Category Archives: Community Benefit

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.

Health Systems partnering with affordable housing developers

Posted on by • Posted in Adverse Health Outcomes, Affordable Housing, Community Benefit, Complex Care, Complex Care Coordination, Health System, Hospital, Social Determinants of Health • Leave a comment

https://mailchi.mp/ea16393ac3c3/gist-weekly-march-22-2024?e=d1e747d2d8

Published last week in the New York Times, this piece highlights a growing trend in health system community benefit provision: partnering with developers to build affordable housing.

These partnerships have focused on a range of housing needs, from transitional housing for people experiencing homelessness, to housing for people who need special care, to affordable housing for hospital employees. Many of these projects also include co-located medical clinics to make it easier for residents to access healthcare services, and some are even being planned on health system-owned property. 

The Gist: Housing security has long been a significant social determinant of health, something that most providers recognize every day, given that a record number of Americans are currently experiencing homelessness. 

Among families with complex medical needs, stable housing was demonstrated to reduce adverse health outcomes in children by 20 percent. In addition to health systems, managed care organizations are also investing in different kinds of housing solutions, and at least 19 states are directing Medicaid dollars toward housing assistance.

Two Lawsuits. Two Issues. One Clear Message.

Posted on by • Posted in Business Practices, Community Benefit, Competition, Health System, Hospital, Hospital Industry, Lawsuit, Market Consolidation, Market Power, Pharmacy Benefits Management, Price Transparency, Profit Motive, Public Good, Public Trust, Self Insured Employer Liability, Self Insured Employers • Leave a comment
Two Lawsuits. Two Issues. One Clear Message.

Last Monday, two lawsuits were filed that strike at a fundamental challenge facing the U.S. health system:

In the District Court of NJ, a class action lawsuit (ANN LEWANDOWSKI v THE PENSION & BENEFITS COMMITTEE OF JOHNSON AND JOHNSON) was filed against J&J alleging the company had mismanaged health benefits in violation of the Employee Retirement Income Security Act (“ERISA”). As noted in the 74-page filing “This case principally involves mismanagement of prescription-drug benefits. “Over the past several years, defendants breached their fiduciary duties and mismanaged Johnson and Johnson’s prescription-drug benefits program, costing their ERISA plans and their employees millions of dollars in the form of higher payments for prescription drugs, higher premiums, higher deductibles, higher coinsurance, higher copays, and lower wages or limited wage growth… Defendants’ mismanagement is most evident in (but not limited to) the prices it agreed to pay one of its vendors—its Pharmacy Benefits Manager (“PBM”)—for many generic drugs that are widely available at drastically lower prices.”

The issue is this: what liability risk does a self-insured employer have in providing health benefits to their employees?

Is the structure of the plan, the selection of providers and vendors, and costs and prices experienced by employees subject to litigation? What’s the role of the employer in protecting employees against unnecessary costs?

On the same day, in the District Court of Eastern Wisconsin, an 85-page class action lawsuit was filed against Advocate-Aurora Health (AAH) claiming it “uses its market power to raise prices, limit competition and harm consumers in Wisconsin:

  • Forces commercial health plans to include all its “overpriced facilities” in-network even when they would prefer to include only some facilities.
  • Goes to “extreme efforts to drive out innovative insurance products that save commercial health plans and their members money.”
  • Suppresses competition through “secret and restrictive contract terms that have been the subject of bipartisan criticism.”
  • Acquires new facilities, which then allows it to raise prices due to reduced competition

… without intervention, the health system will continue to use “anticompetitive contracting and negotiating tactics to raise prices on Wisconsin commercial health plans and their members and use those funds for aggressive acquisitions and executive compensation.”

The issue is this: is a health system’s liable when its consolidation activities result in higher prices for services provided communities and employers in communities where they operate?

Is there a direct causal relationship between a system’s consolidation activities and their prices, and how should alleged harm be measured and remedied?

Two complicated issues for two reputable mega-players in the U.S. health system. Both lawsuits were brought as class actions which guarantees widespread media attention and a protracted legal process. And each contributes directly to the gradual erosion of public trust in the health system since the plaintiffs essentially claim the business practices of J&J and Advocate-Aurora willfully harm the individuals they pledge to serve.

In the November 2023 Keckley Poll, I asked the sample of 817 U.S. adults to assess the health system overall. The results were clear:

  • 69% think the system is fundamentally flawed and in need of major change vs. 7% who think otherwise.
  • 60% believe it puts its profits above patient care vs. 13% who disagree.
  • 74% think price controls are needed vs. 7% who disagree.
  • 83% believe having health insurance that’s ‘affordable and comprehensive’ is essential to financial security vs 3% who disagree.
  • 52% feel confident in their ability to navigate the U.S. system “when I have a problem” vs. 32% who have mixed feelings and 16% who aren’t.
  • And 76% think politicians avoid dealing with healthcare issues because they’re complex and politically risky vs/ 6% who think they tackle them head-on.

