Author Archives: henrykotula

University of California, UCSF reach agreement on purchase of Dignity hospitals

Posted on by • Posted in Academic Medical Center, Antitrust, Community Benefit, Competition, Health System, Hospital, Hospital Industry, Market Consolidation, Market Share, Mergers & Acquisitions • Leave a comment
https://www.healthcarefinancenews.com/news/university-california-ucsf-reach-agreement-purchase-dignity-hospitals?leadId=1234536&mkt_tok=NDIwLVlOQS0yOTIAAAGUNzfRvCK3PpifvX0crE6K7-EDaVSV0azoB2G1mb6mkYaePtwmTYw3nks1n5bZcNB43_ZIuJI6_bLFbVxzorF-ULOoLUWyWxTCLdhwtJ6snQg

The entities agreed to maintain services, provide capital investments and protect competition in the healthcare market.

California Attorney General Rob Bonta announced a settlement agreement this week reached by The Regents of the University of California and UCSF Health regarding their $100 million purchase of Dignity Health’s two San Francisco hospitals, St. Mary’s Medical Center (SMMC) and Saint Francis Memorial Hospital (SFMH).

Dignity Health is a nonprofit public benefit corporation that owns and operates SFMH, a 259-licensed-bed general acute care hospital, and SMMC, a 240-licensed-bed general acute care hospital. Both hospitals serve a diverse community, including a large number of elderly, unhoused and publicly insured patients who may rely on Medi-Cal, Medicare or charity care to access essential health services.

Under the settlement agreement approved by the San Francisco Superior Court, The Regents and UCSF Health commit to maintain services for the unhoused and Medi-Cal and Medicare beneficiaries, provide $430 million in capital investments, protect competition in the healthcare market and safeguard the affordability of and access to services for residents of San Francisco.

WHAT’S THE IMPACT

The Regents and UCSF Health agreed to a number of conditions over the next 10 years, including operating and maintaining SFMH and SMMC as licensed general acute care hospitals with the same types and levels of services, and associated staffing. They also agreed to continue participating in Medi-Cal and Medicare.

Also agreed upon was providing an annual amount of charity care at SFMH equal to or greater than $6.5 million and at SMMC equal to or greater than $3.5 million, with an annual increase of 2.4% at both hospitals.

The two entities agreed to provide an annual amount of community benefit spending for community healthcare needs at SFMH equal to or greater than $1.6 million and at SMMC equal to or greater than $10.7 million, to increase yearly by 2.4% at both hospitals.

UCSF Health and The Regents also pledged to invest at least $430 million, including at least $80 million for electronic medical record systems and related technologies, and at least $350 million in deferred maintenance and physical infrastructure improvements at both hospitals.

In addition to those agreements, they also agreed to a number of conditions over a seven-year period meant to maintain competition in the healthcare market, in part by maintaining contracts with the City and County of San Francisco for services at SFMH and SMMC unless terminated for cause.

The Regents and UCSF Health agreed to not condition medical staff privileges or contracts on the employment, contracting, affiliation, or appointment status of a physician with UCSF Health or any affiliate; not impose any requirement on any member of the hospitals’ medical staff, as a condition of either their medical staff membership or privileges that restricts them from contracting with providers other than UC Health; and negotiate all payer contracts for the hospitals separately and independently from payer contracts for UCSF Health, and maintain an information firewall between the two negotiating teams.

Finally, the two entities agreed to require, for five years, a price growth cap that limits the maximum that the hospitals may charge a payer from year to year upon renegotiation of contracts.

THE LARGER TREND

Mergers and acquisitions are expected to rebound this year after M&A activity fell to its lowest level in 10 years globally in 2023, according to Reuters.

Deal making last year was weighed down by high interest rates, economic uncertainty and a regulatory scrutiny, with all but the last factor slowly abating for renewed confidence.

