Category Archives: Health System

Hospital association: Wage index rule positive, but uncompensated care needs work

Posted on by • Posted in Center for Medicare and Medicaid Services (CMS), Health Policy, Health System, Hospital, Hospital Industry, Medicare, Medicare Wage Index, Uncompensated Care • Leave a comment

https://www.crainsnewyork.com/health-pulse/hospital-association-wage-index-rule-positive-uncompensated-care-needs-work?utm_source=health-pulse-tuesday&utm_medium=email&utm_campaign=20190805&utm_content=hero-readmore

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The Centers for Medicare and Medicaid Services on Friday unveiled its final rule on Medicare payment policies for hospitals under the inpatient prospective payment system for fiscal 2020. Though the Greater New York Hospital Association sees modifications to the agency’s proposal to address area wage index disparities as a boon, it’s not pleased with the outcome when it comes to uncompensated care.

“On a positive note, CMS modified its proposal to address wage index disparities between low and high wage index areas and will apply a uniform national budget neutrality factor to all hospitals instead of cutting only high wage area hospitals,” wrote Kenneth Raske, president and CEO of the association, in a letter to members.

The area wage index applies to the reimbursement of hospitals and raises or lowers Medicare payments to account for geographic differences in labor costs.

The final rule is designed to increase the wage index for hospitals with a value below the 25th percentile. Specifically, it will increase those hospitals’ wage indexes by half the difference between the otherwise applicable value for a hospital and the 25th percentile value across all hospitals. And there will be a 5% cap on any decrease in a hospital’s wage index from its final wage index for fiscal 2019 to mitigate significant decreases.

CMS’ previous proposal would have targeted only high wage index hospitals—such as those in New York—to address disparities. The modified provision will cost New York hospitals about $26 million, including fee–for–service and managed-care payments, less than half of what the original proposal would have cost them, a spokesman for the Greater New York Hospital Association said. Nationwide, the proposal will cost about $330 million.

Before the final rule, the New York congressional delegation took issue with the initial proposal to increase the wage index for hospitals that fall in the lowest 25th percentile of wage areas at the expense of hospitals that are above the 75th percentile of wages.

“CMS argues that its proposed changes to the area wage index seek to help rural hospitals, yet not one of New York’s rural hospitals—who face the same fiscal challenges as rural hospitals across the nation—would see a benefit from the policy,” the lawmakers wrote in a letter to CMS administrator Seema Verma. “Rather, states like New York with many hospitals that have legitimately high wages commensurate with market competition will be forced to transfer hundreds of millions in Medicare funding to a small handful of states.”

With the issue of wage index out of the way, state hospitals’ greatest concern may now be the finalized uncompensated care pool proposal. Raske noted the Greater New York Hospital Association has “fiercely opposed” the proposal.

“To mitigate the impact of the data issues and reduce the volatility in the uncompensated care distributions, GNYHA had recommended that CMS continue the fiscal year 2019 policy and base the distribution on a weighted average of low-income days and uncompensated care costs,” Raske wrote. “Instead, CMS finalized its proposal to base the distribution on 100% uncompensated care costs using 2015 data.”

In March the Greater New York Hospital Association called the proposal dangerous and said it would base distributions on bad debt and charity care data and cap the pool’s rate of growth, representing a $98 billion cut over 10 years. —Jennifer Henderson

 

 

 

 

Many fear Hahnemann’s story will send a message: Buying a failing hospital pays

Posted on by • Posted in 2020 Election Issues, Academic Medical Center, Center for Economic and Policy Research, Chapter 11, Health Policy, Health System, Hospital Bankruptcy, Hospital Industry, Private Equity • Leave a comment

Many fear Hahnemann’s story will send a message: Buying a failing hospital pays

Hahnemann University Hospital. (Emma Lee/WHYY)

Philadelphia Academic Health System, the company that owns Hahnemann University Hospital, is in bankruptcy proceedings, but the hospital’s real estate is not included in the filing. That has sparked outrage from the nurses union, City Council, and even presidential hopeful Bernie Sanders. They say it shows the owner had a plan all along: let the hospital fail, and sell it for its  valuable Center City location.