The poll also asked their level of trust and confidence in five major institutions “to develop a plan for the U.S. health system that maximizes what it has done well and corrects its major flaws.”

Clearly, trust and confidence in the health system is low, and expectations about solutions fall primarily on hospitals and doctors. Lawsuits like these widen suspicion that the industry’s dominated first and foremost by Big Businesses focused on their own profitability before all else. And they pose particular problems for sectors in healthcare dominated by not-for-profit and public ownership i.e. hospitals, home care, public health agencies and others.

My take

These lawsuits address two distinct issues: the roles of employers in designing their health benefits for employees including the use of PBMs, and the justification for consolidation of hospital and ancillary services in markets. 

But each lawsuit s predicated on a legal theory that prices set by organizations are geared more to corporate profits than public good and justifiable costs.

Pricing is the Achilles of the health system. Pushback against price transparency by some, however justified, has amplified exposure to litigation risk like these two  and contributed to the public’s loss of trust in the system.

It is unlikely greater price transparency and business practice disclosures by J&J and Advocate-Aurora could have avoided these lawsuits, but it’s clearly a message that needs consideration in every organization.

Healthcare organizations and their trade groups can no longer defend against lack of transparency by defaulting to the complexity of our supply chains and payment systems. They’re excuses. The realities of generative AI and interoperability assure information driven healthcare that’s publicly accessible and inclusive of prices, costs, outcomes and business practices. In the process, the public’s interest will heighten and lawsuits will increase.

P.S. Nashville is known as a hot spot for healthcare innovation including transparency solutions. Check out this meeting February 29: https://www.eventbrite.com/e/leaping-into-the-future-of-healthcare-2024-insights-tickets-809310819447

Resources

Lawsuit 119120873885 (documentcloud.org)

Microsoft Word – Aurora Class Action Complaint (FINAL filed Feb. 5 2024) (aboutblaw.com) February 5, 2024

Is the Tax Exemption for Not-for-Profit Hospitals at Risk?

Posted on by • Posted in American Hospital Association (AHA), Community Benefit, Health System, Hospital, Hospital Industry, Internal Revenue Service (IRS), Monopoly Behavior, Non-Profit Healthcare Industry, Private Equity, Tax Exempt Debt, Tax Exempt Status • Leave a comment
Is the Tax Exemption for Not-for-Profit Hospitals at Risk?

Last Thursday, Seattle-based Providence Health System announced it is refunding nearly $21 million in medical bills paid by low-income residents of Washington and erasing $137 million more in outstanding debt for others. Other systems are likely to follow as pressure con mounts on large, not-for-profit systems to modify their business practices in sensitive areas like patient debt collection, price transparency, executive compensation, investment activities and others.

Not-for profit systems control the majority of the 2,987 nongovernment not-for-profit community hospitals in the U.S. Some lawmakers think it’s time to revisit to revisit the tax exemption. It has the attention of the American Hospital Association which lists “protecting not-for-profit hospitals’ the tax-exempt status” among its 15 Advocacy Priorities in 2024 (it was not on their list in 2023).

Background:  Per a recent monograph in Health Affairs: “The Internal Revenue Service (IRS) uses the Community Benefit Standard (CBS), a set of 10 holistically analyzed metrics, to assess whether nonprofit hospitals benefit community health sufficiently to justify their tax-exempt status. Nonprofit hospitals risk losing their tax exemption if assessed as underinvesting in improving community health. This exemption from federal, state, and local property taxes amounts to roughly $25 billion annually.

However, accumulating evidence shows that many nonprofit hospitals’ investments in community health meet the letter, but not the spirit, of the CBS.

Indeed, a 2021 study showed that for every $100 in total expenses nonprofit hospitals spend just $2.30 on charity care (a key component of community benefit)—substantially less than the $3.80 of every $100 spent by for-profit hospitals. A 2022 study looked at the cost of caring for Medicaid patients that goes unreimbursed and is therefore borne by the hospital (another key component of community benefit); the researchers found that nonprofit hospitals spend no more than for-profit hospitals ($2.50 of every $100 of total expense).”

