A Los Angeles jury awarded $41.49 million to a former nurse who said Kaiser Permanente’s hospitals and health plan retaliated against and eventually terminated her for raising issues with patient safety and care quality, MyNewsLA reported Dec. 12.
The former nurse, Maria Gatchalian, was awarded $11.49 million in compensatory damages, including $9 million for emotional distress, and $30 million in punitive damages.
“We stand by her termination and are surprised and disappointed in the verdict,” Murtaza Sanwari, senior vice president and area manager for Kaiser Permanente Woodland Hills/West Ventura County, told Becker’s in a statement. “Kaiser Permanente plans to appeal this decision and will maintain our high standards in protecting the health and safety of all our patients.”
Before her termination in 2019, Ms. Gatchalian had worked at the Kaiser Permanente Woodland Hills Medical Center since 1989, first as a registered nurse in the neonatal intensive care unit and later as a charge nurse in that unit.
According to MyNewsLA, Ms. Gatchalian said she had repeatedly raised concerns with Kaiser management about patient safety and care quality related to alleged understaffing and was discouraged from submitting formal complaints. Oakland, Calif.-based Kaiser argued in court that Ms. Gatchalian admitted she had placed her bare feet on equipment in the NICU, and the organization made the decision to terminate her following her conduct.
“We work hard to make Kaiser Permanente a great place to work and a great place to receive care,” Mr. Sanwari said. “The allegations in this lawsuit are at odds with the facts we showed in the courtroom.”
“To be clear, this charge nurse’s job was to be a leader for other nurses, ensure the standards of care were followed and to protect the neonatal babies entrusted to our care. She was terminated in 2019 following an incident where she was found sitting in a recliner in the neonatal intensive care unit, on her personal phone and resting her bare feet on an isolette with a neonatal infant inside. Neonatal intensive care units are critical care units designed for critically ill babies most often born prematurely and very susceptible to infections.
The isolette, where this nurse placed her bare feet, is a protective environment designed to shield the infant from infection causing germs. Placing her bare feet on the isolette may have created risk to the infant which could have been life threatening. Her actions were egregious and in violation of our infection control policies and standards.”
Claim denials are increasing, especially in Medicare Advantage, and it’s affecting hospital’s revenue cycles and patient care.
“We definitely are seeing an increase in denials,” said Sherri Liebl, executive director of Revenue Cycle, CentraCare Health, a large multispecialty system in Minnesota. CareCare has two acute care hospitals, seven Critical Access Hospitals and 30 standalone clinics, many of them in rural areas.
CentraCare reported a positive margin this year, but in no way realizes the profits of insurers, especially the national insurers where Liebl is having the most difficulty with claims.
CentraCare’s goal in its cost to collect – not all-around denials – is to be at 2%. The health system is closer to 7% on its cost to collect.
“The cost for our organization is exorbitant,” Lieble said.
Much of the blame for denials is falling to artificial intelligence being used in algorithms to deny claims.
UnitedHealthcare has been sued in a class action lawsuit that alleges the insurer unlawfully used an artificial intelligence algorithm to deny rehabilitative care to sick Medicare Advantage patients.
Cigna has also been suedfor allegedly using algorithms to deny claims. The lawsuit claims the Cigna PXDX algorithm enables automatic denials for treatments that do not match preset criteria, evading the legally required individual physician review process.
A Cigna Healthcare spokesperson said the vast majority of claims reviewed through PXDX are automatically paid, and that the PXDX process does not involve algorithms, AI or machine learning, but a simple sorting technology that has been used for more than a decade to match up codes. Claims declined for payment via PXDX represent less than 1% of the total volume of claims, the spokesperson said.
Industry consultant Adam Hjerpe, who formerly worked for UnitedHealth Group, said there’s nothing new about payers using artificial intelligence. AI has been used for 20 years in robotic processes, statements in Excel and algorithms, he said.
Everybody is working with good intent, Hjerpe said. There are reasonable controls in place to avoid fraud and abuse.
Claims are being denied for missing information, or for the information being out of sequence, or for the claim giving an incomplete picture of the care.
“We don’t want care delayed,” he said.
Nobody wins in claims denials, said Susan Taylor, Pega’s vice president of Healthcare and Life Sciences.