Hospital M&A turns to strategy over scale

Posted on by • Posted in Health System, Hospital, Hospital Industry, Market Consolidation, Market Power, Market Trends, Mergers & Acquisitions, Strategy • Leave a comment
https://www.beckershospitalreview.com/finance/hospital-m-a-turns-to-strategy-over-scale.html?origin=CFOE&utm_source=CFOE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

Health systems put an emphasis on strategy over scale in hospital transactions announced in the second quarter of 2024, according to a July 9 report from Kaufman Hall.

“As pressure intensifies to transform the current healthcare system to bring greater value to patients and communities, the impetus for M&A activity will rely less on seeking capital in traditional ways and instead move toward new, strategic partnership models,” Anu Singh, managing director and mergers & acquisitions practice leader with Kaufman Hall, said in a July 9 news release. “Many of these M&A transactions enable hospitals to sustain and enhance access to care, launch new services, or strengthen and stabilize systems, which allows for future growth.”

Five things to know:

1. There were 11 hospital transactions announced in the second quarter of 2024, below historic Q2 averages. There were 20 hospital transactions announced in the second quarter of 2023.

2. Despite fewer overall deals, total transacted revenue in the quarter remained near historic highs at $10.8 billion.

3. Three of the 11 announced transactions involved religiously affiliated acquirers. Two involved academic or university-affiliated acquirers. The other six involved not-for-profit health system acquirers.

4. For the first time since Kaufman Hall tracked this data, there were no for-profit health system acquirers in the quarter. Kaufman Hall said in the report that this continues a trend of low for-profit buy-side activity. In the first quarter of 2024, just one of the 20 announced transactions involved a for-profit acquirer.

5. The emphasis on strategy over scale “characterized the most significant transactions of Q2 2024 and built upon trends we have been commenting on in recent past reports,” Kaufman Hall said.

Those trends are:

  • Pursuit of intellectual capital and new or complementary capabilities through a strategic partnership, often involving an innovative partnership model.
  • Focus of large regional or national systems on market reorganization and strategic realignment of their system portfolios.
  • The development of networks involving academic health systems and community hospital partners to sustain and enhance access to care.

Read the full report here.

The Healthcare Workforce Crossroad: Incrementalism or Transformation

Posted on by • Posted in Artificial Intelligence, Employee Burnout, Labor Spend Management, Modernization, Operating Expense Reduction, Talent Management, Workforce Issues, Workforce Modernization, Workforce Strategy • Leave a comment
The Healthcare Workforce Crossroad: Incrementalism or Transformation

Congress returns from its July 4 break today and its focus will be on the President: will he resign or tough it out through the election in 120 days. But not everyone is paying attention to this DC drama.  

In fact, most are disgusted with the performance of the political system and looking for something better. Per Gallup, trust and confidence in the U.S. Congress is at an all-time low.

The same is true of the healthcare system:

69% think it’s fundamentally flawed and in need of systemic change vs. 7% who think otherwise (Keckley Poll). And 60% think it puts its profits above all else, laying the blame at all its major players—hospitals, insurers, physician, drug companies and their army of advisors and suppliers.

These feelings are strongly shared by its workforce, especially the caregivers and support personnel who service patient in hospital, clinic and long-term care facilities. Their ranks are growing, but their morale is sinking.

Career satisfaction among clinical professionals (nurses, physicians, dentists, counselors) is at all time low and burnout is at an all-time high.

Last Friday, the Bureau of Labor issued its June 2024 Jobs report. To no one’s surprise, job growth was steady (+206,000 for the month) –slightly ahead of its 3-month average (177,000) despite a stubborn inflation rate that’s hovered around 3.3% for 15 months. Healthcare providers accounted for 49,000 of those jobs–the biggest non-government industry employer.

But buried in the detail is a troubling finding: for hospital employment (NAICS 6221.3): productivity was up 5.9%, unit labor costs for the month were down 1.1% and hourly wages grew 4.8%–higher than other healthcare sectors.

For the 4.7 million rank and file directly employed in U.S. hospitals, these productivity gains are interpreted as harder work for less pay.  Their wages have not kept pace with their performance improvements while executive pay seems unbridled.