In its most recent study, the AHA found the value of CBS well-in-excess of the tax exemption by a factor of 9:1. But antagonism toward the big NFP systems has continued to mount and feelings are intense…

  • Insurers think NFP systems exist to gain leverage in markets & states over insurers in contract negotiations and network design. They’ll garner support from sympathetic employers and lawmakers, federal anti-consolidation and price transparency rulings and in the court of public opinion where frustration with the system is high.
  • State officials see the mega- NFP systems as monopolies that don’t deserve their tax exemptions while the state’s public health, mental health and social services programs struggle.
  • Some federal lawmakers think the NFP systems are out of control requiring closer scrutiny and less latitude. They think the tax exemption qualifiers should be re-defined, scrutinized more aggressively and restricted.
  • Well-publicized investments by NFP systems in private equity backed ventures has lent to criticism among labor unions and special interests that allege systems have abandoned community health for Wall Street shareholders.
  • Investor-owned multi-hospital operators believe the tax exemption is an unfair advantage to NFPs while touting studies showing their own charity care equivalent or higher.
  • Other key NFP and public sector hospital cohorts cry foul: Independent hospitals, academic medical centers, safety-net (aka ‘essential’) hospitals, rural health clinics & hospitals, children’s hospitals, rural health providers, public health providers et al think they get less because the big NFPs get more.
  • And the physicians, nurses and workforces employed by Big NFP systems are increasingly concerned by systemization that limits their wages, cuts their clinical autonomy and compromises their patients’ health.

My take:

The big picture is this: the growth and prominence of multi-hospital systems mirrors the corporatization in most sectors of the economy: retail, technology, banking, transportation and even public utilities. The trifecta of community stability—schools, churches and hospitals—held out against corporatization, standardization and franchising that overtook the rest. But modernization required capital, the public’s expectations changed as social media uprooted news coverage and regulators left doors open for “new and better” that ceded local control to distant corporate boards.

Along the way, investor-owned hospitals became alternatives to not-for-profits, and loose networks of hospitals that shared purchasing and perhaps religious values gave way to bigger multi-state ownership and obligated groups.

The attention given large NFP hospital systems like Providence and others is not surprising. These brands are ubiquitous. Their deals with private equity and Big Tech are widely chronicled in industry journalism and passed along in unfiltered social media. And their collective financial position seems strong:  Moody’s, Fitch, Kaufman Hall and others say utilization has recovered, pandemic recovery is near-complete and, despite lingering concerns about workforce issues, growth in their core businesses plus diversification in new businesses are their foci. (See Hospital Section below).

I believe not-for-profit hospital systems are engines for modernizing health delivery in communities and a lightening rod for critics who think their efforts more self-serving than for the public good.

Most consumers (55%) think they earn their tax exemption but 34% have mixed feelings and 10% disagree. (Keckley Poll November 20, 2023). That’s less than a convincing defense.

That’s why the threat to the tax exemption risk is real, and why every organization must be prepared. Equally important, it’s why AHA, its state associations and allies should advance fresh thinking about ways re-define CBS and hardwire the distinction between organizations that exist for the primary purpose of benefiting their shareholders and those that benefit health and wellbeing in their communities.

PS: Must reading for industry watchers is a new report from by Health Management Associates (HMA) and Leavitt Partners, an HMA company, with support from Arnold Ventures. The 70-page report provides a framework for comparing the increasingly crowned field of 120 entities categorized in 3 groups: Hybrids (6.9 million), Delivery (5.8 million) and Enablers 17.5 million

“At the start of the movement, value-based arrangements primarily involved traditional providers and payers engaging in relatively straight-forward and limited contractual arrangements. In recent years, the industry has expanded organically to include a broader ecosystem of risk-bearing care delivery organizations and provider enablement entities with capabilities and business models aligned with the functions and aims of accountable care…Inclusion criteria for the 120 VBD entities included in this analysis were:

  • 1-Serve traditional Medicare, MA, and/or Medicaid populations. Entities that are focused solely on commercial populations were excluded
  • 2-Operate in population-based, total cost of care APMs—not only bundled payment models.
  • 3- Focus on primary care and/or select specialties that are relevant to total cost of care models (i.e., nephrology, oncology, behavioral health, cardiology, palliative care). Those exclusively focused on specialty areas geared toward episodic models (e.g., MSK) were excluded. –
  • 4-Share accountability for cost and quality outcomes. Business models must be aligned with provider performance in total cost of care arrangements. Vendors that support VBP but do not share accountability for outcomes were excluded.

HMA_VBP-Entity-Landscape-Report_1.31.2024-updated.pdf (healthmanagement.com) February 2024

The rising debate about hospital community benefits: Sanders vs AHA

Posted on by • Posted in American Hospital Association (AHA), Community Benefit, Health System, Hospital, Hospital Industry, Medical Debt, Tax Exempt Status • Leave a comment
The rising debate about hospital community benefits: Sanders vs AHA

We’ve been getting more and more questions about our Fair Share Spending work that assesses whether hospitals are giving back enough in financial assistance and community health investments to justify their generous tax breaks. Two new reports—one from a United States Senate committee and one from the American Hospitals Association—delve into this space and provide very different views. Here’s what you need to know.