Indeed, California investment banker Joel Freedman, CEO of Philadelphia Academic Health System, separated out the land beneath the hospital and its adjacent, related buildings from the operating business itself, as is common in private equity purchases.

In fact, that’s how private equity is supposed to work: Big firms buy struggling companies with the promise of financial support, and to improve their operations and business strategy. When things go right, the business succeeds, and the private equity firm sells it in a public offering or to another bidder for more than it paid.

In other cases though, the process is not so successful. Private equity firms often load companies up with debt, take dividends out for themselves, sell off valuable real estate, and charge monitoring fees and interest on their loans, leaving a company in a much weaker position than it would have been otherwise, and often on the verge of bankruptcy.

“The house never loses,” said Eileen Applebaum, co-director at the Center for Economic and Policy Research. “The private equity firm makes money whether the company succeeds or it doesn’t.”

Freedman formed Philadelphia Academic Health System to run the hospital. His California private equity firm is called Paladin Healthcare, and he has previously bought and managed hospitals in California and Washington, D.C. At the end of June, Freedman announced that Hahnemann, the 496-bed hospital at the corner of Broad and Vine streets, would close. In early July, Philadelphia Academic Health filed a Chapter 11 bankruptcy petition.

Applebaum, who has taught economics at Temple University and is a native Philadelphian, said that if Paladin Healthcare had really wanted to save the hospital, there are a few things it should have tried.

The most obvious, she said, would have been to diversify its payer mix. One of the reasons Hahnemann failed financially is because two-thirds of its patients were on Medicaid or Medicare — publicly funded insurance plans that reimburse hospitals for care at lower rates than private insurance does. Applebaum said it’s common for hospitals in areas with high rates of patients on public insurance to buy up smaller hospitals in the suburbs, or in other areas that attract more patients on private insurance.

“You see Thomas Jefferson University outpatient-care centers everywhere, you see smaller suburban hospitals that are part of the Thomas Jefferson system,” she said. “Yes, you want to serve the less well-off communities, but you have to balance that with other communities. Everybody knows this, this is not a mystery.”

Because this strategy is common, the fact that Freedman didn’t try it makes Applebaum dubious that he really wanted to save Hahnemann.

“It does not really appear that they made a good-faith effort to turn this hospital around,” she said.

Freedman declined to comment for this story, but he has said in previous statements that he tried to sell the hospital to a nonprofit, and that he asked the city and state for money to keep it open.

The imbalanced payer mix is not as much of an issue at St. Christopher’s, the 188-bed children’s hospital in North Philadelphia that is also run by Philadelphia Academic Health System. It reported a $58 million pretax profit last year and is not closing.

That’s because almost all kids in the United States have insurance through Medicaid or CHIP, a federal program. Even though those reimbursement rates are also lower than private insurance would pay, children’s hospitals are more accustomed to that, and they adjust their operations accordingly.

“Pediatric hospitals, particularly those who serve a low-income population like St. Christopher’s, have learned how to operate on a Medicaid budget, so to speak, and have found ways to be more efficient and work within that coverage in a way that a lot of hospitals that primarily serve adult patients maybe haven’t had to,” said Lisa Bielamowicz, co-founder of Gist Healthcare, a D.C.-based health care consulting firm.

Last week, a judge in U.S.  Bankruptcy Court in Wilmington gave the green light for hospital systems to bid on St. Christopher’s. A consortium of four health care systems has already expressed interest.

“There’s also an element of wanting to preserve the competitive dynamic and capacity for that care in the market by preserving St. Christopher’s, so that Philadelphia doesn’t become a one-horse town for specialty children’s care,” said Bielamowicz.

Losing St. Chris would leave only Children’s Hospital of Philadelphia for inpatient pediatric care. In 2018, two-thirds of the revenue at St. Christopher’s was from Medicaid. It was half that amount at CHOP.

Bielamowicz added that it would be in the best interest of the local systems to take on St. Chris, so vulnerable children didn’t end up in those hospitals’ regular emergency rooms, many of which are at capacity, without the proper resources to care for them.