While payers save money in the short-term, in the long-term, the best arrangement is to have payers and providers work together to prevent denials, said Taylor, who has worked in healthcare for more than 25 years, starting on the health system side before moving into IT.
“There are more claims of note being denied,” Taylor said. “If you look at the ecosystem, there are a lot of opportunities for error.”
The solution is building an agility layer to streamline workflows throughout the revenue cycle, from initial claim submission to the complex denials processing stage.
WHY THIS MATTERS
Liebl said that denials have increased over the past two years and that there’s also been an uptick in payer audits months after payment has been made.
Insurers want justification for why CentraCare should keep its payments, and this is especially true for Medicare Advantage claims, she said.
One insurer said the claim didn’t meet inpatient criteria and downgraded the claim to an observation patient.
“We have a pretty good success rate as far as being able to justify we did the right care,” Liebl said.
Asked what’s driving the higher denial rates Lieble said, “Everybody wants to keep margins and expand their business. I think it comes down to profit margins, trying to keep profit margins high; we’re just trying to stay afloat.”
To combat denials and work with payers, CentraCare founded a joint operating committee to have successful partnerships. They’ve been more successful with the local Minnesota plans than the national plans, but Liebl is optimistic, she said.
“I am hopeful we can create partnerships …” she said. “Some of the denials we receive are against their payer policy. We need to be able to hold payers accountable.”
Larger health systems have a little more clout, and CentraCare is able to partner with other health systems through the Minnesota Hospital Association.
What’s being lost in all this is the patient, Liebl said. Sometimes a patient is getting a bill up to a year after a procedure.
“Sometimes the patient focus is lost when we work through some of this,” she said.
“They keep our money longer,” Liebl said. “They hold our money hostage. We have denials sitting out there for 300 days. It’s a lot of administrative burden on our part. We’ve spent a lot of money just to get the money in the door. Finally when that claim has been resolved, it’s a year later. No one wins? I think there is some winning going on one side.”
Here are 68 health systems with strong operational metrics and solid financial positions, according to reports from credit rating agencies Fitch Ratings, Moody’s Investors Service and S&P Global in 2023.
AdventHealth has an “AA” rating and stable outlook with Fitch. The rating reflects the Altamonte Springs, Fla.-based system’s strong financial profile, characterized by still-adequate liquidity and moderate leverage, typically strong and highly predictable profitability, Fitch said.
Advocate Aurora Health has an “AA” rating and stable outlook with Fitch. The Downers Grove, Ill.- and Milwaukee-based system’s rating reflects a very strong financial profile in the context of an already sound market position and geographic reach that was enhanced after merging with Charlotte, N.C.-based Atrium Health, Fitch said.
AnMed Health has an “AA-” rating and stable outlook with Fitch. The Anderson, S.C.-based system has maintained strong performance through the COVID-19 pandemic and current labor market pressures, Fitch said.
AtlantiCare has an “AA-” rating and stable outlook with Fitch. The Atlantic City, N.J.-based system has a strong balance sheet with solid liquidity position and low debt burden, Fitch said.
Atrium Health has an “AA-” rating and stable outlook with S&P Global. The Charlotte, N.C.-based system’s rating reflects a robust financial profile, growing geographic diversity and expectations that management will continue to deploy capital with discipline.
Banner Health has an “AA-” and stable outlook with Fitch. The Phoenix-based system’s rating highlights the strength of its core hospital delivery system and growth of its insurance division, Fitch said.
BayCare Health System has an “AA” rating and stable outlook with Fitch. The Tampa, Fla.-based system’s rating reflects its excellent financial profile supported by its leading market position in a four-county area and the ability to sustain a solid operating outlook in the face of inflationary sector headwinds, Fitch said.
Bayhealth has an “AA” rating and stable outlook with Fitch. The rating reflects the strength of the Dover, Del.-based system’s market positions and the stability of its financial profile, Fitch said.
Beacon Health System has an “AA-” rating and stable outlook with Fitch. The rating reflects the strength of the South Bend, Ind.-based system’s balance sheet, the rating agency said.
Berkshire Health has an “AA-” rating and stable outlook with Fitch. The Pittsfield, Mass.-based system has a strong financial profile, solid liquidity and modest leverage, according to Fitch.