Next weekend, the American Hospital Association will host its annual Leadership Summit in San Diego: 8 themes are its focus: 

Building a More Flexible and Sustainable Workforce is among them. That’s appropriate and it’s urgent.

An optimistic view is that emergent technologies and AI will de-lever hospitals from their unmanageable labor cost spiral. Chief Human Resource Officers doubt it. Energizing and incentivizing technology-enabled self-care, expanding scope of practice opportunities for mid-level professionals and moving services out of hospitals are acknowledged keys, but guilds that protect licensing and professional training push back.

By contrast, the application of artificial intelligence to routine administrative tasks is more promising: reducing indirect costs (overhead) that accounts for a third of total spending is the biggest near-term opportunity and a welcome focus to payers and consumers.

Thus, most organizations advance workforce changes cautiously. That’s the first problem.

The second problem is this:

lack of a national healthcare workforce modernization strategy to secure, prepare and equip the health system to effectively perform.  Section V of the Affordable Care Act (March 2010) authorized a national workforce commission to modernize the caregiver workforce. Due to funding, it was never implemented. It’s needed today more than ever. The roles of incentives, technologies, AI, data and clinical performance measurement were not considered in the workforce’ ACA charter: Today, they’re vital.

Transformational changes in how the healthcare workforce is composed, evaluated and funded needs fresh thinking and boldness. It must include input from new players and disavow sacred cows. It includes each organization’s stewardship and a national spotlight on modernization.

It’s easier to talk about healthcare’s workforce issues but It’s harder to fix them. That’s why incrementalism is the rule and transformational change just noise.

PS: In doing research for this report, I found wide variance in definitions and counts for the workforce. It may be as high as 24 million, and that does not include millions of unpaid caregivers. All the more reason to urgently address its modernization.

The Impact of the Great Debate, SCOTUS Decisions on Healthcare: Four Key Takeaways

Posted on by • Posted in 2024 Election Issues, Health Policy, Healthcare Reform, Supreme Court • Leave a comment
The Impact of the Great Debate, SCOTUS Decisions on Healthcare: Four Key Takeaways

In 126 days, U.S. voters will settle Campaign 2024 choosing the winners for 435 House seats, 34 Senate seats, 13 Governors and the White House. When final votes are counted, the last week of June, 2024 will be seen as the tipping point when much about politics and policy was re-set as the result of two events:

1-The ‘Great Debate’:

Thursday’s standoff between President Biden and former President Trump drew 51.3 million viewers across 17 networks that carried it. That’s well below previous head-to-head debate match-ups i.e. 84 million for Clinton-Trump in 2016, 73 million for Trump and Biden in 2020. Perhaps more telling, only 3.9 million of these were adults 18-34– 7.6% of debate viewers but 22.9% of U.S. population.

While pundits debated the fitness of the President to continue and speculated about alternative candidates over the weekend, the majority of Americans paid no attention—especially young adults. They think both candidates are old.

In 2020, 57% of 18–34-year-olds voted for a Presidential candidate vs. 69% of 35–64-year-olds and 74% of voters 65+.

Polls show young adults think the political system is fundamentally flawed and partisanship harmful to policies that advance the well-being of the population. They also show their declining trust and confidence in America’s institutions—the press, big business, Congress, organized religion and the medical system.

Young adults get their information from social media and friends and they’re tuning out spin in politics.