St. Christopher’s will be auctioned off to the highest bidder, and the bankruptcy judge is expected to approve the sale in September. The hospital’s Erie Avenue site also was not included in the bankruptcy filing.

Hahnemann Hospital’s property — owned by Broad Street Healthcare, the holding company set up by Freedman — totals about 1 million square feet and, according to city records, has a market value of $58 million.

Brad Molotsky, a partner with the law firm Duane Morris who formerly worked as general counsel for Brandywine Realty Trust, said the downtown neighborhood shows promise for developers, but only ones with deep pockets.

“If you rebuilt a million square feet at 500 bucks a square foot, that’s a big ticket,” he said.

Applebaum, of the Center for Economic and Policy Research, said she is worried that a separate sale of the Hahnemann property to a developer will lay a road map for private equity firms around the country: Buy older hospital in areas that are gentrifying, separate the hospital from its real estate, let the hospitals go downhill, and then sell the real estate to the developers.

“It won’t matter that they lose money in the bankruptcy on the hospital, because they’re going to make so much money on the real estate,” she said.

Another Democratic presidential candidate, U.S. Sen. Elizabeth Warren, has released a plan that would force private equity firms and funds to share the responsibility for the debt the companies they buy take on in the financial restructuring process. As it stands now, neither Paladin Healthcare, the parent company, or MidCap Financial, which loaned purchase and operating funds to Philadelphia Academic Health System, are on the hook for any of its debt.

“It’s like you bought your neighbor’s house, you got a big mortgage when you bought your neighbor’s house, but it’s your neighbor who has to pay back the mortgage,” said Applebaum.

“So that’s a sweet deal if you can get it.”

 

 

 

In need of a new lens on demographic trends

Posted on by • Posted in Demographics, Disruption, Health System, Hospital, Hospital Industry, Leadership, Leadership Implementation, Strategic Alignment, Strategic Leadership, Strategy • Leave a comment

As we’ve discussed before, our view is the healthcare system faces two fundamental demographic challenges across the next decade.

The first is how to sustainably accommodate 80M Baby Boomers—all of whom will be over 65 within the next ten years and in the Medicare program. This will entail providers learning to care for seniors in a much lower cost, lower intensity way, and payers (the federal government and insurers) to design benefits, networks and reimbursement approaches that support a more appropriate model of care delivery.

The second, often less discussed, is how to adapt traditional delivery approaches for the (even larger) Millennial generation, who will enter their “fix me” years within the next decade, and bring their high-demand, high-information, digitally-oriented consumption behaviors to an industry that has been built for older consumers more accustomed to the “hurry up and wait” model.
 
Our concern for incumbents, as the graphic suggests, is that they view these two demographic challenges through the lens of their current business models and seek to protect their legacy economics.

We commonly hear provider executives talk about “taking a wait and see attitude” and having a bias toward “no-regrets moves”. Why should we embrace price transparency, destroy demand for our own services, or disrupt ourselves, while we’re still making so much money on fee-for-service medicine?

But self-disruption is becoming an urgent priority as newly-emboldened outsiders look to upend the traditional model. Players like CVS, UnitedHealth Group and others view now as the time to assemble low-cost delivery assets and redesign network and benefit structures to capture the loyalty of those Boomers in Medicare Advantage plans for the next decade or more. And technology companies from Amazon to Google see an immediate opportunity to build new models around consumer loyalty as well, moving at Internet speed.

The sooner incumbents wake up to the reality that these unprecedented demographic forces demand a new approach to doing business, the better their chance of avoiding being outflanked by these kinds of disruptors.

 

Healthcare’s number one financial issue is cybersecurity

Posted on by • Posted in Cybersecurity, Dark Web, Data Breaches, Data Ownership, Data Sharing, Dept of Health and Human Services (HHS), Federal Bureau of Investigations (FBI), Health Insurance Industry, Health System, HIPAA, Hospital, Hospital Industry, Information Technology, Population Health, Privacy, Risk Assessment, Risk Management • Leave a comment

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The cost of a healthcare breach is about $408 per patient record and that doesn’t include the loss of business, productivity and reputation.

