Healthcare Triage News: That Booze News? Look Past the Headlines and Don’t Panic
The recent alcohol study made a lot of breathless headlines along the lines of “no amount of alcohol is safe!” Well, it turns out, there’s some value to looking at the nuances of the study. Aaron Carroll takes a look at the details. Soak it in.
Dive Brief:
California-based Verity Health System filed for Chapter 11 bankruptcy late last week. The nonprofit operator blamed ongoing losses and debt, along with aging infrastructure and an inability to renegotiate contracts, for its tenuous operating position. The system secured debtor financing of up to $185 million, and plans to keep its six hospitals open during the bankruptcy proceedings.
The Friday filing follows a statement in July noting that Verity was exploring different avenues to pull the system out of its slump, including the potential sale of some or all of its hospitals and other facilities.
Last year, billionaire investor and entrepreneur Patrick Soon-Shiong purchased Integrity Healthcare, the company that manages Verity, with the intent to revitalize the system and upgrade its technology while continuing to serve lower-income populations. Yet, “after years of investment to assist in improving cash flow and operations, Verity’s losses continue to amount to approximately $175 million annually on a cash flow basis,” and more than $1 billion overall, Verity CEO Richard Adcock said in the company’s bankruptcy announcement.
Dive Insight:
The company has been struggling for a while and can “no longer swim against the tide” of its operating reality, which includes a legacy burden of more than a billion dollars of bond debt and unfunded pension liabilities, an inability to renegotiate burdensome contracts, the continuing need for significant capital expenditures for seismic obligations and aging infrastructure,” Adcock said.
Verity’s problems come in an caustic environment for U.S. hospitals, many of which are suffering from costs that are rising faster than revenues. Credit rating agency Moody’s warned just last week that the nonprofit provider industry was on an “unsustainable path.”
A recent MorganStanley analysis found that about 18% of American hospitals were at risk of closure or performing weakly, a high figure in historical context. Only 2.5% of hospitals closed over the past five years, yet Moody’s estimated 8% of the 6,000 hospitals studied were apt to close their doors. Additionally, more nonprofit hospitals suffered credit downgrades in 2017, and Moody’s revised its outlook for the hospital sector from stable to negative.
But it’s not only industry pressure that’s causing Verity to fold. Another burden is the management of Soon-Shiong, who’s been hit with backlash for the way he runs his businesses and methods.
The South Africa-born surgeon and investor purchased the hospitals in July 2017, following a 2015 acquisition by New York hedge fund BlueMountain Capital Management. The system had struggled financially for years and needed the influx of cash both buys gave it.
“There’s going to be a huge capital need,” Soon-Shiong said at the time. “There’s been little investment because these hospitals could not afford it.” He said he planned to bring in new equipment and technology, along with expanded oncology, transplant, cardiology and orthopaedic services. Through his company NantWorks, Soon-Shiong funneled more than $300 million into the system within the year, but Verity’s losses continued to mount.
At the time of the acquisition, Soon-Shiong, who has founded and sold multiple biotech companies and now owns a stake in the Los Angeles Times and L.A. Lakers, heralded the charity work done by the hospital, but said the restructuring was “inevitable” due to years of underinvestment.
Touted plans to revitalize the flagging hospital system didn’t pan out, and some of Soon-Shiong’s critics say it was intentional.
“It has become crystal clear by the bankruptcy announcement that he virtually had no intention of keeping these hospitals open and to continue to serve the poor,” San Mateo County Supervisor David Canepa told news outlets following the announcement.
Labor unions are similarly displeased. SEIU-UHW representative David Miller reportedly said “there were other paths out of this” and that it’s a “very destructive approach,” as the bankruptcy filing could put employee pensions at risk.
But in the press release, Adcock said the bankruptcy filing was the best thing for all involved, and told Reuters that the 1,650-bed, 6,000-employee company has already received interest from more than 100 parties. Potential suitors include large national operators. Any sales will now be supervised by the bankruptcy court and approved by regulators
https://www.cnbc.com/2018/01/18/hospitals-plan-to-create-their-own-generic-drug-company.html?__source=sharebar|facebook&par=sharebar
Several hundred hospitals that plan to form their own generic drug company are eyeing making “about 20” pharmaceutical products whose existing versions either cost too much or are in short supply for no good reason, the CEO of one of those hospitals said Thursday.
Dr. Marc Harrison, chief of Utah-based Intermountain Healthcare, during an interview on CNBC’s “Closing Bell,” would not identify the existing drugs that the new company wants to replicate on its own, or have done on a contract basis.
Harrison said, “We think it will be early ’19 before our first drugs come to market.”
And he said the group also is hoping to possibly get additional financing from “philanthropists who are sick of this activity” by drug companies that is “creating shortages and driving prices in an irrational fashion.”
Intermountain is leading the collaboration with several other large hospital groups, Ascension, SSM Health and Trinity Health, in consultation with the U.S. Department of Veterans Affairs, to form a not-for-profit drug company. The groups together represent more than 450 U.S. hospitals.
Harrison said on “Closing Bell” that the project was spurred by feedback by patients who at times were saying “they can’t get ahold of drugs or they’re way too expensive.”
“We’re experiencing that in the hospital as well, and we’ve been thinking about this for a couple of years now,” Harrison said.
“We worked hard to come up with a plan … now is the time to get to work.”
He said that one of the big problems in the pharmaceuticals market today is that some “individuals and groups have gone ahead and gotten sole control over a given drug.”
“They create shortages and drive the prices up, and our patients can’t get ahold of the drugs we need,” Harrison said.
“We as a team will do the opposite,” he said. “We’ll make sure drugs are available in good quantities and reasonable prices.”