Bryan Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Lincoln, Neb., system’s leading and growing market position as a regional referral center with strong expense flexibility and cash flow, Fitch said.
Cape Cod Healthcare has an “AA-” and stable outlook with Fitch. The Hyannis, Mass.-based system’s rating reflects a dominant market position in its service area and historically solid operating results, the rating agency said.
Carle Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Urbana, Ill.-based system’s distinctly leading market position over a broad service area, Fitch said.
CaroMont Health has an “AA-” rating and stable outlook with S&P Global. The Gastonia, N.C.-based system has a healthy financial profile and robust market share in a competitive region.
CentraCare has an “AA-” rating and stable outlook with Fitch. The St. Cloud, Minn.-based system has a leading market position, and its management’s focus on addressing workforce pressures, patient access and capacity constraints will improve operating margins over the medium term, Fitch said.
Children’s Health System of Texas has an “AA” and stable outlook with Fitch. The Dallas-based system’s rating reflects its solid operating performance in 2022, resulting from inpatient, outpatient and surgical volume growth, as well as one-time support from pandemic-era stimulus funding, Fitch said.
Children’s Minnesota has an “AA” rating and stable outlook with Fitch. The Minneapolis-based system’s broad reach within the region continues to support long-term sustainability as a market leader and preferred provider for children’s health care, Fitch said.
Concord (N.H.) Hospital has an “AA-” rating and stable outlook with Fitch. The rating reflects the strength of Concord’s leverage and liquidity assessment and Fitch’s assessment that two recently acquired hospitals will be strategically and financially accretive.
Cone Health has an “AA” rating and stable outlook with Fitch. The rating reflects the expectation that the Greensboro, N.C.-based system will gradually return to stronger results in the medium term, the rating agency said.
Cottage Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Santa Barbara, Calif.-based system’s leading market position and broad reach in a service area that exhibits modest population growth but consistently high demand for acute care services, Fitch said.
Deaconess Health System has an “AA” rating and stable outlook with Fitch. The Evansville, Ind.-based system demonstrated operating cost flexibility through the pandemic and recent labor and inflationary pressure, Fitch said.
Duke University Health System has an “AA-” rating and stable outlook with Fitch. Fitch projects the Durham, N.C.-based system will benefit from the integration of the former Private Diagnostic Clinic and from North Carolina’s recently enacted Medicaid expansion and Healthcare Access and Stabilization Program.
El Camino Health has an “AA-” rating and stable outlook with Fitch. The Mountain View, Calif.-based system has a history of generating double-digit operating EBITDA margins, driven by a solid market position that features strong demographics and a very healthy payer mix, Fitch said.
Franciscan Health has an “AA” rating and stable outlook with Fitch. The rating reflects the Mishawaka, Ind.-based system’s strong and stable balance sheet, favorable payer mix, and leading or near leading market share in its service areas, Fitch said.
Froedtert Health has an “AA” rating and stable outlook with Fitch. The rating reflects the Milwaukee-based system’s maintenance of a strong, albeit compressed, operating performance and a robust liquidity position, Fitch said.
Geisinger has an “AA-” credit rating and stable outlook with S&P. The Danville, Pa.-based system enjoys strong integration and value-based care experience, the ratings agency said.
Hackensack Meridian Health has an “AA-” rating and stable outlook with Fitch. The Edison, N.J.-based system’s rating is supported by its strong presence in its large and demographically favorable market, Fitch said.
Harris Health System has an “AA” rating and stable outlook with Fitch. The Houston-based system has a “very strong” revenue defensibility, primarily based on the district’s significant taxing margin that provides support for operations and debt service, Fitch said.
Hoag Memorial Hospital Presbyterian has an “AA” rating and stable outlook with Fitch. The Newport Beach, Calif.-based system’s rating is supported by a leading market position in its immediate area and very strong financial profile, Fitch said.
Intermountain Health has an “Aa1” rating and stable outlook with Moody’s. The Salt Lake City-based system’s rating is reflected by its distinctly leading market position in Utah and strong absolute and relative cash levels, Moody’s said.
Inspira Health has an “AA-” rating and stable outlook with Fitch. The Mullica Hill, N.J.-based system’s rating reflects its leading market position in a stable service area and a large medical staff supported by a growing residency program, Fitch said.