Cyber attacks affect the finances of every hospital and insurer like no other.

“I’ve seen estimates of over $5 billion in costs to the healthcare industry annually,” said Lisa Rivera, a partner at Bass, Berry and Sims who focuses on healthcare security. “That’s enormous and is not going away.”

Beyond the cost to find a solution to fix breaches and to settle any civil complaints are fines from the Department of Health and Human Services Office of Civil Rights. In 2018, OCR issued 10 resolutions that totalled $28 million.

The HHS Office of Civil Rights is stepping up breach enforcement of private health information, according to Rivera, who is a former assistant U.S. Attorney and federal prosecutor handling civil and criminal investigations for the Department of Justice.

What officials want to see is that the hospital or insurer has taken reasonable efforts to avoid a breach.

“There is no perfect cybersecurity,” Rivera said. “They say it’s not perfection, it’s reasonable efforts. That’s going to require an investment up-front to see where data is located, and educating the workforce on phishing incidents.”

Also, hospital finance professionals who are relying more on contractors for revenue cycle management and analytics should take note on the security issues involved in sharing this information.

“Every sector of business has attacks, but healthcare is experiencing the largest growth of cyber attacks because of the nature of its information,” Rivera said. “It’s more valuable on the dark web.”

It’s also not easily fixed.

If an individual’s credit card is stolen, the consumer can cancel his or her credit card. But in health records, the damage is permanent.

THE IMPACT

Despite the number of breaches, healthcare has been behind other sectors in taking security measures. Four to seven percent of a health system’s IT budget is in cybersecurity, compared to about 15% for other sectors such as the financial industry, according to Rivera.

Hospitals are behind because first, it’s a challenge to keep up with the move to more information being in electronic form.

“There’s no hospital that doesn’t have mobile EHR information,” Rivera said. “Then there was this transition with incentives from the government to go to electronic medical records. There were vast routes to doing that without a lot of experience involved in doing it. The push to become electronic began happening with this enormous uptick in cyber attacks.”

Also, the focus of healthcare has always been patient care. The population health explosion also involves the sharing of information.

And consolidation across the healthcare industry can potentially make covered entities more vulnerable to lapses in security during the transition and integration phases.

RECOMMENDATIONS

The number one way to cut costs is to prevent a breach. Once one has happened, hospitals must be able to identify it as soon as possible and then be able to respond to it.

Hospitals should be able to determine where certain data goes off the rail, Rivera said. For instance, large systems doing research have outcome information that may not be within the system of protection.

“You don’t want to learn about a data breach because the FBI saw it on the dark web,” Rivera said. And some hospitals have.

It’s a constant battle of software updates and checks. Criminals are pinging systems thousands of times a day. It’s like locking down doors and windows.

The first thing that’s needed for systems large and small is a risk assessment. This is the first thing the OCR wants to see, she said. Many hospitals use an outside vendor to do the job.

Prices for other cybersecurity measures vary from a software purchase that could be in the millions, to having vendor monitoring.

But the cost of a healthcare breach is about $408 per patient record and that doesn’t include the loss of business, productivity, reputation and the service disruption.

Hospitals can also purchase cyber insurance, which varies in cost and coverage. Some obtain it for purposes of class action lawsuits.

THE LARGER TREND

OCR enforcement activity during 2018 demonstrates the agency’s continued emphasis on enforcing violations of the security risk assessment and risk management requirements, Rivera said.

Covered entities and business associates are required to: conduct a thorough assessment of the threats and vulnerabilities across the enterprise;    implement measures to reduce known threats and vulnerabilities to a reasonable and appropriate level; and ensure that any vendor or other organization accessing or storing private health information is security compliant.
The OCR concluded 2018 with an all-time record year for HIPAA enforcement  activity. The OCR settled 10 cases and secured one judgment, together totaling $28.7 million. This surpassed the previous record of $23.5 million from 2016.