Sanders report calls out hospitals

Nonprofit hospitals receive an estimated $28 billion in total tax breaks each year, but give back far less in meaningful community benefits. A Lown Institute report found that nonprofit hospitals received $14 billion more in tax breaks than they spent on financial assistance and community health programs in 2020, what we call a Fair Share Deficit. About three quarters of hospitals failed to give back to their communities in amounts commensurate with their tax exemption.

In August, four US Senators sent letters to the IRS asking for clarification on how hospitals are complying with the community benefit standard. And this week majority staff of the Senate Health, Education, Labor, and Pensions (HELP) Committee, chaired by Senator Bernie Sanders, released a report showing how some large hospital systems spend little on financial assistance, despite paying their CEOs whopping 8-figure salaries.

The Sanders report highlights examples of nonprofit hospitals engaging in aggressive billing activities such as sending patients’ medical debt to collections and denying care to patients with outstanding medical debt. The report also adds a new analysis of how much the 16 largest nonprofit hospital systems spend on financial assistance (free and discounted care for patients who can’t afford to pay). They find that 12 of these systems spent less than $0.02 for each dollar in revenue on financial assistance, and six gave less than $0.01. 

The report also called attention to “massive salaries” for some system CEOs, like Commonspirit which paid their CEO $35 million in 2021. Lown Institute data shows vast inequities at some hospitals, with some CEOs making up to 60 times what other hospital workers make.

This underinvestment in financial assistance causes real harm to patients. When hospitals charge patients for care they can’t afford, patients go into debt and often sacrifice basic needs and avoid additional care. An estimated 100 million Americans are in medical debt, and most owe at least some to hospitals. If hospitals paid off their $14 billion fair share deficit, it would be enough to erase the debt of 18 million Americans, which would be a huge step forward for fairness in the country.

AHA provides opposing view

The American Hospitals Association just published their analysis of hospital community benefit spending, finding that hospitals spent $130 billion in 2020, amounting to 15.5% of hospital expenses. That’s far more than other studies estimate. 

How can the AHA estimate be so different? The answer depends on what’s being counted as a “community benefit.” When you imagine programs to improve community health, you might think of free immunizations, health fairs and educational classes, food pantries and other nutritional assistance, investments in affordable housing, healthcare for the homeless, etc. However, spending on those types of programs made up only 1.8% of hospital expenses in 2020, according to the AHA’s report.

Financial assistance, free or discounted care for eligible patients, is another important category of community benefit spending. But the AHA report doesn’t break out this amount on its own; instead, they lump it in together with Medicaid shortfall and other unreimbursed costs of government programs.

While it’s important that hospitals care for patients with Medicaid, the “shortfall” they report does not go towards tangible community programs or into the pockets of patients. Instead, this is an accounting item related to the discounted prices in Medicaid. Hospitals offer discounts on care to insurers all the time, but these aren’t considered community benefits–why should Medicaid discounts be any different? Most hospitals already make up this shortfall from public insurers by charging private insurers more than their costs of care. The same goes for Medicare shortfall, which the AHA report also includes in their total, despite this not even being considered a “community benefit” by the IRS.

The AHA report also includes bad debt, which is money the hospital expected to get from patients but never received. The AHA argues this spending is a benefit to the community because many patients who don’t pay would have qualified for financial assistance. However, in the real world, policies on financial assistance vary widely and getting access to it can be easy or hard. If a hospital goes to great lengths to make their financial assistance application simple and accessible, and give more in assistance as a result, that should be rewarded. On the other hand, if hospitals make getting assistance hard and hound low-income patients to pay their bills or send their debt to collection agencies, that hardly seems like a “community benefit.”

What can policymakers do?

The Sanders report adds to existing evidence that nonprofit hospitals could do much more to improve community health and earn their tax-exempt status. How can federal policymakers improve transparency and incentives around the community benefit standard? See some of our key recommendations for Congress on this issue.

Michael Dowling: The most pressing question to start the year

Posted on by • Posted in Addiction, Board, Civility, Community Benefit, Community Hospital, Community-Based Services, Gun Violence, Integrity, Leadership, Leadership Commitment, Leadership Investment, Leadership Values, Leadership Vision, Medicaid Expansion, Mental Health, Mission, Respect, Social Determinants of Health, Under Served Populations • Leave a comment
https://www.beckershospitalreview.com/hospital-management-administration/michael-dowling-the-most-pressing-question-to-start-the-year.html?origin=BHRE&utm_source=BHRE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

The new year is always an ideal time for healthcare leaders to reflect on the state of our industry and their own organizations, as well as the challenges and opportunities ahead.

As the CEO of a large health system, I always like to reflect on one basic question at the end of each year: Are we staying true to our mission? 

