The healthcare industry saw 1,250 deals announced or completed through October of this year, according to Bloomberg Law.
The healthcare deal volume in 2019 is significantly higher than the same period last year, which had 900 deals announced or closed.
Merger and acquisition activity for long-term care, physician services, health IT and pharmaceutical companies are on pace to exceed the deal volume hit in 2018.
Walgreens is one company that is driving deal activity in the healthcare sector. The retail pharmacy giant recently announced it would close 157 in-store healthcare clinics it operated by the end of the year.
TriHealth announced it would buy seven of the Walgreens clinics in the Cincinnati area, and the deal is likely to be replicated elsewhere, Gary Herschman, a member of law firm Epstein Becker Green, told Bloomberg Law.
However, the hospital and health system sector will likely end 2019 with fewer deals than in 2018, according to the report.
There were only 12 transactions in the hospital and health system sector in October, according to Nicholas Davis, a senior analyst at healthcare consultancy ECG Management Partners.
Healdsburg (Calif.) District Hospital was one of three hospitals that closed in October due to the Kincade fire. While the other two hospitals reopened within days of the fire risk passing, Healdsburg District Hospital was shut down for nearly a month, according to The Press Democrat.
Healdsburg District Hospital’s 24-day closure began Oct. 26, and the California Department of Public Health allowed the hospital to reopen Nov. 20. The hospital has a smaller staff than the other facilities that closed during the wildfire, which were owned by Oakland, Calif.-based Kaiser Permanente and Sacramento, Calif.-based Sutter Health.
Healdsburg District Hospital’s 350 employees helped clean every surface in the 50,000-square-foot facility, and additional workers were brought in to help the hospital reopen. Kaiser and Sutter sent 11 staff members to help guide Healdsburg District Hospital through the reopening process.
“The small town hospital idea is more valuable than we tend to think,” Brian Seekins, director of plant operations at Healdsburg District Hospital, told The Press Democrat. “For me, I wouldn’t have thought Kaiser puts much thought into a facility like us. It’s during times like this, you’re like, ‘Wow, they’re leveraging their own resources to help us.'”
Nix Medical Center, a 208-bed hospital in San Antonio has closed, and its medical equipment will be sold at auction.
Nix Medical Center is part of Nix Health, which is owned by Los Angeles-based Prospect Medical Holdings. In September, Prospect Medical Holdings said it planned to close the hospital because community demand for acute care at Nix Medical Center has declined over the past year.
Nix Medical Center closed this month, and its medical equipment will be sold at an online auction Dec. 11. Centurian Service Group will conduct the auction.
Nix Health also closed its home health division and other facilities, including its specialty health and behavioral center. The combined closures are expected to result in 972 layoffs, according to a Worker Adjustment and Retraining Notification Act notice filed Nov. 6, which states workers will be laid off Jan. 4.
Nix is part of the South Texas Crisis Collaborative, a group of facilities that offer mental health services. Other hospitals in the group are preparing to absorb an influx of patients due to the Nix closures, according to TV station KSAT.
Bad debt, a proxy for unpaid bills, rose in 2018 for nonprofit hospitals after falling for several years since 2014, when some states decided to expand Medicaid, Moody’s Investors Services said in a recent report.
Rising deductibles are fueling the trend, as patients are on the hook for an increasing share of care costs. The growth of bad debt may at times outpace net patient revenue, the ratings agency said.
At the same time, deductibles and premiums are increasing faster than wage growth, another ominous signal for hospitals.
Dive Insight:
More Americans have high deductible plans than ever before, according to the Kaiser Family Foundation.
“More than a quarter (28%) of all covered workers, including nearly half (45%) of those at small employers with fewer than 200 employees, are now in plans with a deductible of at least $2,000, almost four times the share who faced such deductibles in 2009,” KFF said in a recent report.
But when patients with high deductibles seek care, hospitals typically have to collect from the patient first. And as more Americans struggle to afford treatment, it’s harder to collect from patients right away.
“The longer the delay between providing service and collecting payment, the less likely a hospital is to collect payment,” Moody’s said.
Many patients don’t have enough saved to cover the cost of their deductible, according to a survey from accounting firm PwC. At least a third of those with employer-based coverage and HDHPs don’t have enough on hand to pay for their deductible, the company reported.
It will be difficult for hospitals to reduce bad debt, according to Moody’s, which characterized it as an “uphill battle.” Collecting on unpaid bills requires “constant vigilance,” the ratings agency said.
In 2014, bad debt clocked in at roughly 5.6% of net patient revenue for nonprofit health systems, and then fell below 4.5% in 2016 and 2017. But in 2018, bad debt climbed again above 4.5%, Moody’s said.