IU Health has an “AA” rating and stable outlook with Fitch. The Indianapolis-based system has a long track record of strong operating margins and an overall credit profile that is supported by a strong balance sheet, the rating agency said.
Lucile Packard Children’s Hospital has an “AA-” rating and stable outlook with Fitch. The rating reflects the Palo Alto, Calif.-based hospital’s role as a nationally known, leading children’s hospital, Fitch said. It also benefits from resilient clinical volumes and a solid market position, as well as its relationship with Stanford University and Stanford Health Care.
Kaiser Permanente has an “AA-” and stable outlook with Fitch. The Oakland, Calif.-based system’s rating is driven by a strong financial profile, which is maintained despite a challenging operating environment in fiscal year 2022.
Mayo Clinic has an “Aa2” rating and stable outlook with Moody’s. The Rochester, Minn.-based system’s credit profile characterized by its excellent reputations for clinical services, research and education, Moody’s said.
McLaren Health Care has an “AA-” rating and stable outlook with Fitch. The Grand Blanc, Mich.-based system has a leading market position over a broad service area covering much of Michigan and a track-record of profitability despite sector-wide market challenges in recent years, Fitch said.
McLeod Regional Medical Center has an “AA-” rating and stable outlook with Fitch. The rating reflects the Florence, S.C.-based system’s very strong financial profile assessment, historically strong operating EBITDA margins and its solid market position, Fitch said.
MemorialCare has an “AA-” rating and stable outlook with Fitch. The rating reflects the Fountain Valley, Calif.-based system’s strong financial profile and excellent leverage metrics despite its weaker operating performance, Fitch said.
Memorial Sloan-Kettering Cancer Center has an “AA” rating and stable outlook with Fitch. The rating reflects Fitch’s expectation that the New York City-based system’s national and international reputation as a premier cancer hospital will continue to support growth in its leading and increasing market share for its specialty services.
Midland (Texas) Health has an “AA-” rating and stable outlook with Fitch. The rating reflects Midland’s exceptional market position and limited competition for acute-care services and growing outpatient services, Fitch said.
Monument Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Rapid City, S.D.-based system’s dominant inpatient market share and excellent market position across its geographically broad service area, Fitch said.
Munson Healthcare has an “AA” rating and stable outlook with Fitch. The rating reflects the strength of the Traverse City, Mich.-based system’s market position and its leverage and liquidity profiles.
MyMichigan Health has an “AA-” rating and stable outlook with Fitch. The Midland-based system reflects the system’s market position as the largest provider of acute care services and its leading market position in a sizable geographic area covering 25 counties in mid and northern Michigan, the rating agency said.
North Mississippi Health Services has an “AA” rating and stable outlook with Fitch. The Tupelo-based system’s rating reflects its very strong cash position and strong market position, Fitch said.
NewYork-Presbyterian Hospital has an “AA” rating and stable outlook with Fitch. The rating reflects the New York City-based system’s market position as one of New York’s major academic healthcare systems with a reputation that extends beyond the region, Fitch said.
Novant Health has an “AA-” rating and stable outlook with Fitch. The Winston-Salem, N.C.-based system has a highly competitive market share in three separate North Carolina markets, Fitch said, including a leading position in Winston-Salem (46.8 percent) and second only to Atrium Health in the Charlotte area.
NYC Health + Hospitals has an “AA-” rating with Fitch. The New York City system is the largest municipal health system in the country, serving more than 1 million New Yorkers annually in more than 70 patient locations across the city, including 11 hospitals, and employs more than 43,000 people.
OhioHealth has an “AA+” rating and stable outlook with Fitch. The Columbus-based system has an exceptionally strong credit profile, very favorable leverage metrics and reliably strong profitability, Fitch said.
Orlando (Fla.) Health has an “AA-” rating and stable outlook with Fitch. The system’s upgrade from “A+” reflects the continued strength of the health system’s operating performance, growth in unrestricted liquidity and excellent market position in a demographically favorable market, Fitch said.
Phoenix Children’s Hospital has an “AA-” and stable outlook with Fitch. The rating reflects its position as a distinct leading provider of pediatric health services in a growing primary service area, Fitch said.
