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January 2, 2012

ACO Proves Major Political Turning Point For Boston Hospital Chain

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Transforming a hospital system into a fully-functioning ACO is a huge project, and one which requires a big commitment.  It’s hardly surprising that going through the process would change how its leaders think about their business.  But the following is the first case I’ve heard of in which a hospital system made a major break with its peers over its ACO status.

Apparently,  for-profit Steward Health Care System has just resigned from the Massachusetts Hospital Association, bringing its 10 hospitals (and 11 percent of the MHA’s revenues) with it.  Steward, which was created by the acquisition of six-hospital Caritas Christi Health Care Chain a year ago by VCs, has since picked up four hospitals and done a host of doctor deals.

Not surprisingly, Steward seems to have bruised some competitors’ feelings along the path to ACO-hood, which probably has something to do with its MHA departure, but Steward isn’t copping to that of course.

At this point in its evolution, Steward’s leaders say, the MHA’s positions on politics don’t represent its needs anymore. Particularly when it comes to health reform, Steward’s leaders feel it now has a different take than other members of the MHA, which has to advocate for shared positions across almost 100 hospitals with varied approaches.

As for me, I’m not sure what those differences are; in fact, I’d think that a “real” ACO would be an inspiration for, and partner to, other hospitals on the path to health reform.  In fact, this raises some questions as to how the growing ACO trend will affect hospital relationships this year:

* Are IDNs that work hard at building a true ACO going to upset their peers so much that it will create a drag on their business overall?

* Most healthcare business models have some detractors and some fans, but is this one of the few that can actually divide the industry?

*  Are ACOs a direction every IDN can take, or are there resource constraints (such as the size of a local market or number of unaffiliated doctors) that will prevent some from building one? Will the coming rush create ACO “haves” and “have nots”?

What do you think, folks?  Have you seen anything happening in your markets that might answer these questions?

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November 21, 2011

Hospital Strategic Partnerships Avoid Mergers, But Create Other Pain Points

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This is one of those periods in health biz history when M&A looks especially attractive.  What CEO wouldn’t give a second thought to getting acquired and picking up a bundle of cash when they’re struggling to survive?

In fact, one attorney with a national health care law firm argues that that as many as 50 to 60 percent of doctors and hospitals are looking for partnership opportunities of late, in part because health reform encourages consolidation.

The question is whether the institutions can put aside their differences long enough to talk business — particularly if they have dueling missions (such as religious charity vs. profit). Not only that, it’s not clear whether partnerships will meet their needs for long, as we’ll discuss below.

Given their druthers, many institutions would prefer to stick it out on their own and do things their own way. And despite the urge to merge, many hospitals are keeping their independence through strategic partnerships, notes Becker’s Hospital Review.

It’s hard to argue that partnerships can have their advantages, as the Becker’s piece notes. Hospitals can cut overhead costs by sharing services and staffing, while expanding on their local reach and adding services they might lack.

Partners can also come together to shore up specific service lines without having to invest heavily on their own. That was the purpose of a recent agreement between Saint Vincent Health Center in Erie, PA and the Cleveland Clinic, which are teaming to further boost the reputation of their already high-profile organizations in cardiac and neurological services, according to the Becker’s piece.

And hospital partners can save big bucks by rolling out the all-but-mandatory EMR system together, too.  Not only do the hospitals save bucks on staffing and technical expenses, they also end up sharing clinical data by default. Ideally, they’ll provide higher-quality care and save money by avoiding duplicate services.

Hospital partnerships may make it easier to build an effective Accountable Care Organization, too. After all, it’s easier to share data and coordinate treatment if you already have a trusting relationship in place, particularly if you’re already integrated clinically.

That being said, partnership building comes with its own set of frustrations. Take last year’s relationship struck by Reston, WA-based Providence Health & Services and Seattle-based Swedish Health Services.

To get along, the two parties had to set up a complicated structure letting Providence’s 27 hospitals keep their Catholic mission, while the five Swedish hospitals stayed non-religious. The two will work together using the Epic EMR to work together on shared best practices and population health.

And that’s far from their biggest headache. Ultimately, hospitals won’t save the kind of money they’d like to save, nor build new business the way they’d hope to, without completing a real merger. At that point, things can get expensive and even more complicated, as individual IDNs or facilities fight to keep key partners of their strategy in place.

Meanwhile, the hospitals in question may find that merging doesn’t meet regulatory approval. Hey, look at what happened when ProMedica Health System of Toledo and nearby St. Luke’s Hospital decided to get hitched. The $1.7B ProMedica chain, has 11 hospitals in Ohio and Michigan, came riding to the financially-ailing St. Luke’s rescue with a $35 million investment in August 2010.

Since then, though, the FTC has cracked down hard on ProMedica, arguing that the deal unfairly monopolizes the Toledo market,  in particularly by raising its share of the inpatient obstetrical services market to 80 percent. (Hey, ask your friendly editor and I have to admit that the FTC’s argument has some merit.)

So, where can hospitals turn if they want to thread their way through the current hospital business climate?