Certainly, maintaining an organization’s financial health must always be a priority but we should also never lose sight of our core purpose. In a business like ours that has confronted and endured a global pandemic and immense financial struggles over the past several years, I recognize it’s increasingly difficult to maintain our focus on mission while trying to find ways to pay for rising labor and supply costs, infrastructure improvements needed to remain competitive and other pressures on our day-to-day operations. 

After all, the investments we need to make to promote community wellness, mental health, environmental sustainability and health equity receive little or no reimbursement, negatively impacting our financial bottom lines. During an era of unprecedented expansion of Medicaid and Medicare, we get less and less relief from commercial insurers, whose denial and delay tactics for reimbursing medical claims continue to erode the stability of many health systems and hospitals, especially those caring for low-income communities. 

Despite those enormous pressures, it’s imperative that we continue to support underserved communities, military veterans struggling with post-traumatic stress, and intervention programs that help deter gun violence and addiction. 

The list of other worthy investments goes on and on: charity care to uninsured or underinsured patients who can’t pay their medical bills, funding for emergency services that play such a critical role during public health emergencies, nutritional services for families struggling to put food on the table, programs that combat human trafficking and support women’s health, the LGBTQIA+ community and global health initiatives that aid Ukraine, the Middle East and other countries torn apart by war, famine and natural disasters. 

We must also recognize the key role of healthcare providers as educators. School-based mental health programs are saving lives by identifying children exhibiting suicidal behaviors, anger management issues and other troublesome behaviors. School outreach efforts have the added benefit of helping health systems and hospitals address their own labor shortages by introducing young people to career paths that will help shape the future healthcare workforce. 

Without a doubt, the “to-do” list of community health initiatives that support our mission is daunting. We can’t do it all alone, but as the largest employers in cities and towns across America, health systems and hospitals can serve as a catalyst to get all sectors of our society — government, businesses, schools, law enforcement, churches, social service groups and other community-based organizations — to recognize that “health” goes far beyond the delivery of medical care. 

The health of individuals, families and communities hinges on the prevalence of good-paying jobs, decent and affordable housing, quality education, access to healthy foods, medical care, transportation, clean air and water, low prevalence of crime and illicit drugs, and numerous other variables that typically depend on the zip codes where we live. Those so-called social determinants of health are the driving factors that enable communities and the people who live there to either prosper or struggle, resulting in disparities that are the underlying cause of why so many cities and towns across the country fall into economic decay and become havens for crime and hotbeds for gun violence, which shamefully is now the leading cause of death for children and adolescents. 

To revive these underserved communities, many of which are in our own backyards, we have to look at all of the socioeconomic issues they struggle with through the prism of health and use the collective resources of all stakeholders to bring about positive change. 

Health is how we work together to build a sense of community. Having a healthy community also requires everyone doing what they can to tone down the political rhetoric and social media-fueled anger that is polarizing our society. Health is bringing back a sense of civility and respect in our public discourse, and promoting the values of honesty, decency and integrity. 

As healthcare providers and respected business leaders, we should all make a New Year’s resolution to stay true to our mission and do what we can within our communities to bring oxygen to hope, optimism and a healthier future. 

The Conundrum facing Not-for-Profit Hospital Systems

Posted on by • Posted in Board, Community Benefit, Competition, Conundrum, Executive Compensation, For-Profit, Health System, Hospital, Hospital Industry, Leadership Vision, Non-Profit Healthcare Industry, Private Equity, Public Perception, Public Understanding, Strategic Imperative, Strategic Leadership, Tax Exempt Status • Leave a comment
The Conundrum facing Not-for-Profit Hospital Systems

Does hospital ownership matter? According to a study published last week in Health Affairs Scholar, NOT MUCH. That’s a problem for not-for-profit hospitals who claim otherwise.

58% of U.S. hospitals are not-for-profit hospitals; the rest are public (19%) or investor-owned (24%). In recent months, not-for-profit systems have faced growing antagonism from regulators and critics who challenge the worthwhileness of their tax exemptions and reasonableness of the compensation paid their top executives.

The lion’s share of this negative attention is directed at large, not-for-profit hospital system operators. Case in point: last week, Banner Health (AZ) joined the ranks of high-profile operators taken to task in the Arizona Republic for their CEO’s compensation contrasting it to not-for-profit sectors in which compensation is considerably lower.

Unflattering attention to NFP hospitals, especially the big-name systems, is unlikely to subside in the near-term. U.S. healthcare has become a winner-take-all battleground increasingly dominated by large-scale, investor-owned interests in hospitals, medical groups, insurance, retail health in pursuit of a piece of the $4.6 trillion pie. 

The moral high ground once the domain of not-for-profit hospitals is shaky.