In addition, OCR also achieved the single largest individual HIPAA settlement  of $16 million with Anthem, representing a nearly three-fold increase over the previous record settlement of $5.5 million in 2016. Anthem was held responsible for cyber attacks that stole the protected health information of close to 79 million people.

 

Trump to Sign Medicare Order as Part of Attack on Democrats’ Health-Care Message

Posted on by • Posted in 2020 Election Issues, ACA, Essential Health Benefits, Executive Orders, Health Insurance Coverage Adequacy, Health Policy, Health System, High Deductible Health Plans, High Drug Prices, High Premiums, High Prices, Hospital, Hospital Industry, Out of Pocket Expenses, Preexisting Conditions • Leave a comment

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Administration moves ahead to bolster Medicare Advantage plans and authorize lower-cost drug imports from Canada, as it takes on Medicare for All.

President Trump is preparing to sign an executive order next week on Medicare and moving ahead with allowing some drug imports from Canada, part of the administration’s effort to engineer a response to Democratic proposals that candidates say would expand health coverage to all Americans.

The executive order would aim to strengthen Medicare for 44 million Americans and portray the president as defending it against Democrats who want to expand it nationwide under their Medicare for All strategy, a White House official said Wednesday.

The administration on Wednesday also said it would allow the imports of some drugs from Canada, backing an idea most Democratic candidates have also said they support. More executive orders, including one on drug prices, are possible, according to a person familiar with the plans.

Mr. Trump is taking a two-pronged approach to his 2020 campaign message on health care, attacking Medicare for All as socialism and rolling out a blitz of health-care initiatives intended to position him as the person who can drive down costs and protect health care.

The president is expected to contrast the Democrats’ plans with his in a speech set for Aug. 6. “He’s going to indict and impugn the idea of Medicare for All,” a White House official said of the speech. Senior White House aides and agency officials are holding meetings several times a week on health care plans, the official said.

Democratic challengers say Mr. Trump has endangered coverage by backing cuts to Medicare and a lawsuit that could dismantle the Affordable Care Act.

“We are not about trying to take away health care from anyone,” Massachusetts Democratic Sen. Elizabeth Warren said during the candidates’ debate Tuesday. “That’s what the Republicans are trying to do.”

This week, the administration proposed a rule that would compel hospitals to disclose discounted rates with insurers. The president signed an executive order to overhaul kidney-disease care, and the White House relaxed restrictions on pretax health savings accounts so the money can be used on treatment to prevent disease.

Mr. Trump is expected to sign the Medicare executive order next week at The Villages, a Florida retirement community with 120,000 residents that is majority Republican.

Mr. Trump may call for agency action to bolster Medicare Advantage plans, which private insurers offer under contract with Medicare and cover about 22 million people, according to two people familiar with the executive order. The president is likely to focus on curbing waste and abuse in Medicare that can add to the program’s cost. In addition, the order may aim to let Medicare Advantage plans offer a wider array of supplemental benefits. The administration has already taken steps in this direction by letting home health-care providers become partners in the Medicare Advantage contracts.

Mr. Trump also is expected to push for changes that could lower the price of patient visits to hospital outpatient clinics, two of the people said. Those visits can cost more than visits to clinics operated by doctors. “This is part of the president’s broader vision to put American patients first,” one person familiar with the executive order said.

A White House spokesman declined to confirm the details or comment on the executive order.

House Republicans and Health and Human Services Secretary Alex Azar have criticized the plans from Democrats, saying they would end Medicare Advantage and imperil the Medicare program, which covers 44 million Americans.

“Our administration wants to strengthen the program, protect the program, make sure it’s sustainable over the long term,” Seema Verma, administrator at the Centers for Medicare and Medicaid Services, said Wednesday at a press event. “We need to work toward that instead of forcing so many more people onto the program.”