The Queen’s Health System has an “AA” rating and stable outlook with Fitch. The Honolulu-based system’s rating reflects its leading state-wide market position, historically strong operating performance and diverse revenue streams, the rating agency said.
Rush System for Health has an “AA-” and stable outlook with Fitch. The Chicago-based system has a strong financial profile despite ongoing labor issues and inflationary pressures, Fitch said.
Saint Francis Healthcare System has an “AA” rating and stable outlook with Fitch. The Cape Girardeau, Mo.-based system enjoys robust operational performance and a strong local market share as well as manageable capital plans, Fitch said.
Salem (Ore.) Health has an “AA-” rating and stable outlook with Fitch. The system has a “very strong” financial profile and a leading market share position, Fitch said.
Sanford Health has an “AA-” rating and stable outlook with Fitch. The Sioux Falls, S.D.-based system rating reflects its leading inpatient market share positions in multiple markets and strong overall financial profile, the rating agency said.
Stanford Health Care has an “AA” rating and stable outlook with Fitch. The Palo Alto, Calif.-based system’s rating is supported by its extensive clinical reach in the greater San Francisco and Central Valley regions and nationwide/worldwide destination position for extremely high-acuity services, Fitch said.
SSM Health has an “AA-” rating and stable outlook with Fitch. The St. Louis-based system has a strong financial profile, multi-state presence and scale, with solid revenue diversity, Fitch said.
St. Clair Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Pittsburgh-based system’s strong financial profile assessment, solid market position and historically strong operating performance, the rating agency said.
St. Tammany Parish Hospital has an “AA-” rating and stable outlook with Fitch. The rating reflects the Covington, La.-based system’s strong operating risk assessment and very strong financial profile supported by consistently robust operating cash flows, Fitch said.
Texas Medical Center has an “AA-” rating and stable outlook with Fitch. The rating reflects the Houston-based system’s profitable service enterprise, its long and collaborative relationship with strong university, nonprofit and medical industry partners, and sizable financial reserve levels, Fitch said.
TriHealth has an “AA-” rating and stable outlook with Fitch. The Cincinnati-based system’s rating reflects its broad reach, high-acuity services and stable market position in a highly fragmented and competitive market, Fitch said.
UChicago Medicine has an “AA-” rating and stable outlook with Fitch. The rating reflects the system’s broad and growing reach for high-acuity services and the considerable benefits it receives from its high degree of integration with the University of Chicago, Fitch said.
UCHealth has an “AA” rating and stable outlook with Fitch. The Aurora, Colo.-based system’s margins are expected to remain robust, and the operating risk assessment remains strong, Fitch said.
University of Kansas Health System has an “AA-” rating and stable outlook with S&P Global. The Kansas City-based system has a solid market presence, good financial profile and solid management team, though some balance sheet figures remain relatively weak to peers, the rating agency said.
Virtua Health has an “AA-” rating and stable outlook with Fitch. The rating is supported by the Marlton, N.J.-based system’s leading market position in a stable service area and the successful integration of the Lourdes Health System, Fitch said.
VHC Health has an”AA-” rating and stable outlook with Fitch. The Arlington-based system has demonstrated strong operating cost flexibility, growth in high acuity service lines and an expanding outpatient footprint, Fitch said.
WellSpan Health has an “Aa3” rating and stable outlook with Moody’s. The York, Pa.-based system has a distinctly leading market position across several contiguous counties in central Pennsylvania, and management’s financial stewardship and savings initiatives will continue to support sound operating cash flow margins when compared to peers, Moody’s said.
Willis-Knighton Health System has an “AA-” rating and stable outlook with Fitch. The Shreveport, La.-based system has a “dominant inpatient market position” and is well positioned to manage operating pressures, Fitch said.
Oakland, Calif.-based Kaiser Permenante’s new hospital development in Sacramento, Calif., could cost as much as $1.48 billion, Sacramento Business Journal reported Dec. 11.
The project costs 50% more than when the health system first announced the new hospital six years ago. The 310-bed hospital building is expected to cost $924.4 million. When Kaiser assessed the building part of the project in 2018, it projected that it would cost $749.5 million.
Currently, Kaiser operates a 287-bed hospital in the area. However, it does not meet California’s earthquake compliance standards.