2-Supreme Court decisions impacting healthcare: 

As is customary for the high court, many of its rulings are handed down in the last week of June before it adjourns for the summer. Only one case remains in limbo: Presidential immunity with a decision expected today. Of the 61 cases SCOTUS has heard in its 2023-2024 term, these four decisions are the most significant to the health industry:

  • Power of federal agencies (Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Dept. of Commerce): By a vote of 6-3, SCOTUS ruled that judges no longer have to defer to agency officials when interpreting ambiguous federal statutes about the environment, the workplace, public health and other aspects of American life overturning a 40-year-old legal precedent known as “Chevron deference.” The court’s decision will significantly curtail the power federal agencies have to regulate thousands of private companies, products, industries and the environment.
  • Emergency room abortions (Idaho v. U.S): SCOTUS ruled 6-3 that hospitals in Idaho that receive federal fundsmust allow emergency abortion care to stabilize patients — even though the state strictly bans the procedure.
  • Opioid lawsuit settlement (Harrington v. Purdue Pharma): By a vote of 5-4, the justices blocked a controversialPurdue Pharma bankruptcy plan that would have provided billions of dollars to address the nation’s opioid crisis in exchange for protecting the family that owns the company from future lawsuits. The majority found that the plan was invalid because all the affected parties had not been consulted on the deal
  • Abortion medication restrictions (FDA v. Alliance for Hippocratic Medicine): By a vote of 9-0, the justices maintained broad access to mifepristone, unanimously reversing a lower court decision that would have made the widely used abortion medication more difficult to obtain. The decision was not on the substance of the case, but a procedural ruling that the challengers did not have legal grounds to bring their lawsuit.

Based on these events last week, healthcare organizations and their trade groups making plans for 2025 and beyond should consider:

  1. Young adults. Out of Sight, Out of Mind: Polling data shows young adults think the health system is broken and alternatives worth considering. Affordability, equitable access and price transparency matter to them. Their finances are stretched as inflation (housing, energy, food et al), their medical debt prevalent and mounting and their employers are cutting their health benefits and forcing them to assume more out-of-pocket responsibility. Hospitals, insurers, physicians and drug companies pay close attention to older working age consumers and seniors. They pay little attention to younger adults, and the reverse is true. But history teaches that social movements originate from disenchanted youth and young adults who feel taken for granted, abused by corporate greed and unheard. Might the healthcare status quo be a target?
  2. The federal administrative state in flux: The ripple effect of the court’s Chevron decision is equivalent to its decision ending Roe v. Wade (June 2022). The latitude afforded key federal agencies i.e. CDC, CMS, OSHA, CMMI, FDA, HRSA et al will be revisited. States will be forced to step in where federal guidance is in jeopardy. Governors and the White House will face more frequent court challenges on their Executive Orders and agencies for their Administrative Actions as government oversight of healthcare evolves. For investors, safe bets will be targets. For hospitals, insurers and physicians, federal advocacy will require recalibration.
  3. The administrative state flux means state legislatures and ballot referenda will play a bigger role in healthcare. States already have enormous responsibilities for healthcare:
  • Medicaid coverage determination
  • Retail Health i.e. services (efficacy), truth in advertising, consumer safety et al
  • Public health services i.e. STDs, disease surveillance, immunization policies et al.
  • Prescription Drug Affordability (in 11 states)
  • Health Insurance Marketplaces
  • Healthcare workforce scope of practice
  • Medical Malpractice and consumer protections
  • Abortion Rights: as a result of the 2022 Supreme Court ruling that Roe v. Wade
  • Behavioral health, substance abuse workforce adequacy, licensure, scope of practice et al.
  • Certificate of Need Programs
  • Use Medical Marijuana (Cannabis) for Therapeutics and/or Recreational Use.
  • Health Insurer Licensing, Network adequacy and Liquidity
  • Quality and patient safety inspection in post-acute & home-based settings.
  • Workers’ compensation eligibility, administration use and funding.
  • Formulary design and expense control.
  • School clinics
  • Prison health
  • And others

The court decisions last week open the door to additional actions by state agencies and elected officials in areas where federal policies are in limbo:

  • Tax exemptions for not-for-profit health systems
  • Hospital consolidation and price transparency,
  • Accessibility of hospital emergency services for abortion,
  • Insurer prior authorization and network adequacy
  • Minimum staffing requirements,
  • Telehealth use and payment
  • Restrictive drug formulary
  • And more.

For every healthcare organization and trade group, vigilance about pending legislation/action at the state level will take on added importance.