Well, at least one model — promoted by organizations like Paradigm Physician Partners and the LHP Hospital Group — have rolled out a model in which, as privately held companies, they form joint ventures with and sink capital into non-profit hospitals and health systems. LHP, which holds joint interest in some or all of the hospital’s operations through an LLC,  recently closed a deal with Pocatello, ID-based Portneuf Medical Center.

I predict that hospitals will find new ways to take in investment without giving up equity or their non-profit status. If new models pop up on my viewscreen I’ll let you know — I think this’ll be a hot new transaction strategy.

 

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November 7, 2011

Hospital M&A Getting Tough (But Misguided) Scrutiny From Lawmakers

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As us in “the biz” know, the pace of hospital M&A isn’t going to slow down anytime soon. Hospitals are huddling together to scale up for countless reasons.

The reasons for hospital consolidation are just about unstoppable, of course, as they include  a) well-founded fears regarding reform, b) trouble carrying the capital capital costs involved in scaling up health IT infrastructure, c) long-term trends squeezing hospital margins and d) the need to participate effectively  in ACOs, HIEs and other alphabet soup organizations.

Unless the government takes over the entire healthcare system and spends these factors away, they’ll push execs into the arms of their peers regardless of what federal policies roll out.  Yes, the FTC can put mergers on hold, and notably, has gone medieval on a few mergers just to prove it can, but let’s not pretend it has the resources to slow hospital consolidation dealflow much either.

So, I must say I was sort of amused to learn that members of the  House Ways and Means Subcommittee on Health took a  stern look at hospital dealmaking and consolidation last month.  You know, to me it’s like standing in a flooded basement in a rainstorm and focusing on a few cracks in the wall — but I digress.

At the hearing, an economics and health policy professor named Martin Gaynor testified that consolidation was picking up speed. He also asserted that studies show hospital prices going up meaningfully whenever hospital markets consolidate.

Geez, Professor Gaynor, you say that like it’s a bad thing! Doesn’t classical economics allow for the supply side folks to work together too, without breaking the system? Whoops, I digress again.

The hearing, which took place in September, also included data from a Rand Corp. study noting that health plans were consolidating dramatically, and that these mergers were giving health plans too much power.  (Wow, imagine that — health plans having too much power?)

Oh, Lord, why does all of this seem beside the point?  Well, probably because it’s not going to help anyone.  Sure, knowing  what impact hospital M&A is having is part of a well-informed Health Subcommittee’s job description.  And I appreciate that the Subcommittee is trying to look at the bigger picture, one which includes both health insurers and hospitals.

But hearings like this, which assume that pricing indicators are the best way to decide whether the public good is being served, strike me as painfully uninformed. While I’m no economist, I have seen a few deals come and go, and some ill-considered attempts to control dealflow too. After following the health market for decades, I’m convinced that playing Whack-A-Mole and slapping down those “bad guys” who are overcharging/underpaying gets us nowhere.

 

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April 27, 2011

Big hospital chains have outlived their usefulness

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Regardless of what Community Health Systems execs may think, big, massive, overstuffed hospital mergers aren’t going to work in the next decade.  No amount of economies of scale will make up for the dollars health systems will lose if they decide to operate their business if it were Walmart.

Look at the history of the market.   Massive scaling up of hospital infrastructure — remember the grand Medicare-fueled building party in the 1960s? — has always been followed by financial weakness, overbedded markets and vicious regional competitions nobody can win.  Hospitals that try to reproduce this technique in multiple markets are only going to do worse.

In truth, I imagine CHS and other large hospital players are more focused on generating leverage with payers.  (They mostly have to scream “economies of scale” to satisfy Wall Street investors who wouldn’t know an ICU from an inside pitch.) After all, as reform washes over the land, the big health plans are going to see big upward jolts in their covered base.   And since the newly-insured aren’t likely to be cash cows, health plans are going to be more cost-conscious than ever when they negotiate.

“Massive scaling up of hospital infrastructure — remember the grand Medicare-fueled building party in the late 1960s? — has always been followed by financial weakness, overbedded markets and vicious regional competitions nobody can win.”

That being said, I don’t think creating hospital megaliths will tilt the scales back into balance.  Hospitals will always be on defensive when it comes to health plan contracts;  the brutal fact is that health plans have the money, and hospitals don’t. Hey, you can scream, we’re the best in the region, but let’s face it folks, health plans are more in the quantity than quality game.

So, what do hospitals do to cope with their vulnerability?  Careful, gradual acquisitions in key markets, strategically positioned to streamline the way they run key service lines across a region.  And integration, Lord yes,  but I’d argue creating your own health plan is a much better bet than buying medical practices willy-nilly.  (OK, you can do both, but I’d argue that putting a health plan in place should be the priority.)

By the way, I’d argue that the growth of the ACo concept suggests that I’m not alone — that just about every policymaker thinks that managed care-style medicine needs to be nurtured by providers.

Under these circumstances, big hospital mergers look even worse, as it’s pretty hard to build tight collaborative relationships when all orders have to come from the mothership in Nashville or Dubuque.