StoneBridge Healthcare, a hospital turnaround firm, is looking to enter a management contract with Delaware-based WoodBridge, a nonprofit organization, to acquire West Reading, Pa.-based Tower Health for $706 million, the Philadelphia Business Journal reported Dec.12.
WoodBridge, a sister organization to StoneBridge, was expected to share a nonbinding agreement in principle with Tower Health on Dec. 12, which includes the intent to purchase the system’s assets, the publication reported.
An initial cash payment of $550 million, including the assumption of finance leases with liabilities of $156 million, and a commitment of hiring nearly all the system’s 11,000 employees are featured in the proposed deal.
Tower Health operates Reading Hospital, Pottstown Hospital and Phoenixville Hospital. St. Christopher’s Hospital for Children in Philadelphia is also under the system in partnership with Drexel University.
If all goes well, the plan would involve StoneBridge negotiating a management agreement with WoodBridge, Joshua Nemzoff, founder and CEO of StoneBridge, told the Journal. However, Mr. Nemzoff said WoodBridge is only interested in acquiring the Reading, Pottstown and Phoenixville hospitals.
This is not the first time that StoneBridge has attempted to acquire the system. Last November, the firm offered Tower Health $675 million, which was turned down. StoneBridge, in partnership with Allentown, Pa.-based Lehigh Valley Health Network, also made two conditional offers in 2021 to acquire the system’s assets for $600 million, which were also declined.
Formed in 2020, StoneBridge’s mission is to purchase and turn around acute care hospitals that are in significant economic distress. The firm currently does not own or operate any hospitals. Like StoneBridge, WoodBridge also hasn’t completed hospital deals, and will have its own separate board of directors, the publication reported.
Becker’s has reached out to StoneBridge Healthcare and Tower Health for comments on the potential acquisition.
On November 2-3 in Austin, I moderated the 4th Annual CSO Roundtable* in which Chief Strategy/Growth Officers from 12 mid-size and large multi-hospital systems participated. The discussion centered on the future: the issues and challenges they facing their organizations TODAY and their plans for their NEAR TERM (3-5 years) and LONG-TERM (8-10 years) future. Augmenting the discussion, participants rated the likelihood and level of disruptive impact for 50 future state scenarios using the Future State Diagnostic Survey. *
Five themes emerged from this discussion:
1-Major change in the structure and financing of U.S. health system is unlikely.
CSOs do not believe Medicare for All will replace the current system. They anticipate the existing public-private delivery system will continue with expanded government influence likely.
Public funding for the system remains problematic: private capital will play a larger role.
CSOs think it is unlikely the public health system will be fully integrated into the traditional delivery system (aka health + social services). Most hospital systems are expanding their outreach to public health programs in local markets as an element of their community benefits strategy.
CSOs recognize that states will play a bigger role in regulating the system vis a vis executive orders and referenda on popular issues. Price controls for hospitals and prescription drugs, restraints on hospital consolidation are strong possibilities.
Consensus: conditions for hospitals will not improve in the immediate and near-term. Strategies for growth must include all options.
2-Health costs, affordability and equitable access are major issues facing the health industry overall and hospitals particularly.
CSOs see equitable access as a compliance issue applicable to their workforce procurement and performance efforts and to their service delivery strategy i.e., locations, patient experiences, care planning.
CSOs see reputation risk in both areas if not appropriately addressed in their organizations.
CSOs do not share a consensus view of how affordability should be defined or measured.
There is consensus among CSOs that hospitals have suffered reputation damage as a result of inadequate price transparency and activist disinformation campaigns. Executive compensation, non-operating income, discrepancies in charity care and community benefits calculations and patient “sticker shock” are popular targets of criticism.
CSO think increased operating costs due to medical inflation, supply chain costs including prescription drugs, and labor have offset their efforts in cost reduction and utilization gains.
CSO’s are focusing more of their resources and time in support of acute clinical programs where streamlining clinical processes and utilization increases are achievable near-term.
Consensus: the current financing of the system, particularly hospitals, is a zero-sum game. A fundamental re-set is necessary.
3-The regulatory environment for all hospitals will be more challenging, especially for not-for-profit health systems.
