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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.



August 29, 2011

FTC: This Merger Looks So Good, It Has To Be Illegal

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If you’re as cynical as I am, it’s not hard to take a certain amusement in the goings-on in Toledo over the merger between an aggressive for-profit hospital chain and a suburban not-for-profit.

Over the past few months, the Federal Trade Commission seems to have developed a passionate interest in the merger between a formerly Lutheran-owned non-profit, St. Luke’s Hospital of Maumee, OH and ProMedica Health System of Toledo. ProMedica, which owns 11 hospitals in Ohio and Michigan — including four in the Toledo metro — is a swaggering giant with $1.7 billion in annual revenue.

What a sweet deal it was for ProMedica. According to Moody’s, the facility had very little debt ($8.3 million) and 412 percent cash-to-debt coverage as of November 30, 2009 (recently enough to matter).

Sure, as of early 2010 St. Luke’s had an operating cash flow deficiency of -2.0 percent and -9.8 percent operating margin, and at least according to Moody’s, had cut some cut-rate contracts with payors accounting for 22 percent of its operating revenues.

On the other hand, its miserably weak competitive market position which, as Moody’s noted in its downgrade report, included clashes with ProMedica, went away with the stroke of a pen when the two consummated their agreement. ProMedica sweeps in with its Aa3-rated borrowing capacity, invests a relatively slim $35 million and picks up the 10 percent market share SLH held at the time. I don’t know what 10 percent of the market is worth, but that has to be a fire sale.

Dig this if you can, cats and kittens:  According to the FTC,  the deal increases ProMedica’s market share in Toledo to 58 percent of inpatient services and (get this) 80 percent of high-margin inpatient OB services. Wow… Small wonder the FTC smells a rat.

Of course, in the sort of excess of confidence you always see in these deals, ProMedica’s executives are pretending the deal was good for the public and stuff.  I don’t know about you, but I find the following comment (made by ProMedica CEO Randy Oostra to the New York Times) to be preposterous:

“We could coordinate care,” Mr. Oostra said. “We could improve quality at St. Luke’s by adopting electronic health records and using clinical protocols to standardize the delivery of care. But the F.T.C. has stopped us in our tracks.” 

OK, let me get this straight, Mr. Oostra. You could only connect with St. Luke’s by buying it and forcing your EHR down its throat (after all, we know you’re not going to put St. Luke’s on Cerner if you use Epic)? You’re buying a hospital with tremendous upside largely because you think you can standardize care — because that will, of course, increase effectiveness and lower prices?  Oh, and as far as sharing data and coordinating care: have you ever heard of a health information network? Or an Accountable Care Organization?

Really, sir, if you want to impress the FTC with the public benefits of your transaction, you’re going to have to try a little harder. If you’re already phoning it in, to the Times no less, you’re not just arrogant, you’re stupid.


December 14, 2010

The great sucking sound: For-profit buyouts a drain on communities

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Few have spent more time than I calling out non-profit hospitals on their inadequate charity care levels.  But when it comes down to

This picture shows a panorama of Boston (USA).

Boston, there's a new predator in town

it, I’d prefer a non-profit whose chain can be yanked over a for-profit with no public service requirements at all.

I was reminded of my concerns this week when I heard about the two hospitals Cerberus Capital Management agreed to acquire this week.  It’s picking the hospitals up from Essent Healthcare, another for-profit.  Cerberus, a New York-based private equity firm, just spent $900 million for the six-hospital non-profit chain Caritas Christi. That gave them a nice foothold in Boston, an incredibly competitive but opportunity-rich environment.

Really, both of deals the two-headed guardian of the afterlife has chosen seem to be good ones — for them.  While I’m not privy to much financial information on any of the eight hospitals, we do know that Caritas Christi was in big trouble financially.

I’d wager that the other two hospitals, which lie in the Boston suburbs, are in bad need of a capital infusion to prop them up during these bad times.  This situation allows the firm to swoop in, buy equipment, get things shipshape and get their money many times over.  Oh, and probably do a nice job of squeezing the health plans, now that they’re getting critical mass. Again, good for them.

The thing is, I strongly doubt that any private equity firm is going to have the interests of the community in mind.  One way or another, in most of the private equity buyouts I’ve followed, all of the extra money generated by improvements ends up in the bulging bank account of the PE guys.  They’re not in ANY investment for the long term; that’s just not what they do.  They’re there to pillage, however, legally, and get the hell out.

Far too often, PE players get into a deal, drag the hospitals down financially and then more or less shrug their shoulders when the facility plunges into the red.

The PE firm doesn’t give a rat’s patoot — they’ve made their money. The often-struggling community is left with, well, not a whole lot.

I’d argue that this is a travesty.  We need, as professionals and healthcare consumers, to keep hospitals as community asset with a strong bank account and a long-term view.

So, my question to you is this. Is it inevitable, during this period of transition to full-out reform, that community hospitals get decimated?