  1. The U.S. health system’s future is not a repeat of its past: The week’s events lend to the health industry’s uncertain future. Today, strategic planning in most U.S. healthcare organizations i.e. insurers, hospitals, physician organization, device and drug manufacturers, et al is based on incremental changes forecast 3-5 years out. While consideration is given “transformational” changes 10-15 years out, it is under-studied by planners and rarely included on board agenda dockets. Yet, signal detection of disruptive shifts in financial services, higher education and other industries predict winners and losers. The U.S. system is change-averse because it benefits its self-interests. Outsiders do not share this view. No trade group or organization in healthcare can afford to bet its future on incrementalism in healthcare. These court decisions and the pending election results suggest that healthcare’s future is not a repeat of its past: new rules, new players and new critical success factors are inevitable.

It was a big week for U.S. politics and perhaps a bigger week for healthcare. Stay tuned.

Creating partnerships with high-priority Medicare Advantage plans

Posted on by • Posted in Health System, Hospital, Hospital Industry, Medicare Advantage, Medicare Advantage Denials, Medicare Advantage Prior Authorization, Operating Margin, Strategy • Leave a comment

https://www.kaufmanhall.com/insights/blog/gist-weekly-june-28-2024

A health system CEO recently reached out to me with a specific complaint that’s become a hot-button issue for an increasing number of systems: 

“Medicare Advantage (MA) is no longer a good payer for us. When you factor in all the pre-auths and denials, we’re now getting four points less yield from our MA patients than from our traditional Medicare patients. 

But our market is swinging hard toward MA, and I know the program’s not going anywhere…so how can we rethink our MA business model to make it more profitable?

After more than a decade of rapid growth, MA plans are now running into headwinds that are reducing their margins and creating an even more contentious negotiating environment with providers. However, these heightened competitive pressures could also be seen as an opportunity for provider organizations. 

Rather than treating all of their MA payers as a monolith, a health system or other larger provider organization should be reassessing its MA book of business with the goal of identifying priority MA payers with which to pursue deeper, mutually beneficial partnerships. 

The first step here is usually for a system to undergo a holistic tiering or ranking exercise for all of their MA payers according to factors like market share, contribution margin, value-based incentives, overall relationship dynamic, and projected market growth.

This exercise will identify not only which MA payers may not be high-priority, long-term partners, but also which MA payers are suitable for developing deeper relationships with (e.g., simplifying administrative burden, better rewards for value-based care, creating a joint insurance product). 

If your system is facing challenges with MA and is interested in rethinking its MA portfolio strategy, please don’t hesitate to reach out.

Cone Health to join Kaiser Permanente subsidiary Risant Health

Posted on by • Posted in Kaiser Permanente, Market Consolidation, Market Power, Mergers & Acquisitions, Risant Health, Value Based Care Model, Value-Based Contracting, Value-Based Healthcare • Leave a comment

https://www.kaufmanhall.com/insights/blog/gist-weekly-june-28-2024

Last Friday, Greensboro, NC-based Cone Health announced that it signed a definitive agreement to join Risant Health, Kaiser Permanente’s not-for-profit subsidiary.

Launched in April 2023, Risant aims to acquire and support not-for-profit health systems focused on value-based care.

If the deal is approved by regulators, Cone Health, a $2.8B not-for-profit system with five hospitals and an insurance arm, would join Danville, PA-based Geisinger as Risant’s second member.

As part of the deal, Risant will invest an undisclosed sum into Cone, but Cone will continue to operate independently, retaining its branding, leadership, and ability to work with multiple insurers. The two parties expect to close the deal in the next six months.

The Gist: Like Geisinger, Cone has a strong track record of value-based care, including a 15K-member health plan and a high-performing accountable care organization.

Neither Risant nor Kaiser has operations in North Carolina, a state currently seeing strong population growth. 

Risant has previously said that is looking to acquire four or five more systems in addition to Geisinger, in order to reach a combined revenue target of $30-35B over the next five years.