Most CSOs think the federal regulatory environment is hostile toward hospitals. They expect 340B funding to be cut, a site neutral payment policy in some form implemented, price controls for hospital services in certain states, increased federal and state constraints on horizontal consolidation vis a vis the FTC and State Attorneys General, and unreasonable reimbursement from Medicare and other government program payers.
CSOs believe the challenges for large not-for-profit hospital systems are unique: most CSOs think not-for-profit hospitals will face tighter restrictions on their qualification for tax-exempt status and tighter accountability of their community benefits attestation. Most expect Congress and state officials to increase investigations about for-profit activities, partnerships with private equity, executive compensation and other issues brought to public attention.
CSOs think rural hospital closures will increase without significant federal action.
Consensus: the environment for all hospitals is problematic, especially large, not-for-profit multi-hospitals systems and independent rural facilities.
4-By contrast, the environment for large, national health insurers, major (publicly traded) private equity sponsors and national retailers is significantly more positive.
CSOs recognize that current monetary policy by the Fed coupled with tightening regulatory restraints for hospitals is advantageous for national disruptors. Scale and access to capital are strategic advantages enjoyed disproportionately by large for-profit operators in healthcare, especially health insurers and retail health.
CSOs believe publicly traded private equity sponsors will play a bigger role in healthcare delivery since they enjoy comparably fewer regulatory constraints/limitations, relative secrecy in their day-to-day operations and significant cash on hand from LPs.
CSOs think national health insurer vertical consolidation strategies will increase noting that all operate integrated medical groups, pharmacy benefits management companies, closed networks of non-traditional service providers (i.e. supplemental services like dentistry, home care, et al) and robust data management capabilities.
CSOs think national retailers will expand their primary care capabilities beyond traditional “office-based services” to capture market share and widen demand for health-related products and services
Consensus: national insurers, PE and national retailers will leverage their scale and the friendly regulatory environment they enjoy to advantage their shareholders and compete directly against hospital and medical groups.
5-The system-wide shift from volume to value will accelerate as employers and insurers drive lower reimbursement and increased risk sharing with hospitals and medical groups.
CSOs think the pursuit of value by payers is here to stay. However, they acknowledge the concept of value is unclear but they expect HHS to advance standards for defining and measuring value more consistently across provider and payer sectors.
CSOs think risk-sharing with payers is likely to increase as employers and commercial insurers align payment models with CMS’ alternative payment models: the use of bundled payments, accountable care organizations and capitation is expected to increase.
CSOs expect network performance and data management to be essential capabilities necessary to an organization’s navigation of the volume to value transition. CSOs want to rationalize their current acute capabilities by expanding their addressable market vis a vis referral management, diversification, centralization of core services, primary and preventive health expansion and aggressive cost management.
Consensus: successful participation in payer-sponsored value-based care initiatives will play a bigger role in health system strategy.
My take:
The role of Chief Strategy Officer in a multi-hospital system setting is multi-functional and unique to each organization. Some have responsibilities for M&A activity; some don’t. Some manage marketing, public relations and advocacy activity; others don’t. All depend heavily on market data for market surveillance and opportunity assessments. And all have frequent interaction with the CEO and Board, and all depend on data management capabilities to advance their recommendations about risk, growth and the future. That’s the job.
CSOs know that hospitals are at a crossroad, particularly not-for-profit system operators accountable to the communities they serve. In the 4Q Keckley Poll, 55% agreed that “the tax exemption given not-for-profit hospitals is justified by the community benefits they provide” but 45% thought otherwise. They concede their competitive landscape is more complicated as core demand shifts to non-hospital settings and alternative treatments and self-care become obviate traditional claims-based forecasting. They see the bigger players getting bigger: last week’s announcements of the Cigna-Humana deal and expansion of the Ascension-LifePoint relationship cases in point. And they recognize that their reputations are under assault: the rift between Modern Healthcare and the AHA over the Merritt Research ’s charity care study (see Hospital section below) is the latest stimulant for not-for-profit detractors.
In 1937, prominent literary figures Laura Riding and Robert Graves penned a famous statement in an Epilogue Essay that’s especially applicable to hospitals today: “the future is not what it used to be.”
For CSO’s, figuring that out is both worrisome and energizing.
This week’s graphic features our assessment of the many emerging competitive challenges to traditional health systems.