August 19, 2010

Possible Kaiser data, tomorrow, straight from the whistleblower's mouth

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OK, guys, if you know anything I don’t about the machinations around the $3 billion (or $5 billion, name your number) installation of Kaiser’s Epic EMR, now’s the time to share. 

I say that because tomorrow, I’m going to pull together what an anonymous source sent me from the early days of the Epic installation.  We’ll go over it, reader and editor, and see if there’s any news left.  Hope you’ll join me.

If you have anything to add, please do feel free to toss another log onto the fire.

Admittedly, even if genuine — and I have no way of proving that it is — it’s at least four years old. Still, I’m pretty intrigued by it and I hope you will be too.  (By the way, the e-mailer says he’s not the (in)famous Justen Deal, the young man who e-mailed 180,000 Kaiser employees with his EMR concerns. I’d tend to believe Mr. X, since I’ve met the actual Justen and he’s not the anonymous type.)

I’ll catch up with y’all tomorrow.


August 10, 2010

Kaiser, the whistleblower and the $3 billion EMR

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Back in 2003, Kaiser Permanente CEO George Halvorson made a decision which would change the direction of the company.  Though few of his peers had taken the plunge, Halvorson bought an electronic medical records system from EMR vendor Epic and set plans to bring all of his clinicians online.

While there’s nothing so surprising about that — other than the fact that Kaiser was well ahead of the curve, time-wise  — the project’s trajectory was a bit unusual. The EMR installation, which stumbled at more than one point, sprawled over several years and cost a reported $3 billion dollars. Yes, I meant “billion,” in case you fear your eyes are failing you.

Of course, Kaiser is a $30-odd billion company, so if anyone can afford a billion-dollar EMR, it can, but that’s still a whopping health IT investment by any standard.

Not long after the deal got done, Kaiser and its leadership began taking a tremendous amount of flack over the system, which apparently ran into every obstacle an IT project can face. Apparently, doctors were complaining that the EMR was slow and buggy, and worse, that the system was down more than up. But Lord knows, Kaiser had no intention of breaking its 10-year contract with Epic, a vendor whose lock on big deals continues to amaze me.

Then, in 2006, all hell broke loose when a 25-year-old Kaiser employee named Justen Deal managed to get an e-mail message out to all of Kaiser’s 180,000 employees.  Deal argued that the new system, dubbed HealthConnect, was rife with technical problems and couldn’t scale to meet the demands of the organization. The trade press went nuts. Halvorson was forced to defend the installation to the press and even write a letter to the extremely junior employee who’d blown his cover. Hard to tell whether anyone bought Halvorson’s defense, but the bad press died down within six months or so.

OK, fast forward to today.  HealthConnect is fully deployed, and if Kaiser’s Internet folks aren’t shining me on, the system is working pretty well.  Not only is HealthConnect servicing 431 clinics and 35 medical centers, it’s also supporting a personal health record which serves 3 million of Kaiser’s members.

That, at least, was the news from Jan Oldenburg, senior practice leader with the Kaiser Permanente Internet Services Group, whom I spoke with a few months ago.  Patients use the PHR to fill half a million prescriptions, check out 1.2 million test results and make more than 100,000 clinic appointments each month, Oldenburg says.  (Note that she didn’t address how effective the EMR system has been for clinicians — that may mean nothing, but I was a bit curious about the omission.)

Now, my friends, here’s the pop quiz. If you had to guess, do you think that the $3 billion spend was ultimately a good investment?  Do you believe that the Kaiser HealthConnect system will be a greater success with patients than clinicians?  And if clinicians are still using it at gunpoint, should Kaiser shift gears entirely and focus on patient access?

Looking forward to your ideas…this is a tricky one.

July 15, 2010

Video/satire: The real health plan business model

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The following song, by brilliant social and political satirist Roy Zimmerman, offers his view of health plans’ real business model. His take?  As far as health plans are concerned, sick patients would (literally) be better off dead:

Dear Number 1036924053887
Have you considered suicide?
It’s a healthcare plan you haven’t tried.
Enclosed please find a tab of cynanide…for your perusal
You’re getting to an age where your potential need for medical
Attention even intervention isn’t hypothetical
So, do it quick!
And solve this nation’s healthcare crisis
By not getting sick.

To hear more incredibly elegant rhymes (hey, there’s a reason Tom Lehrer likes this guy) here’s the full song:

Now, I’ll confess that I simply get a massive kick out of Mr. Zimmerman, whether in health parodist mode or not, but I think you’ll  be amused by this one too.  Maybe you’ll be inspired to lampoon some bad actors too.  Street theater, anyone?

BONUS: While we’re having a bit of fun, here’s blast from the clinical world:  Emergency Depatment rap!  Seems there’s quite a trend going on here — maybe a dozen ED hip-hop videos cropped up on YouTube when I recently checked — but this group, from the University of Alabama’s Birmingham hospital, seems to be the Grandmaster Flash and Melle Mel of the bunch.