No, I say, a time comes for all industries when it’s time to think small, and this is it.  Tenet, HCA, Community Health, the big Catholic systems — now is the time to decentralize aggressively or pay the price. You’ve got three and a half years before reform goes full tilt. Tick tock, folks.

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July 27, 2010

Let’s turn patients into evangelists; join our beta and find out how

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We would all love to see great healthcare organizations rewarded by great community support, both on and offline — but the truth it’s rarely that easy.  If you want feedback — even well-earned praise — you generally have to work for it.

The problem seems to be particularly acute for hospitals. Even patients who have had a great experience with labor and delivery, about the most heartwarming,  upbeat experience a healthcare provider can deliver, seldom go online to rave about the lovely setting, the attentive nurses, the modern birthing practices or family-friendly room design. Still,  it’s a problem for providers across the board.

So, what will it take to get patients to share their feelings online? Let’s find out!

nextHealth Media is pulling together  a group of providers who want to build a better community engagement model, specifically by using social media tools.

Our idea is to create a single plan and implement it across a few environments — making it easier to share ideas and make progress — then tell the story of what we’ve learned.

The model will be very simple and the time we invest fairly modest, but we think the returns could be great.  As things progress, Twitter and TweetChat will keep ideas flowing (#engagedpatient).

If you’re interested, drop me a note at engagementproject@nexthealthmedia.com or call me at (703) 537-8105. And if the spirit moves you, please do comment here on what you think it will take to get this project off the ground. Would love to get your input!

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July 14, 2010

Can Priceline-style tactics transform medical practice?

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Yes, I realize the above is a pretty extravagant headline — the “real” Priceline isn’t involved here — but follow me, and tell me  if you think the question is on point.

Yesterday, I spoke to Alex Fair of FairCareMd.com, a New York-based company which lets patients and doctors directly negotiate a “fair deal” on services between themselves.  Physicians give (presumably big) discounts on services in exchange for getting cash on the barrelhead once the service is delivered.  The site is in beta but still worth a look;  seems the key pieces are in place.

Fair, a former scientist who’s been a serial entrepreneur for many years, once designed software helping doctors successfully beat claims denials, so he definitely knows the territory. And he’s obviously right that if they get cash up right away, doctors can easily beat the “retail” prices they’re sometimes forced to charge to cover health plan collection costs.

Fair’s (reasonable) assumption is that FairCareMD will be a lifesaver for patients with high deductibles or no insurance at all, as well as giving them a way to get procedures the insurance industry won’t cover.  Not only will patients have access to deeply-discounted fees, if the patient can’t find the deal he or she wants, they can push for a better price at a number they can live with. That is indeed along the lines of Priceline.com’s “name your own deal.” (I’m here to tell you that *that* mechanism works very well indeed.)

On the surface, the concept makes sense. And there’s precedent for it.  For example, a thriving market in cash-for-surgical-services, much along these lines, already exists in the bariatric surgery industry, as many health plans refuse to cover such procedures. Ah, the power of capitalism to work around other capitalists!

In his first month since launch Fair reports over 5,000 searches for care on his site, though only about 1 in 200 visitors requested a deal from a provider.  On average these deals have saved 47 percent off “list prices” so far. Fair’s surprised that so few consumers are making requests.  On the other hand, it’s only a few weeks after launch, and other sites have millions of such requests, so he’s in wait and see mode.

My guess is that a) people don’t see the value of shopping for prices just yet — so thoroughly has the health insurance industry hornswoggled them and that b) they’re likely to see more valuable in accessing such services if they pay a subscription fee. Just a human nature thing.

So hey, folks, what do you think? What will it take for consumers to feel comfortable paying doctors directly again?  Fair isn’t the only company banking on this notion  — in fact, there are several, including some with a national presence  — but my instincts suggest they haven’t won consumers over completely yet either.

An even bigger question:  Do you see the broad mass of consumers developing those sorts of relationships with hospitals anytime soon?  Now *that* would be a neat trick.

NOTE:   If you’re in the NYC region, or plan to be next week, you can meet Fair and other local social media/health entrepreneurs  at a Manahattan-based Health 2.0 meetup (details at  http://www.health20nyc.com/calendar/13913750/?eventId=13913750&action=detail#initialized).  Looks like it’s going to be a very nice group. I’ll be moderating a panel, so if you’re there please stop by and say hello!

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July 10, 2010

Video: Accountable care organizations, the Steve Jobs way

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This video, by healthcare consultant Anthony Cirillo, offers a neat suggestion — why not sic Steve Jobs on the accountable care organization model?  As Cirillo sees it, Jobs is one of few execs out there who really understands how to build complex things in a lean, functional way.

“When we develop products, we’re about putting as many features into them as possible, and hospitals, as many services as possible,” Cirillo says. “But Steve Jobs…wouldn’t just build an accountable care organization, he’d build your accountable care organization, where you would get just the amount of care you needed at the right time in the right place.”   More below:

[youtube=http://www.youtube.com/watch?v=F2hceBn0WCM]

Don’t be distracted by the guitars hanging on the wall in the background — they’re just symbolic of Cirillo’s other passions, singing and songwriting.  What he has to say on this subject is definitely worth a listen.

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