Beyond inflation and high labor costs, health systems are struggling because competitors—ranging from vertically integrated payers to PE-backed physician groups—are effectively stripping away profitable services and moving them to lower-cost care sites. The tandem forces of technological advancement, policy changes, and capital investment have unlocked the ability of disruptors to enter market segments once considered safely within health system control.
While health systems’ most-exposed services, like telemedicine and primary care, were never key revenue sources (although they are key referral drivers), there are now more competitors than ever providing diagnostics and ambulatory surgery, which health systems have relied on to maintain their margins.
Moving forward, traditional systems run the risk of being “crammed down” into a smaller portfolio of (largely unprofitable) services: the emergency department, intensive care unit, and labor and delivery.
Health systems cannot support their operations by solely providing these core services, yet this is the future many will face if they don’temulate the strategies of disruptors by embracing the site-of-care shift, prioritizing high-margin procedures, rethinking care delivery within the hospital, and implementing lower-cost care models that enable them to compete on price.
After signing a letter of intent in late May, St. Louis, MO-based BJC HealthCare and Kansas City, MO-based Saint Luke’s Health System announced on Wednesday that they have signed a definitive merger agreement, having received the necessary regulatory approvals.
Based on opposite sides of the “Show-Me State,” the systems’ markets do not directly overlap. The merger, expected to close on Jan. 1, 2024, will create a $10B revenue, 28-hospital system spanning Missouri, southern Illinois, and eastern Kansas. The two systems plan to retain their respective brands and will be dually headquartered in St. Louis and Kansas City.
The Gist: BJC and Saint Luke’s are following in the footsteps of other recent mergers involving large health systems with no geographic overlap, which regulators have allowed to move forward. However, recent history shows there’s more to closing a deal than just passing regulatory muster.
Both the Sanford-Fairview and UnityPoint-Presbyterian mergers were called off earlier this year for non-regulatory reasons, including the concerns of local stakeholders.
Given the difficult financial environment and the growing threat of vertically integrated payers, health systems looking to pursue scale strategies must ensure they will actually realize the promise these combinations may hold.
West Reading, Pa.-based Tower Health continues to make progress on its performance improvement plan as its operating margin for the three months ended Sept. 30 rose to -4.2% from -8% during the same period in 2022. Its operating cash flow margin also increased from -0.9% to 2.3%.
During the first quarter of fiscal 2024, the three months ending Sept. 30, revenue decreased 2.9% year over year to $457.4 million. Expenses decreased 6.4% to $476.5 million.
Tower’s operating loss for the period was $19.1 million, compared with a loss of $37.6 million for the prior-year period.
As of Sept. 30, total balance sheet unrestricted cash and board-designated investment funds for capital improvements totalled $154 million — a decrease of $54 million from June 30, 2023. The main factors for the decrease were $15 million of debt service payments, physician incentive compensation payments of $9 million, capital expenditures of $6 million, negative changes in working capital of $32 million, partially offset by EBITDA of $10 million.
Total days of cash on hand for the system was 30 on Sept. 30.
After including the performance of its investment portfolio and other nonoperating items, the health system ended the three-month period with a net loss of $20.9 million, compared with a net loss of $37.6 million for the same period in 2022.
West Reading, Pa.-based Tower Health will be out of network for all Cigna Healthcare members starting Jan. 1 following a disagreement over reimbursement rates, the Reading Eagle reported Nov. 24.
The split applies to all Tower Health facilities and physicians for Cigna commercial, Medicare Advantage and behavioral health plans. Cigna said it is continuing to negotiate with Tower Health, but the health system has already begun to notify patients about the impending contract break.
“Tower Health, like other health systems, has been contending with unprecedented cost increases for personnel, supplies, equipment and medication necessary to continue providing high quality care,” a health system spokesperson told the Eagle. “Cigna has been unwilling to compensate Tower Health at reasonable payment rates.”
“We are disappointed that Tower Health is choosing to leave our network Jan. 1 unless we agree to their demands for significant rate increases that will make healthcare much more expensive for the people we serve,” a Cigna spokesperson told the Eagle. “It’s important to understand who pays the bills: any increase in cost of care is paid directly by local employers, their employees and families.”
HENRY KOTULA 