University of Chicago Medical Center has closed its level 1 trauma center for adult and pediatric patients as it prepares for about 2,200 nurses to go on strike next week, medical center leaders announced.
Medical center leaders said UCMC closed its pediatric level 1 trauma program Nov. 18 and its adult trauma program Nov. 20. Its adult and pediatric emergency rooms continue to take walk-in patients.
Nurses are scheduled to strike Nov. 26, two days before Thanksgiving. The nurses also walked off the job Sept. 20 in a strike organized by National Nurses Organizing Committee/National Nurses United. They were allowed to return to work Sept. 25, after the medical center said it fulfilled its contract with temporary nurses to replace the striking ones for five days.
In preparation for the strike, UCMC announced earlier this week that it is moving about 50 babies and 20 children in its neonatal and pediatric intensive care units to other facilities.
UCMC President Sharon O’Keefe is also recruiting about 900 replacement nurses.
However, “it’s exceptionally difficult to hire people who are willing to leave their families during Thanksgiving,” she said in a news release. “At the same time, other hospitals in the city are already at or near capacity, which means they will not be able accept transfers of current inpatients if that need arises when nurses walk out. The combination of the two led us to take the step of temporarily closing our trauma program ahead of the strike.”
UCMC said the hospital was required to offer replacement nurses five days of work “to best recruit qualified and experienced replacement nurses.” Therefore, the nurses on strike will not be able to return to work until 7 a.m. Dec. 1.
Negotiations between UCMC and National Nurses Organizing Committee/National Nurses United began earlier this year. Medical center leaders say incentive pay — and whether the hospital should end the pay for newly hired nurses — is a sticking point in negotiations, according to the Chicago Tribune. The union has continued to express concerns about staffing levels.
The nurses said they plan to strike unless an agreement is reached.
Former Baltimore Mayor Catherine Pugh, who served on the board of University of Maryland Medical System for 18 years, was indicted on charges of wire fraud and tax evasion related to a children’s book scandal that involved the Baltimore-based health system and Oakland, Calif.-based Kaiser Permanente, a local CBS affiliate reports.
The indictment was unsealed Nov. 20, ahead of Ms. Pugh’s scheduled hearing on Nov. 21. If convicted, Ms. Pugh could face up to 100 years in prison and be required to forfeit her home and repay more than $769,000 allegedly obtained through the scheme.
The indictment alleges Ms. Pugh conspired with city employees to defraud buyers of her Healthy Holly children’s books, according to CBS, which published the indictment in full. It alleges Ms. Pugh arranged five $100,000 deals with UMMS to donate a total of 100,000 books to Baltimore public schools. The books were allegedly never delivered, and instead rerouted to alternate storage facilities around the city, distributed at campaign events and double-sold to other customers.
The indictment also alleges Ms. Pugh used Healthy Holly profits to fund straw donations to her mayoral campaign and to buy a house in Baltimore. She also faces allegations of tax evasion related to Healthy Holly sales, according to the report.
CBS notes Kaiser Permanente also disclosed buying $114,000 of the books at a time that overlaps with winning a $48 million contract from the city, according to the report.
The two city officials connected to the scheme pleaded guilty to conspiracy and tax evasion, according to the report.
Read the full story and access the full indictment here.
Trinity Health recorded higher revenue and operating income in the first quarter of fiscal year 2020 than in the same period a year earlier, but the Livonia, Mich.-based system ended the quarter with lower net income, according to unaudited financial documents.
During the first quarter of fiscal 2020, which ended Sept. 30, Trinity reported operating revenue of $4.8 billion, a 1.8 percent increase over the same period of the year prior. Operating expenses climbed 1.7 percent year over year to $4.7 billion.
Trinity ended the first quarter of fiscal 2020 with operating income of $94 million, up from $87 million in the first quarter of last year.
The system reported an operating margin of 2 percent in the first quarter of fiscal 2020, compared to an operating margin of 1.8 percent in the same period of the year prior. Margin growth was partially attributable to Trinity’s divestiture of Camden, N.J.-based Lourdes Health System in June. Growth in patient volumes and payment rates also supported margin growth.
After factoring in nonoperating items, including a decline in investment returns, Trinity reported net income of $166.4 million in the first quarter of fiscal 2020. That’s compared to the first quarter of fiscal 2019, when the system posted net income of $419.9 million.
The Residences at Camelback West in Phoenix has 500 rental units ranging from studios to two-bedroom apartments, of which 100 are set aside for homeless UnitedHealth Medicaid members. Photo: Tiempo Development & Management
In the course of a single year, a homeless man named Steve in Phoenix, Arizona, visited the emergency room 81 times. Only 54 years old, Steve is coping with a daunting array of medical conditions: multiple sclerosis, cerebral palsy, heart disease, and diabetes. Because of his health and reliance on emergency rooms, his medical costs averaged about $13,000 per month that year.