The NYU study examined whether hospital ownership influenced decisions made by consumers: they found “Fewer than one-third of respondents (29.5%) indicated that hospital status had ever been relevant to them in making decisions about where to seek care…significantly more important to respondents who indicated the lowest health literacy—74.7% of whom answered the key question affirmatively—than it was for people who indicated high health literacy, of whom only 18.3% found hospital ownership status to be relevant…also considerably more relevant for people working in health care than for those who did not work in health care (61.0% vs 24.5%)…

We found little evidence that hospital nonprofit status influenced Americans’ decisions about where to seek care. Ownership status was relevant for fewer than 30% of respondents and preference was greatest overall for public hospitals. Only 30–45% of respondents could correctly identify the ownership status of nationally recognized hospitals, and fewer than 30% could identify their local hospitals.

These findings suggest that contract failure does not currently provide a justification of nonprofit hospitals’ value; further scrutiny of tax exemption for nonprofit hospitals is warranted.”

Are NFP hospitals concerned? YES. It’s reality as systems address near term operational challenges and long-term questions about their strategies.

Last weekend, I facilitated the 4th Annual Chief Strategy Officers Roundtable in Austin TX sponsored by Lumeris. The group consisted of senior-level strategists from 11 not-for-profit systems and one for-profit. In one session, each reacted to 50 future state scenarios in terms of “likelihood” and “disruptive impact” in the NEAR term (3-5 years) and LONG TERM (8-10 years) using a 1 to 10 scale with 10 HI.

From these data and the discussion that followed, there’s consensus that the U.S. healthcare market is unlikely to change dramatically long-term, their short-term conditions will be tougher and their challenges unique.

  • ‘Near-term cost containment is a priority. Hospitals are here-to-stay, but operating them will be harder.’
  • ‘Increased scale and growth are necessary imperatives for their systems.’
  • ‘Hospital systems will compete in a market wherein private capital and investor ownership will play a growing role, insurers will be hostile and value will the primary focus of cost-reduction by purchasers and policymakers.’
  • ‘Distinctions between not-for-profit and for-profit hospitals are significant.’
  • ‘Conditions for hospitals will be tougher as insurers play a stronger hand in shaping the future.’

Given the NYU study findings (above) concluding NFP ownership has marginal impact on hospital choices made by consumers, it’s understandable NFPs are anxious.

My take:

The issues facing not-for-profit hospitals in the U.S. are unique and complex. Per the commentary of the CSOs, their market conditions are daunting and major changes in their structure, funding and regulation unlikely.

That means lack of public understanding of their unique role is a conundrum. 

Paul

PS: Issues about CEO compensation in healthcare are touchy and often unfair.

In every major NFP system, comp is set by the Independent Board Compensation Committee with outside consultative counsel. The vast majority of these CEOs aren’t in the job for the money joining their workforce in pursuit of the unique higher calling afforded service leaders in NFP healthcare.

Getting serious about providing community benefit

Posted on by • Posted in Board, Capital Allocation Process, Capital Deployment, Community Benefit, Community ROI, Health System, Hospital, Hospital Industry, Key Metrics, Key Performance Indicators, Social Determinants of Health, Tax Exempt Status • Leave a comment

https://mailchi.mp/59f0ab20e40d/the-weekly-gist-october-27-2023?e=d1e747d2d8

How should health systems spend their “community benefit” dollars?

That question was at the heart of a discussion we participated in recently at a member board meeting. To maintain their nonprofit status, all health systems are required to devote a portion of their earnings to activities that benefit the communities they serve, based on an assessment of local health needs.

The question our member’s board was grappling with, led by the system’s executive team, was how to ensure their “investment” in the community is as leveraged as possible, and generates the greatest “bang for the buck” in terms of better community health. 

As the importance of addressing the social determinants of health grows, many systems are trying to target their resources toward activities that that enhance their ability to improve health status, and to reduce the barriers to better health faced by many. That requires a level of rigor and commitment to “community ROI” that goes beyond simply pointing to charity care statistics and the number of uninsured served.

What most impressed us in the discussion was the application of the same investment mindset to community benefit that the system brings to capital allocation decisions—with due attention to implementation plans, outcomes metrics, and accountability. 

As the system’s COO framed it, “We don’t just want to be a ‘piggy bank’ for charitable causes, we want to make sure our investment in the community is really making a difference” in local residents’ health. At the same time, the board recognized that its role extends beyond simply contributing dollars to acting as a convener and facilitator of other community organizations working together toward a common set of goals. A worthy discussion for the board, for sure, and a priority we’re seeing leading systems begin to embrace in a serious way.

Are Employers Ready to Engage the Health Industry Head On?

Posted on by • Posted in Affordability, Community Benefit, Direct Contracting, Employer-Based Health Insurance, Employer-Sponsored Commercial Health Insurance, Health System, Hospital, Hospital Industry, Out of Pocket Expenses, Tax Exempt Status, Uncompensated Care, Underinsured, Uninsured • Leave a comment
Are Employers Ready to Engage the Health Industry Head On?