Harrison said the members of the consortium will contribute funds to finance the new drug company.
“Over time, the business plan says we’ll get our money back,” he said.
Harrison also said that he expects the new firm to provide just a small fraction of pharmaceutical products that the hospitals have to purchase.
“We expect that the vast majority of drugs we buy will still come in the same channels we have always gotten them,” he said. “We think most pharmacies are doing a great job and drug manufacturers are doing a great job.”
“We’re only interested in those organizations that are creating shortages and driving drug prices up in an irrational fashion,” Harrison said.
Bon Secours Health System and Mercy Health finalized their merger on Wednesday, creating the fifth largest Catholic health system in the U.S.
The new leadership team, to be led by President and CEO John M. Starcher Jr., former chief of Mercy, took effect immediately upon the announcement, officials said. The merger comes about six months after the organizations first announced plans to integrate.
Officials said the combined nonprofit health system will provide nearly $640 million annually in charity care and community benefit programs.
In February, it was first announced Bon Secours—a not-for-profit Catholic health system with operations in Maryland, Virginia, South Carolina, Kentucky, Florida and New York—intended to merge with Mercy Health, a Catholic health ministry in Ohio and Kentucky.
The two organizations represented $8 billion in net operating revenue and $293 million in operating income, according to an announcement about the merger. The combined systems will include 57,000 associates and more than 2,100 employed physicians and advanced practice clinicians.
The new system will have more than 10 million patient encounters across seven states, with 43 hospitals, more than 1,000 care sites and more than 50 home health agencies, hospice agencies, and skilled nursing and assisted living facilities.
Officials said they were able to finalize the deal so quickly because of “early alignment of similar cultures and grounding in mission-based” care. They also said no outside resources were used to organize the agreement between the two organizations, but Deloitte Consulting was hired to assist with operational integration.
Leaders of the newly formed health system include Chief Operating Officer Brian Smith, Chief Clinical Officer Wael Haidar and Chief Financial Officer Debbie Bloomfield.
The C-suite also includes Chief Administrative Officer Mark Nantz, Chief Enterprise Risk Officer Jeff Oak, Chief Legal Officer Michael Bezney, Chief Community Health Officer Sam Ross and Chief Sponsorship and Mission Officer Sr. Ann Lutz.
The merger is part of ongoing consolidation across the industry including a planned merger between Dignity Health and Catholic Health Initiatives as well as a merger between Partners HealthCare in Massachusetts and Care New England Health System in Rhode Island.
Disagreement about the role of markets lies at the root of many of our fiercest health care controversies. One side believes that unleashing market forces will rescue our health care system. From this viewpoint, government involvement is inherently destructive, except in rare circumstances. Many opponents of the Affordable Care Act share this opinion.
The other side believes that health care markets are deeply flawed and that government must play a major role in achieving a higher-performing health system. These people point out that markets make no claim to ensuring equity in the use of health care resources, only improved efficiency. Supporters of the ACA tend to hold this view.
Given this fundamental divide, it’s worth considering the conditions underlying the effective functioning of market economies, whether those conditions currently prevail in health care and, if not, what changes would be required to establish them.
Students learn in Economics 101 that several assumptions must hold for free markets to achieve their potential:
Practically speaking, these conditions rarely exist in pure form anywhere in our economy. In the case of health care, there are a variety of different types of markets. For example, employers purchase insurance, large hospital systems purchase medical supplies, and individuals purchase insurance plans. These markets may embody these conditions to varying degrees, but the most basic health care markets, in which consumers or patients directly buy health care services, depart from this ideal dramatically, as the following examples illustrate.
To begin with, health care consumers not only lack perfect information, but often any information at all. At present, prices in the U.S. health care market are virtually unknowable. Quality data are scant, imperfect, and often confound even experts. Further, medicine is a complex science-based service: even highly trained health professionals struggle to stay current. As a result of social media and the internet, consumers are better informed than ever before, but most depend on advice from health professionals to make informed health care purchases. This kind of imperfect information may help explain why consumers in high-deductible health plans are equally likely to reduce their use of high-value or low-value health care services. They are just as likely to forgo their blood pressure treatments as unnecessary back surgery.
Health care consumers also face unusual challenges to making rational decisions. In medicine there is a saying that any doctor who treats herself has a fool for a patient. Even the most informed individual can have difficulty acting rationally when confronting the emotional turmoil that accompanies their own illness or that of a loved one. Beyond this, there are clear situations where patients’ cognitive abilities are compromised, for example, in cases of stroke, dementia, intoxication, loss of consciousness, delirium, or mental illness.
Competent patients have the inherent right to make their own medical decisions, and many do so wisely and well. But market advocates also must recognize the special obstacles to rational decision-making that face health care consumers.
Consolidation among insurers and health care organizations has radically reduced the number of providers selling health care and health insurance in many U.S. health care markets. Recent work shows that providers in 90 percent of U.S. markets are highly or “super” concentrated.
This consolidation and resulting lack of competition has enabled individual providers to charge excessive prices in many markets. Similarly, government-granted patents create monopolies that enable drug manufacturers to set astounding prices for new drugs and raise them almost at will.
These and other departures from the conditions necessary for effective market functioning suggest the dangers of uncritical reliance on free markets to improve our health care system. At a minimum, advocates of market solutions would be wise to consider three interventions that could increase the probability that markets will function as desired.
Given our desperate need for health care reform, the appeal of market solutions is understandable. But it is naïve to assume that they will work in health care just like they do in other sectors. It is time for a frank, open, and nonideological discussion of the problems markets can address in health care and how we can create conditions that will enable markets to function as intended.
HENRY KOTULA 