Thanks to an innovative housing program run by the nation’s largest health insurer, UnitedHealth Group, Steve no longer sleeps outside — a crucial prerequisite to improved health. He is one of about 60 formerly homeless people covered by Arizona Medicaid who now receive housing and support services in Phoenix, John Tozzi reported for Bloomberg Businessweek. The UnitedHealth housing program, called myConnections, represents the growing recognition across the health care system that improved health cannot be achieved exclusively by traditional clinical models. Getting patients off the streets is often the first — and most important — step to helping them heal, physically and mentally.
“Patients like Steve wind up in the ER because they don’t fit into the ways we deliver health care. . . . [The US system] is not set up to keep vulnerable people housed, clothed, and nourished so they’ll be less likely to get sick in the first place. —John Tozzi, Bloomberg News
“Patients like Steve wind up in the ER because they don’t fit into the ways we deliver health care,” Tozzi explained. “The US system is engineered to route billions of dollars to hospitals, clinics, pharmacies, and labs to diagnose and treat patients once they’re sick. It’s not set up to keep vulnerable people housed, clothed, and nourished so they’ll be less likely to get sick in the first place.”
MyConnections was the brainchild of a partnership between UnitedHealthcare (a division of UnitedHealth) and the Camden Coalition, a New Jersey–based nonprofit dedicated to improving care for people with complex health and social needs. The partnership was established in 2017 at the same time Jeffrey Brenner, MD, founder and executive director of the Camden Coalition, announced he was leaving the nonprofit to lead myConnections. He is now UnitedHealthcare’s senior vice president for integrated health and human services. UnitedHealthcare provides managed care to about six million people nationwide, according to company filings. It does not get reimbursed by Medicaid for housing assistance.
Making the Case for Addressing Social Determinants
Brenner hopes myConnections will show that both a health care and a business case can be made for investing in a Housing First (PDF) model. Tozzi reported that UnitedHealth “aims to reduce expenses not by denying care, but by spending more on social interventions, starting with housing.”
At the Residences at Camelback West, a Phoenix apartment complex of 500 apartments ranging from studios to two-bedroom units, up to 100 apartments are set aside for UnitedHealth Medicaid members enrolled in myConnections. The rest of the units are rented out at market rates. Five health coaches use an on-site office to serve as case managers and counselors for the myConnections residents. The coaches make sure that their clients remember medical appointments, and arrange transportation for them and sometimes accompany them to the doctor.
Since receiving housing and health coaching from Brenner’s team, Steve’s average monthly medical costs have dropped from $12,945 to $2,073. An analysis of the first 41 participants in Phoenix shows that “housing and support services proved cost effective for the 25 most expensive patients, reducing their overall costs dramatically,” Tozzi reported. But total spending for the other 16 increased, highlighting the complexity of this work.
“The return’s only going to work out if we target the right people,” Brenner told Tozzi. The myConnections team selects patients who are enrolled in UnitedHealth, are homeless, and who have annual medical spending greater than $50,000 mostly because of ER visits and inpatient stays. Those high-cost patients are UnitedHealth’s best bet for recovering the cost of its housing investment.
UnitedHealth is starting with 10 subsidized apartments in each new city where it’s introducing the program, including in places where there might be hundreds of homeless Medicaid members on its rolls, Tozzi reported. MyConnections will be in 30 markets by early 2020.
Kaiser Addresses Homelessness in Its Backyard
In its home base of Oakland, California, health system Kaiser Permanente has invested $200 million in an affordable housing project, Hannah Norman reported in the San Francisco Business Times. Its help is not targeted exclusively at Kaiser members, instead aiming to benefit any residents who live in communities it serves.
The initiative was championed by Bernard Tyson, the late chairman and CEO of Kaiser, who died unexpectedly this month. In a New York Times remembrance, Reed Abelson noted that Tyson was committed to addressing social determinants of health in the places where Kaiser operates. “He had the organization examine broad issues like housing shortages, food insecurity, and gun violence and their impact on health and well-being,” Abelson wrote.
Tyson, who was the health system’s first Black chief executive, served as chair of the Bay Area Council, a business association dedicated to economic development in the San Francisco region. His chairmanship culminated in a major report (PDF) that documented the severity of the homelessness crisis and recommended ways to address it, Norman reported.
“We don’t believe as a mega-health system that our only lane is medical care,” Tyson said in April. “It’s a critical lane, but it’s not our only lane.”