Last week, Kaiser Family Foundation (KFF) released its Annual Employer Health Benefits Survey which included a surprise:

The average annual single premium and the average annual family premium each increased by 7% over the last year.

In 2022 as post-pandemic recovery was the focus for employers, the average single premium grew by 2% and the average family premium increased by 1%. Health costs and insurance premiums were not top of mind concerns to employers struggling to keep employees paid and door open. But 7% is an eye-opener.

The rest of the findings in the 2023 KFF Report are unremarkable: they reflect employer willingness to maintain benefits at/near pre-pandemic levels and slight inclination toward expanded benefits beyond mental health:

  • “The average annual premium for employer-sponsored health insurance in 2023 is $8,435 for single coverage and $23,968 for family coverage. Comparatively, there was an increase of 5.2% in workers’ wages and inflation of 5.8%2. The average single and family premiums increased faster this year than last year (2% vs. 7% and 1% vs. 7% respectively).
  • Over the last five years, the average premium for family coverage has increased by 22% compared to an 27% increase in workers’ wages and 21% inflation.
  • For single coverage, the average premium for covered workers is higher at small firms than at large firms ($8,722 vs. $8,321). The average premiums for family coverage are comparable for covered workers in small and large firms ($23,621 vs. $24,104) …
  • Most covered workers contribute to the cost of the premium for their coverage. On average, covered workers contribute 17% of the premium for single coverage and 29% of the premium for family coverage, similar to the percentages contributed in 2022…
  • 90% of workers with single coverage have a general annual deductible that must be met before most services are paid for by the plan, similar to the percentage last year (88%).
  • The average deductible amount in 2023 for workers with single coverage and a general annual deductible is $1,735, similar to last year…
  • In 2023, among workers with single coverage, 47% of workers at small firms and 25% of workers at large firms have a general annual deductible of $2,000 or more. Over the last five years, the percentage of covered workers with a general annual deductible of $2,000 or more for single coverage has grown from 26% to 31%.
  • While nearly all large firms (firms with 200 or more workers) offer health benefits to at least some workers, small firms (3-199 workers) are significantly less likely to do so. In 2023, 53% of all firms offered some health benefits, similar to the percentage last year (51%).”

My take:

These findings show that employers are not prone to drastic changes in health benefits for their employees despite recognition it is expensive and unaffordable to small companies and for many of their own employees.  But many large self-insured employers (except those in government, education and healthcare) are poised to make significant changes next year. They recognize themselves as the primary source of profits enjoyed by insurers, hospitals, physicians, drug companies and others.  

They’re developing multi-year at risk direct contracts, value-based purchasing arrangements, primary care gatekeeping, narrow networks, restricted formularies, alternative care models and more to that leverage their clout. They’re going on offense.

The KFF Benefits Survey is a snapshot of where employer benefits are today, but it’s likely not the same next year. It appears employers are ready to engage the health industry head on.

PS Last week, the feud between Senate Health, Education, Labor and Pensions (HELP) Committee Chair Bernie Sanders and Not-for-Profit Health Systems heated up. On Oct. 10, he released a Majority Staff Report that said NFP hospitals do not deserve their tax exemptions as they spend “paltry amounts” on charity care. “Hospitals have gladly accepted the tax benefits that come with nonprofit status but have failed to provide the required community benefits. Non-profit hospitals spent only an estimated $16 billion on charity care in 2020, or about 57% of the value of their tax breaks in the same year.”

The same day, the American Hospital Association (AHA) released its analysis of hospital Schedule H filings concluding that tax-exempt hospitals provided $130 billion in community benefits in 2020 and called the HELP report “just plain wrong”.

In response to the AHA report, Sanders noted that AHA had not included CEO Compensation for NFPs in its analysis though featured prominently in his Majority Staff Report: “In 2021, the most recent year for which data is available for all of the 16 hospital chains, those companies’ CEOs averaged more than $8 million in compensation and collectively made over $140 million…

The disparities between the paltry amounts these hospitals are spending on charity care and their massive revenues and excessive executive compensation demonstrates that they are failing to live up to their end of the non-profit bargain.”

This tit for tat between the Committee Chairman and AHA is notable for 2 reasons: it draws attention to the Schedule H information goldmine about how not-for-profit hospitals operate since they’re now required to attach their S-10 Medicare cost report worksheets. Quantifying charity care in Exhibit 3B (for which there’s no expectation of payment) and the myriad of claimed community benefits including bad debt in Schedule 3C will likely intensify scrutiny of NFPs even more.  Second, it draws attention to Executive Pay in hospitals: in this regard the Majority Staff Report commentary on CEO pay is misleading: by combining Column B (wages, bonuses) with Columns C (Deferred compensation) and D (non-taxable benefits), the total is significantly higher than one-year’s actual take-home pay for the CEOs. But it makes headlines!