 

 

 

Hospital profitability down as operators lack flexibility to cut costs, Kaufman Hall says

Posted on by • Posted in Cost Management, Cost Reduction, Flexibility, Health System, Hospital, Hospital Bankruptcy, Hospital Industry, Leadership, Management, Operating Margin, Operating Performance • Leave a comment

https://www.healthcaredive.com/news/hospital-profitability-down-as-operators-lack-flexibility-to-cut-costs-kau/559705/

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Dive Brief:

  • Hospital profitability declined for the first time this year during the month of June. Operating margins were down 1.88%, according to a new flash report from Kaufman Hall.
  • Analysts blamed the decline on the inability of many hospitals to rapidly cut expenses to match a decrease in patient volumes. Bad debt and charity care expenses were also up.
  • Meanwhile, non-labor expenses per adjusted discharge rose 5.3% compared to June 2018, while labor expenses per adjusted discharge increased 4.9%.

Dive Insight:

Hospital and healthcare system operations are often so large and complex that at times they can’t act quickly to address declines in profitability. Based on the most recent Kaufman Hall flash hospital report, June 2019 appears to be one of those times.

The report concluded hospitals lacked the flexibility to cut costs as patient volumes decreased. In June, adjusted discharges, patient days and emergency department visits dropped more than 5% compared to May 2019. Operating room minutes declined by 7% compared to May and are down 1.8% year over year, a trend the report said was “most concerning.” At the same time, expenses rose significantly compared to June 2018.

There were some exceptions. Hospitals with 500 beds or more saw an increase in pre-tax profit margins for the third consecutive month, which the report attributed to increased revenues. Smaller hospitals ( fewer than 25 beds and 200-299 beds) also had improved margins, which was connected to increased inpatient volumes. However, mid-sized hospitals (300-499 beds) saw the biggest decline in profitability, while those in the 100-199 bed range also struggled.

Hospitals in the South also fared better than average, which the report attributed to “strong expense management during a period of stagnant volume growth.” By comparison, hospitals in the Midwest, where revenues were flat while bad debt and labor costs were on the rise, had pre-tax margins that were nearly 3.7% lower.

But the report also suggested that most hospital operators are not seeing the big picture. “Nationwide, hospitals continue to be overly optimistic about inpatient volumes, while underestimating the increase in ambulatory care,” it said.

Hospitals also face other potential headwinds: The upcoming Physician Payment Fee Schedule from CMS may not be favorable to providers; federal legislation to end surprise medical bills could wind up being enacted in law; and the courts could wind up striking down the Affordable Care Act, leaving some 20 million Americans without health insurance.

The report concluded “a lack of flexibility is a fundamental risk to hospitals and health systems and something that industry disruptors are likely to use to their advantage in the coming months and years.”

 

 

 

HCA Misses on Key Financials, Stock Drops Sharply

Posted on by • Posted in For-Profit, Health System, Hospital, Hospital Industry, Operating Margin, Operating Performance • Leave a comment

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The Nashville-based for-profit hospital operator’s revenues went up slightly, but other metrics missed the mark.

Though HCA Healthcare’s total revenues increased to $12.6 billion in Q2, the company missed on other key areas, according to its latest earnings released Tuesday morning.

HCA reported a net income of $783 million, down from $820 million this time last year, and an adjusted EBTDA of $2.29 that was better than Q2 2018 but fell from Q1 2019.

The Nashville-based for-profit hospital operator’s financial numbers from Q2 sent its stock tumbling in early morning trading, where it was down more than 10% by 10 a.m.  

Same facility admissions and same facility equivalent admissions each rose by 2.1% and 2.6%, respectively, while same facility emergency room visits jumped 3% year-over-year.

However, growth in same facility outpatient surgeries and same facility revenues per equivalent admission slowed in Q2 while same facility inpatient surgeries declined 0.1%.

The company updated its financial guidance in light of its Q2 results, projecting diluted earnings per share in a range between $10.25 and $10.65.

HCA had two major developments in Q2, asking a federal judge to dismiss a class action lawsuit alleging unfair billing practices at three Florida hospitals and its acquisition of 24 MedSpring urgent care centers from Fresenius Medical Care.