Steady Rents in Buildings with Seismic Upgrades
Kaiser announced its $200 million housing initiative, the Thriving Communities Fund, in January. Since then, it partnered with Enterprise Community Partners, a nonprofit organization focused on affordable housing, and the nonprofit East Bay Asian Local Development Corporation to invest a total of $8.7 million ($5.2 million from Kaiser) in Kensington Gardens, a 41-apartment building in East Oakland. “The trio of organizations plans to keep the residents in place and the rent steady at $1,597 per month for a studio and $2,250 for a two-bedroom,” Norman wrote. “Some residents receive federal housing benefits, including Section 8, to help cover the cost.”
The Kensington Gardens purchase is part of the Thriving Communities Fund’s strategy to keep rents steady and to make health and safety upgrades such as seismic upgrades and new roofs.
Kaiser’s Built for Zero initiative committed $3 million over three years to a data-driven, county-level approach to understanding the dynamics of homelessness. Built for Zero tracks the homeless population in a county from month to month to understand “who they are, what they need, and even how many of them are repeatedly visiting emergency rooms,” Norman reported. Fifteen Kaiser communities, including eight in California, are participating in the program.
The idea of “Medicare for all” advanced another step with the recent release of Sen. Elizabeth Warren’s more detailed health proposal. It is expansive and bold, and has brought some excitement to the progressive core of the Democratic Party. While policy mavens can delight in the details, the enormity of the proposal is a sign that this debate has clearly gone off the rails.
There is no question that healthcare cost is a pocketbook challenge for all of us. Employer and employee premiums for private health insurance for a household now average $20,576, before deductibles and copayments, and before payroll and state and local taxes to pay for healthcare for the elderly and the poor.
National health expenditures increased 179% between 2000 and 2019 to $3.8 trillion, and 50% of this increase was directly due to increases in unit prices and service intensity by hospital systems and physicians. In the U.S., healthcare is 28% more expensive than the next highest cost system, Switzerland, and 78% more expensive than in Germany. For a primary care doctor in the U.S., submitting invoices to insurers and collecting payments costs almost $100,000 per year.
What we should be debating — instead of the politics around Medicare for all — is how this market evolved in such a malignant direction, and whether anything can be done to change these trends.
Hospital consolidation has been shown to drive up healthcare costs, and yet 90% of U.S. hospital markets are highly consolidated. Physician employment by hospitals and health systems has increased from 26% to 44% of the market from 2012 to 2018, increasing the pricing leverage of consolidated systems even further.
These changes directly result in higher prices for commercial health insurance as hospitals use their exaggerated hospital “charges,” often many multiples of their costs or of the market price, to drive up their reimbursement rates for in-network care and especially for out-of-network care, where there is no price negotiation. Further, even at most not-for-profit healthcare systems, hospital leaders are compensated based on the profits they generate, not premiums they reduce, as is the case with leaders of for-profit hospital systems.
The pharmaceutical market has also come under scrutiny for the enormous prices of newly approved medications, and for price increases of existing medicines such as insulin. Behind the scenes are layers of businesses that further exploit this market. For example, one pharmaceutical benefit manager (a company hired by a health plan or employer to oversee prescription drug benefits) reported profits of $1.8 billion in 2013 that rose to $4.5 billion in 2017 despite a 4% reduction in revenue reported over this period.
It’s easy to see that consumers need relief from this market. One might imagine that politicians from both political parties would band together in a search for actionable solutions. Yet the debate has migrated from a discussion of why costs are spiraling out of control to a simple and unrealistic answer — Medicare for all. Here are some ideas on how to frame a meaningful discussion about costs.
Reducing administrative costs has been a stated policy goal of the federal government since the passage of the Health Insurance Portability and Accountability Act (HIPAA) in 1996, yet these costs continue to increase. To reduce these costs, we have to simplify the complexity of the billing process for hospitals and physicians across the multiple different health plans in the market, and we need to transform the expensive set of public data reporting mandates into a model in which we are assured these data are used by providers internally to improve the quality of care they provide.
We need to rebalance negotiating power between hospitals and physicians and insurers. Hospitals and other providers have been allowed to set their list prices without any relationship to the cost of care they provide. These inflated prices are then imposed on out-of-network patients, most egregiously in the practice of surprise medical billing in which patients encounter deliberately out-of-network air ambulances and independent anesthesiologists. In billing disputes, state law should offer these patients a default of a market price closer to Medicare payments than to hospital charges.
Finally, it’s time to stop the practices that are driving up prescription drug costs for all of us. Secret payments between pharmaceutical manufacturers and pharmaceutical benefit managers and distributors totaled over $100 billion in 2016. This business model needlessly inflates drug prices for the benefit of intermediaries in the market. We need laws requiring price transparency at the pharmacy for brand and generic drugs, and price competition for medications at the retail level.
The problem with focusing on Medicare for all is that rather than developing practical approaches, the debate is heading down a path likely to leave us without any tenable solutions to address healthcare costs — the issue that ignited the public’s interest in the first place.
HENRY KOTULA 