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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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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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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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April 28, 2011

There’s no good excuse for stifling physician-owned hospitals

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When health reform was passed, part of the law forbid physician-owned hospitals from expanding or undertaking new construction.  The rules affected roughly 300 hospitals in 34 states, offering services ranging from acute care, women’s, rehabilitation and psychiatric care.

You won’t be surprised to hear that the trade group representing such hospitals, Physician Hospitals of America, continues to fight for removal of this restriction, found in section 6001 of the Patient Protection and Affordable Care Act.

I’ve got to say I’m with the PHA on this one. Why on earth must we block the development of physician-owned hospitals?  Yes, there have been a couple of horror stories where specialty physician-owned hospitals –lacking an emergency department — failed to address patient needs.

But from where I sit, those stories are no more common, proportionately, than they are amongst traditional acute care hospitals. Besides, if the main concern legislators had was emergency department care, they could have mandated that all physician-owned facilities have one.

No, it’s clear that physician-owned hospitals make traditionally-structured facilities nervous, and that they’ve worked hard to put them in their place.  Other than protecting the profit stream for themselves, however, I don’t think they have a leg to stand on.

 

 

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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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