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August 31, 2011

Adding mini-hospital resolves clash between religious, secular facilities

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As secular, for-profit hospital chains merge with rule-bound religious facilities, patients are facing restrictions on their care that they hadn’t faced before. While for-profit hospitals will perform virtually any legal medical procedure, hospitals owned by religious institutions often impose faith-based limits on the treatments they will offer, with some refusing to provide services like emergency contraception for rape victims, vasectomies or tubal ligations.

However, one Louisville, KY based hospital may have found a compromise that could sidestep the issues entirely. The University of Louisville, which is poised to merge with Catholic-owned St. Mary’s Healthcare, plans to build what it calls a “hospital within a hospital” within St. Mary’s. The mini-hospital, which should cost about $15 million, will provide services that St. Mary’s will not.

U of L officials admit that building the special unit won’t be easy. For one thing, the university will have to get a separate hospital operating license for the unit, and hire a new group of employees.  Not only that, the tension between what the mini-hospital is doing and what St. Mary’s will permit will inevitably be something of a distraction.

Some critics, including state Attorney General Jack Conway, argue that the merger may not be such a good idea if U of L has to spend $15 million just to make it happen. After all, they note, the same $15 million could be used to pay for the care of the poor and uninsured.

As I see it, though, these objections are mostly posturing. The reality is that conflicts like this will crop up across the U.S., as there’s no end in sight to the country’s massive wave of hospital mergers.

I’m glad to see that U of L might have found a way of resolving its differences with St. Mary’s without the two sides coming to blows. Sure, it may be a bit messy, but if it allows the hospitals to pool their resources effectively, I hope other hospital dealmakers will consider this approach.  Building the hospital-within-a-hospital is certainly better then letting the issue fester.

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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.

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April 30, 2011

Hospital merger mania on the rise across the U.S.

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As I reported a few days ago, hospital mergers and acquisitions hit a historic high last year.  This is shaping up to be a pretty frenzied year for hospital M&A as well.  In fact, this may be the year that hospitals see a historic change in how they’re managed and they define themselves.

How much merger activity will we see?  At the HIMSS11 event earlier this year, John Reiboldt of Coker Capital Advisers suggested that the single stand-alone hospital may be a “concept of the past.”

While the comment by Reiboldt may have been a bit tongue-in-cheek, it’s clear that many smaller hospitals and health systems are giving up long-held independence in an effort to survive.

What’s more, such deals seem to be getting a friendlier reception from the Department of Justice and the FTC, which revised its Horizontal Merger Guidelines in August of last year.

A few randomly chosen examples of regional mergers underway:

* The merger between Albany-based  St. Peter’s Health Care Services, Northeast Health and Seton Health/St. Mary’s Hospital is should close shortly.  After three years of talks, the three entities have gotten the FTC’s blessing to move ahead.

*Alongside of its massive effort to acquire Tenet, Community Health Systems has signed a definitive agreement to acquire Mercy Health Partners, a three-hospital system based in northern Pennsylvania.

* Peoria, IL-based OSF Healthcare may absorb Rockford (IL)  Healthcare System, despite some degree of public hostility to the proposal (and complaints from rival SwedishAmerican Health System.

I see no reason why this consolidation should slow down this year, particularly as reform deadlines grow closer. And I fully anticipate that hospital mergers will create a ripple effect that tips other industries into new formers of cooperation.  Fasten your seat belts — this year is proving to be a wild ride.

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April 19, 2011

Tenet/Community Health battle brings host of troubles

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My oh my.  Don’t we have a pretty enough dustup going on here without the need for more schaudenfreude? Apparently not.

As most of you know, Community Health Systems (CYH) made a $3.3 billion hostile takeover bid for Tenet Healthcare Corp (THC) late last year.

Since then, things have gotten rather ugly, with Tenet suing CHS this month over allegations that its suitor was, shall we say, not playing by the rules of the game.

More specifically, it accused CHS of gaming Medicare by admitting patients who weren’t sick enough to merit a costly inpatient stay.  Tenet argued that by building such system-gaming into its offer, CHS was over-valuing the stock it was using to pay for the takeover and overstating the savings it could accomplish.

Since then, CHS converted its takeover big from part-stock, part-cash to all cash. And today, April 20, CHS moved to have the Tenet suit dismissed, contending that with the stock out of the picture, Tenet had no basis to whinge about the deal. (For brownie points, here’s CHS’s press release on the request for dismissal.)

Still, even if Tenet’s Trevor Fetter and CHS’s Wayne Smith let bygones be bygones and throw a joint Passover Seder — complete with charoset! —  the host of troubles springing from this deal is pretty ong:

*  CHS has gotten a subpoena from the HHS OIG over possible Medicare and Medicaid billing fraud, matters which, one imagines, might not have come to the feds’ attention for quite some time if CHS execs had held their fire. (Look how far Columbia/HCA was able to go, and for how long, before the s–t hit the fan. Just ask our friend Rick Scott — oops, I mean Governor Scott.)

* Law firms like this one are sniffing the entrails to see if they can gin up a shareholder suit out of this somehow. And why not? Hey, shareholder suits are to the moneyed class what slip-and-falls are for the down-and-out — they file for the money, but being righteously justified is a nice payoff too.

* Suits and counter suits, federal subpoenas and shareholder angst aren’t good medicine for either players’ stock, which has been skidding in the wake of all of these skirmishes.

Hey, what ever happened to good old-fashioned tear-their-throat-out competition within markets?  Seems to me the play these days is to tighten up local health system networks rather than try for an outmoded “economies of scale” merger, anyway. But that’s just me. You?

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