    A closer look at nursing facility readiness for new staffing minimums

    Posted on by • Posted in American Hospital Association (AHA), Center for Medicare and Medicaid Services (CMS), Long Term Care, Nurse Staffing Ratios, Nursing Home • Leave a comment

    https://www.kaufmanhall.com/insights/blog/gist-weekly-june-28-2024

    In late April, the Centers for Medicare & Medicaid Services (CMS) established new staffing standards for long-term care (LTC) facilities, mandating a minimum of 3.48 hours of nursing care per patient per day, with 33 minutes of that care from a registered nurse, at least one of whom must be always on site. The rule is slated to go into effect in two years for urban nursing homes and three years for rural nursing homes, with some facilities able to apply for hardship exemptions. 

    Although about one in five LTC facilities nationwide currently meet these staffing standards, staffing levels vary greatly by both state and facility ownership profile. In 28 states, fewer than a quarter of LTC facilities meet the new standards, and in eight states fewer than 10% of facilities are already in compliance. 

    Facilities in Texas are the least ready, with only 4% meeting the new staffing minimums. In terms of ownership structure, only 11% of for-profit facilities—which constitute nearly three quarters of all LTC facilities nationwide—have staffing levels that meet the new staffing minimums. 

    The Government Accountability Office projects this new rule will cost LTC facilities $43B over the first ten years, a significant expense at a time when recruiting and retaining nursing talent is already challenging. 

    Citing the risk of mass closures from facilities unable to comply, nursing home trade groups are suing to stop the mandate from going into effect, and there is also a bill advancing in the House that would repeal the staffing ratios. 

    That bill is backed by the American Hospital Association, which fears the mandate “would have serious negative, unintended consequences, not only for nursing home patients and facilities, but the entire health continuum.”

    Appeals court mostly upholds ACA preventive services mandate

    Posted on by • Posted in ACA, District Court of Appeals, Preventative Care • Leave a comment

    https://www.kaufmanhall.com/insights/blog/gist-weekly-june-28-2024

    Last Friday, the Court of Appeals for the Fifth Circuit in New Orleans overturned a district court ruling that had nullified a requirement in the Affordable Care Act (ACA) that private insurers cover certain preventive care services without patient cost-sharing, although a nationwide injunction had kept the mandate in place while the case was appealed.

    In a decision that the judges themselves described as a “mixed bag,” the circuit court ruled that the US Preventive Services Task Force (USPSTF) lacked constitutional authority to issue legally binding recommendations, as its expert volunteer members are not nominated by the president and confirmed by the Senate.

    However, only the plaintiffs—two companies in Texas that argued covering contraceptives, HPV vaccinations, and HIV prevention medicines violated their religious beliefs—have been granted relief to disregard USPSTF recommendations, and all other companies must remain in compliance. The circuit court also declined to rule on the legality of ACA coverage recommendations for contraceptives and vaccines, which are issued by other advisory groups than the USPSTF, instead returning these matters to the original district court.

    The Gist: Although this decision leaves the door open for further rulings and legal challenges, providers and patients can celebrate that preventive care services remain free of cost-sharing, for now.

    The preventive care mandate is one of the ACA’s most popular provisions, and overturning it would be highly disruptive and harmful to patient health, especially given about half of US adults say it’s difficult to afford healthcare costs.

    This ruling also suggests that a permanent resolution to legal questions surrounding the USPSTF’s authority may require Congressional action.

      Thought of the Day – On Leadership & Policy

      Posted on by • Posted in Compromise, Leadership, Leadership Culture, Leadership Flexibility, Leadership Implementation, Leadership Problem Solving, Thought Leaders, Thought of the Day • Leave a comment

      “When a broad table is to be made and the edges of planks do not fit the artist takes a little from both and makes a good joint. In like manner here, both sides must part with some of their demands in order that they may join in some accommodating proposition.”

      Benjamin Franklin, Convention debate 30 June 1787