If not-for-profit systems wish to lead transformational change in U.S. healthcare, not-for-profit system boards and their trade associations must be prepared to address the storm clouds gathering above. The skirmish between the Senate HELP Chair and AHA mirrors an increasingly skeptical public who, with Congress, believe the system is being gamed.

Is Affordability taken Seriously in US Healthcare?

Posted on by • Posted in Affordability, All-Payer Health Equity Approaches and Development Model (AHEAD Model), Center for Medicare and Medicaid Services (CMS), Community Benefit, Health Insurance Industry, Health Policy, Health System, Healthcare Reform, Hospital, Hospital Industry, Lobbyist, Out of Pocket Expenses, Tax Exempt Status • Leave a comment
Is Affordability taken Seriously in US Healthcare?

It’s a legitimate question.

Studies show healthcare affordability is an issue to voters as medical debt soars (KFF) and public disaffection for the “medical system” (per Gallup, Pew) plummets. But does it really matter to the hospitals, insurers, physicians, drug and device manufacturers and army of advisors and trade groups that control the health system?

Each sector talks about affordability blaming inflation, growing demand, oppressive regulation and each other for higher costs and unwanted attention to the issue.

Each play their victim cards in well-orchestrated ad campaigns targeted to state and federal lawmakers whose votes they hope to buy.

Each considers aggregate health spending—projected to increase at 5.4%/year through 2031 vs. 4.6% GDP growth—a value relative to the health and wellbeing of the population. And each thinks its strategies to address affordability are adequate and the public’s concern understandable but ill-informed.

As the House reconvenes this week joining the Senate in negotiating a resolution to the potential federal budget default October 1, the question facing national and state lawmakers is simple: is the juice worth the squeeze?

Is the US health system deserving of its significance as the fastest-growing component of the total US economy (18.3% of total GDP today projected to be 19.6% in 2031), its largest private sector employer and mainstay for private investors?

Does it deserve the legal concessions made to its incumbents vis a vis patent approvals, tax exemptions for hospitals and employers, authorized monopolies and oligopolies that enable its strongest to survive and weaker to disappear?

Does it merit its oversized role, given competing priorities emerging in our society—AI and technology, climate changes, income, public health erosion, education system failure, racial inequity, crime and global tension with China, Russia and others.

In the last 2 weeks, influential Republicans leaders (Burgess, Cassidy) announced plans to tackle health costs and the role AI will play in the future of the system. Last Tuesday, CMS announced its latest pilot program to tackle spending: the States Advancing All-Payer Health Equity Approaches and Development Model (AHEAD Model) is a total cost of care budgeting program to roll out in 8 states starting in 2026. The Presidential campaigns are voicing frustration with the system and the spotlight on its business practices intensifying.

So, is affordability to the federal government likely to get more attention?

Yes. Is affordability on state radars as legislatures juggle funding for Medicaid, public health and other programs?

Yes, but on a program by program, non-system basis.  

Is affordability front and center in CMS value agenda including the new models like its AHEAD model announced last week? Not really.

CMS has focused more on pushing hospitals and physicians to participate than engaging consumers. Is affordability for those most threatened—low and middle income households with high deductible insurance, the uninsured and under-insured, those with an expensive medical condition—front of mind? Every minute of every day.

Per CMS, out-of-pocket spending increased 4.3% in 2022 (down from 10.4% in 2021) and “is expected to accelerate to 5.2%, in part related to faster health care price growth. During 2025–31, average out-of-pocket spending growth is projected to be 4.1% per year.” But these data are misleading. It’s dramatically higher for certain populations and even those with attractive employer-sponsored health benefits worry about unexpected household medical bills.

So, affordability is a tricky issue that’s front of mind to 40% of the population today and more tomorrow.

Legislation that limits surprise medical bills, requires drug, hospital and insurer price transparency, expands scope of practice opportunities for mid-level professionals, avails consumers of telehealth services, restricts aggressive patient debt collection policies and others has done little to assuage affordability issues for consumers.

Ditto CMS’ value agenda which is more about reducing Medicare spending through shared savings programs with hospitals and physicians than improving affordability for consumers.  That’s why outsiders like Walmart, Best Buy and others see opportunity: they think patients (aka members, enrollees, end users) deserve affordability solutions more than lip service.

Affordability to consumers is the most formidable challenge facing the US healthcare industry–more than burnout, operating margins, reimbursement or alternative payment models. Today, it is not taken seriously by insiders. If it was, evidence would be readily available and compelling. But it’s not.