.
"We will continue to evaluate individual hospitals and markets based on total cost of ownership and make necessary adjustments dictated by our analysis," Rittenmeyer added. "Our growth and cost initiatives will be incorporated into these evaluations, and we will use hard facts and data as we continue evaluating all assets on a go-forward basis."
Tenet’s selling spree comes as the company has made plans to trim its costs by $250 million and reduce its workforce by 2,000 positions, or 2%, amid pressure from activist shareholders, as The Wall Street Journal reported last month.
In an investor presentation Tenet filed last week with the Securities and Exchange Commission, the company cited five recent actions it has taken to ensure that it’s on the right trajectory:
New CEO hired: Rittenmeyer, who was named Tenet’s executive chairman last August and its CEO last October, comes “with extensive turnaround experience,” the presentation said, noting that Rittenmeyer led Millennium Health in 2016 and 2017 as its chairman and CEO after it emerged from Chapter 11 bankruptcy.
$250 cost-reduction program: In addition to eliminating about 2,000 jobs, the program called for the elimination of a “regional management layer” in the hospital business.
Possible sale of Conifer: The presentation described its decade-old Conifer Health Solutions as a “very valuable asset” that doesn’t make strategic sense for Tenet to own.
Enhanced focus on quality of care: “Many of our hospital key indicators are better than the national average,” the presentation said, citing Tenet’s core measures, hospital safety grade from The Leapfrog Group, HCAHPS and CMS Overall Quality Scores, and readmissions rates.
Divestitures of non-core hospitals: Tenet’s aggressive divestiture program expects to yield more than $1 billion in proceeds, and the company “continues to review its portfolio of businesses and assets,” suggesting more sales could be announced in the not-too-distant future.
Editor's note: This story has been updated to include additional information from Tuesday's investors call.
Atlanta-based system gets the state’s OK to establish third regional hub, on border with Alabama.
The Georgia Attorney General’s Office put its stamp of approval Friday on Piedmont Healthcare’s acquisition of Columbus Regional Healthcare System, authorizing the next stage of the Atlanta-based system’s “hub-and-hub” strategy.
The nonprofits exercised due diligence appropriately and fulfilled their obligations under state law, according to the attorney general’s report, which considered 13 factors in assessing the deal.
Twelve people offered comments last month during a public hearing at the Midtown Medical Center Conference Center in Columbus, all of them in support of the acquisition, the report states.
Columbus Regional operates two acute care hospitals in Columbus—the 100-bed Northside Medical Center and the 583-bed Midtown Medical Center—plus a number of other facilities and a foundation, serving 10 counties in Georgia and Alabama.
In 2016, after discussing concerns over the system’s “viability as an independent provider,” the Columbus Regional board solicited proposals from 13 potential partners, including for-profit entities, nonprofits, academic medical centers, and religious health systems, the attorney general’s report states.
Six potential partners, all of them nonprofits, responded, and the board selected four finalists. Warren Steele, chairman of the Columbus regional board, said during last month’s public hearing that Piedmont’s proposal stood out.
“Mr. Steele testified that Piedmont was selected because of its cultural fit, shared strategic vision, strong financial position, its historical success with strategic partnerships, and Piedmont’s commitment to local control,” the report states.
Piedmont committed to taking on about $280 million in Columbus Regional’s debt and investing heavily in the Columbus market as a third regional hub, as HealthLeaders Media previously reported.
A spokesperson for Piedmont said Monday that Columbus Regional Health will officially become Piedmont Columbus Regional on March 1, with a ribbon-cutting ceremony, making Piedmont a 10-hospital system.
Nearby M&A activity
Piedmont's deal comes as other healthcare organizations are making moves in the area.
Emory Healthcare, which is also based in Atlanta, signed a letter of intent last fall to acquire DeKalb Medical Center in Decatur, Georgia. Carolinas HealthCare System, based in Charlotte, North Carolina, changed its name to Atrium Health earlier this month and reached across state lines to announce a strategic partnership with Navicent Health, based in Macon, Georgia.
Just north of this hubbub, meanwhile, Chattanooga-based Erlanger Health System announced it had crossed into North Carolina to acquire Murphy Medical Center.
Editor's note: This story was updated to include a response from Piedmont.