ADDITIONAL HCA Q2 EARNINGS REPORT HIGHLIGHTS:

  • Salaries, benefits, supplies, and other operating expenses accounted for 81.9% of revenues, down from 80.8% this time last year.
  • The company repurchased $242 million worth of stock in Q2 and has just over $1.75 billion remaining under its existing repurchase agreement.
  • The company also declared a quarterly cash dividend of $0.40 per share to be paid on September 30.
  • By the end of Q2, HCA was operating 184 hospitals, down from 185 hospitals at the end of Q2.

For complete financial information, review HCA Healthcare’s filing with the Securities and Exchange Commission.

 

 

 

Hackensack Meridian acquires three northern NJ nursing homes

Posted on by • Posted in Health System, Hospital, Hospital Industry, Mergers & Acquisitions, Nursing Home, Post Acute Care • Leave a comment

https://www.crainsnewyork.com/health-pulse/hackensack-meridian-acquires-three-northern-nj-nursing-homes?utm_source=health-pulse-wednesday&utm_medium=email&utm_campaign=20190730&utm_content=hero-readmore

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Hackensack Meridian Health, the 17-hospital system in New Jersey, said Tuesday that it has added three nearby nursing homes to its network as it looks to better coordinate hospital and post-acute care.

The nursing homes are the 210-bed Prospect Heights Care Center in Hackensack, the 180-bed Regent Care Center in Hackensack and the 180-bed West Caldwell Care Center in West Caldwell. Prospect Heights is exclusively a subacute-care facility that provides rehab services after people leave the hospital. The facilities have a combined 750 employees.

Hackensack Meridian acquired 100% of Regent Care and 51% each of Prospect Heights and West Caldwell in a deal valued around $65 million, including cash and the assumption of debt. Tandem Management Co. owned all three facilities and will continue as a joint partner in Prospect Heights and West Caldwell.

With the deal, Hackensack Meridian now operates 13 post-acute-care facilities and has rebranded the new additions under the system’s name.

“Patients are staying fewer and fewer days in acute-care facilities,” said Robert Garrett, CEO of Hackensack Meridian Health. “Changes in technology are allowing patients to go home quicker even after receiving pretty intense care and receiving complicated procedures. The best way to ensure that there is a good hand-off is if we own and operate these post-acute-care facilities.”

Hospitals can benefit from having a strong relationship with the nursing homes they refer people to by avoiding federal readmission penalties.

Garrett said the deal will make it easier to find a nursing home bed for patients ready to be discharged and free up beds for patients waiting in the hospital’s emergency department. Hackensack Meridian Medical Center is about a mile away from two of the nursing homes.

The system did not commit a defined amount to capital improvements but plans to make significant investments in the facilities’ IT systems so they can share electronic medical records with its hospitals, said Stephen Baker, Hackensack Meridian’s president of post-acute care.

Baker said Hackensack Meridian’s staffing model is different from other nursing homes in that its facilities use mostly registered nurses; other nursing homes use mostly licensed practical nurses. Its patients tend to be more complex, which allows the system’s facilities to receive higher payments from Medicare. Some of its facilities earn 50% to 60% from Medicaid, which typically pays lower rates.

“We’re able to subsidize lower rates with higher rates from subacute care and favorable rates from managed care organizations,” Baker said. —Jonathan LaMantia

 

 

 

 

Hospital billing is big business

Posted on by • Posted in Health System, Hospital, Hospital Industry, Private Equity, Rev Cycle Management • Leave a comment

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Health care’s administrative back end — services like verifying patients’ insurance, putting patients on payment plans and collecting patient debt — is bigger than ever, Axios’ Bob Herman reports.

The big picture: The U.S.’ fractured insurance system leads hospitals and doctors to spend tens of billions of dollars annually on billing software and services — none of which are tied to actual health care.

Driving the news: For-profit hospital system Tenet Healthcare decided to spin off its billing services unit, Conifer, into its own publicly traded entity in 2021.

Between the lines: Many hospital systems that send out bills have ownership stakes in these companies.

  • Tenet controls 76% of Conifer, which registered $1.5 billion of revenue last year. Catholic Health Initiatives owns the remaining 24%. They both use Conifer.
  • