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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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October 17, 2011

Washington Hospitals Sue Over Cruel and Unusual Medicaid ED Visit Limits

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I’ve heard of some draconian budget-cutting measures, but the following, proposed by officials in Washington state, just about takes the cake. Good to see that the state’s hospitals, along with its doctors, are rightfully attempting to slam the door shut onMedicaid planners’ obscene antics.

A new state plan in Washington proposes to limit payment for Medicaid patients’ emergency department visits, on the extremely dubious assumption that such patients can self-diagnose whether they ought to be there in the first place. Not only is this program unlikely to save any real money (unless you count the money saved by not having to care for dead beneficiaries), it assumes that emergency department staffers are adding useless layers of expertise so often that their services should be choked back dramatically. The truth is, there’s boatloads of evidence that the poor aren’t the biggest users of ED services for non-emergent conditions, but I suppose these state penny-pinches wouldn’t be bothered by the facts.

Get this. The state’s Medicaid folks want to cover only three “non-emergency” visits per year — enough of a disincentive to prevent people from going in the first place — but it doesn’t end there. The plan would classify more than  700 diagnoses as “non-emergent,” including (wait for it) chest pain, abdominal pain and breathing problems.  So, I take it that pregnant women, infants, children, the disabled and the mentally ill are supposed to decide with a home thermometer and a bit of prayer whether they’re actually in danger?

According to the folks suing the state, which include the state medical association, hospital association and chapter of the American College of Emergency Physicians, this program not only endangers patients, but also has thrown a cloud of smoke around payment issues. Specifically, the plaintiffs argue that the state is threatening patients that they’ll be billed directly, while EMTALA and state charity care laws prohibit patient billing.

Folks, if I were a hospital executive, I’d be suing to avoid legal and political messes that will arise here, sure. But I’d be sick to my gut about what such rules would mean to real people, too. I truly hope that’s what the suing hospitals have in mind.

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September 19, 2011

$1M+ pay for non-profit CEOs still an embarassment

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When a not for-profit hospital recruits a CEO, they certainly need to bear in mind the salaries their candidate might be offered by a for-profit rivals, as well as their not for-profit competitors. However, does that justify a million or more dollars a year in compensation, even when the not for-profit is losing money or laying off staff?

This question has been embarrassing U.S. non-profits for quite some time, but of course, there’s no simple answer. The non-profits continue to argue that they can’t attract the talent they need without handing out top-dollar comp packages. Critics, meanwhile, say there’s no excuse for paying Joe CEO millions if the hospital is supposed to be dedicated to the less-fortunate.

To date, non-profits have been winning the battle, as megabucks salaries are still on the table in most markets. (Apparently, the critics haven’t had the juice to force industry change on the non-profit giants.) Still, regional controversies over public and non-profit hosp ital CEO pay flare up from time to time.

In Atlanta, for example, the Atlanta Journal-Constitution recently shined a light on the hefty compensation packages awarded to CEOs of several non-profit facilities.

As the paper notes, twelve of the 15 acute care hospital systems in metro Atlanta are exempt from paying any taxes on more than $2.6 billion worth of property and equipment. Unlike their for-profit brethren, the non-profit systems are spared millions in sales taxes and income taxes.

According to the AJC, at least five CEOs of non-profit hospitals or health systems made more than $1 million in the fiscal year ending in 2009.  Take Edward Bonn of Southern Regional Health System, which operates Southern Regional Medical Center and two affiliated facilities. Not only did Bonn make $2,610,175 in 2009, he got $421,822 plus $2.2 million from a retirement plan when he left the plan that year.

When CEOs have salaries rivaling corporate executives, they certainly don’t come across as being charitable, says a former state Department of community Health commissioner.  Says Russ Toal, now a professor of public health at Georgia Southern University: “I think, it makes a statement about what their priorities are.”

The problem isn’t limited to Georgia, of course. In Texas, for example, state Sen. Rodney Ellis is pushing for tougher enforcement of the state charity care requirements for not-for-profits hospitals. “If you get a tax exemption, you ought to be able to justify why,” Ellis told the AJC.

But big cities with large underserved populations (and financially shaky public institutions like Atlanta’s Grady Memorial, the nation’s 5th largest public hospital) will continue to get the most press. When a struggling metro can hardly care for the poorest and sickest patients, those big, bad salaries look even worse.

Let’s face it, though:  while non-profit CEOs’ fat paychecks will continue to get slammed for the foreseeable future, nobody’s ready to slap strict limits on those paychecks. So if you’re bothered by reading about non-profit hospital CEOs taking home $1 million plus a year, you’d probably better turn to the sports pages.

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September 12, 2011

Hybrid Suites Bring Cutting-Edge Cardiac Care to Smaller ORs

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These days, cardiac surgeons can conduct minimally-invasive procedures using robots, advanced imaging and videoconferencing equipment. Unfortunately, however, these new toys take up a lot of real estate.

What’s more, if the minimally-invasive approach doesn’t work, patients may  have to transferred rapidly to traditional surgery centers, possibly risking complications in the process.

How can hospitals take advantage of these new minimally-invasive technologies if their operating rooms are squeezed for space? Hybrid ORs are an expensive — but arguably lifesaving –- solution.

While less than 100 hospitals have installed hybrid ORs to date, the concept is becoming popular. Not only do they offer cardiologists a wide range of options, they poise hospitals to support a new array of heart procedures recently approved by the FDA.

Hybrid ORs combine traditional open-heart surgery equipment with cutting edge tools such as robotic surgery equipment and high-tech imaging systems. They allow surgeons to conduct minimally-invasive cardiac procedures  at one moment, then switch to another solution in moments, on the spot, if the situation calls for a change of strategy.

According to one consultant, hybrid ORs are best built in operating rooms which offer at least 800 square feet of space and whose ceilings at at least 10 feet high. The room will need to integrate the use of advanced visualization software which draws on MRI or CT data to create 3-D heart images.

Not only do hybrid rooms allow greater access to high-tech surgical options, they also support a wider range of specialists than traditional ORs do, including interventional cardiologists, electrophysiologists, neurosurgeons, structural heart specialists and vascular surgeons, notes a piece in Diagnostic and Interventional Cardiology.

According to one estimate, the hybrid rooms can cost anywhere from $1.5 million to $9 million, if recent installations are any guide. But they’re worth it if they improve a patient’s recovery time and reduce complications, gains that supporters say are quite feasible.

Not only that, hybrid ORs can still be valuable even when specialized cardiac procedures aren’t involved. For example, hybrid ORs can still be used as a cath lab, electrophysiology lab or standard operating room.

While this solution will be too expensive for many hospitals today, my bet is that it’s going to become a standard approach over time. If there’s a need, I’m pretty confident vendors will step up and make the hybrid suite available to just about anyone.

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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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August 22, 2011

Another safety-net hospital on life support: Miami’s Jackson Memorial on its last legs?

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You know, no matter many how many times  you watch it happen, it’s always an ugly spectacle.

When a safety-net hospital goes under because, well, being a safety net costs a ton, the poor are left with less than nothing. Worse, along the way, the hospital often slips from being an inelegant but functional resource to a nasty, scary place you wouldn’t send your worst enemy.

I was truly sorry to read that Jackson Memorial Hospital of Miami — a sprawling, 1,550-bed campus which still houses outstanding programs like the Bascom Palmer Eye Institute and the Ryder Trauma Center — seems to be moving rapidly from quick to dead.

The giant public entity, which serves as the primary teaching hospital for the University of Miami Miller School of Medicine, has faced plenty of controversy of its time, including accusations that some of its poor clientele were allowed to die for lack of followup care. That, of course, is an extremely serious matter.

But for most of its life, Jackson did at least offer the roughly 650,000 uninsured of Miami-Dade county an alternative to going into hock in the pricey EDs run by its competitors. It went through a colorful string of outspoken leaders, none of which seemed to share the same vision for the place, faced lawsuits and immigration issues and politics galore, but continued to stay afloat.

Those days, it seems, are over. According to a recent Miami Herald article, the Jackson Health System lost $337 million over two years, despite taking in $350 million a year from sales and property tax revenue alone.

This week, the system announced that it was hiring new leaders to step into the top administrative roles at JHS.  But in a system where its own employees refuse to get their care on site, I get the feeling that “changing deck chairs on the Titanic” covers things. What a shame.

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August 21, 2011

Illinois hospitals shocked, I tell you, shocked at losing non-profit status

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For years now, legislators have been threatening and posturing over the issue of just how much charity care a non-profit hospital needs to provide to maintain their tax-free status.

In prior years, Sen. Chuck Grassley (R-Iowa) struck fear in the hearts of hospital execs when he toyed with pushing through rules demanding that non-profits dedicate 5 percent of revenues to charity care. To my knowledge, the issue isn’t in play on the Hill right now, though it isn’t dead either.

Since angry comments by Grassley haven’t been making headlines for some time, charity hospitals must have that they were pretty much in in the clear for the moment.

Imagine the dismay a trio of Illinois non-profits must have felt with the state Department of Revenue yanked their property tax exemptions earlier this week.

The ruling, which affects Prentice Women’s at Northwestern Memorial Hospital in Chicago; Edward Hospital in Naperville and Decatur Memorial Hospital, found that the properties weren’t being used for charitable purposes. If upheld, the ruling could cost the hospitals millions in property taxes.

The decision follows another slam in March 2010, when the state Supreme Court upheld a decision by the Department of Revenue rescinding the non-profit status of a hospital which spent 0.7 percent on charity care.

According to hospital records,  Northwestern spent 1.85 percent, Edward 1.04 percent and Decature 0.96 percent on charity care.

You know, if you’d been paying attention, guys, the pattern is pretty clear. Spend much below 2 percent of revenues on charity care,  you have a target on your head. Maybe you won’t get targeted now, but have no doubt that next time a politician gets hot and bothered over charity care your name will pop up.

And if you think you can beat the rap, consider the Provena Covenant case. The revenue department killed hospital’s property tax exemption in 2004, after noting that it had provide charity care to less than one-half of 1 percent of patients served in 2002. Come on, now.  Even my eight year old could have seen that one coming.

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June 4, 2011

Hospital EMR actually works

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As some of you may know — if you read the EMRandEHR.com blog — I recently had an experience which set a fine example as to how much health IT can help hospitals when deployed well and supported by smart training. In short, a family member just had an effective, focused trip through a hugely busy ED, largely due, I believe to the technology it uses.

The hospital has deployed the Picis electronic document management system, along, seemingly, with traffic control modules, to strip much of the fat away from a patient’s trip through the ED.

With staff clicking away happily, patients moving in and out promptly and physicians having easy access to patient histories, med lists test results and more in one easy-to-access place, I saw a pretty neat ballet in place.

The truth is, however, that this seems to be an exception rather than the rule. Far more  hospitals I’ve visited seem to have taken a heavy-handed, training-light approach to introducing their EMR.  (One facility had installed screensavers on staff desktops that read “Cerner is coming.” I can’t imagine this gave any employees a big thrill, or helped them get prepared.)

Actually, when I passed through the same facility later, I saw flustered-looking nurses trying desperately to get simple transactions done, forming an insecure cluster together as they tried to help a colleague enter some observations. Thaaaat didn’t give me a nice, secure feeling about the hospital’s odds of making clinical mistakes.

I hate to say this, but I think the odds of a hospital IT department changing its culture enough to truly support EMR users is pretty darned small. My guess is that it will take several years before hospitals have a clue as to how to handle the big, huge change management process their EMR produces. Good luck, guys.

 

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May 2, 2011

Takes from Twitter: Intriguing hospital tidbits

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Here’s some hospital updates from the ever-flowing well of Twitterchat.  I’m not endorsing the tweeters in question, but I was intrigued by these tidbits:

@EFS_Consultants Medical Wonder: Meet The CEO Who Rebuilt A Crumbling California Hospital http://ow.ly/1csdwz

@Stanford: HP pledges $25 million to help Lucile Packard Children’s Hospital carry out a major expansion and conduct new research: http://bit.ly/iWDh0K

@nicolebrown25  Lawmakers weigh report on New Orleans hospital: The state has committed $300 million in construction money http://bit.ly/ii0YCC

@anesthesiology2 10 Recent Stark, False Claims and Kickback Lawsuits Involving Hospitals http://bit.ly/kCyODY

@TheAuditGroup Four Hospital Action Items for 2011 http://t.co/qB1lRvs

@Voicemed: 12 Best Practices for Making Hospitals Great Places to Work http://t.co/qFoKPKu

@HospitalLayoffs #Hospital #Jobs Hospital Mass Layoffs Dropped Slightly in First Quarter http://ow.ly/1crPlh

 

Gotmore info to share?  Tweet me at @katherinerourke and I’ll take a look.

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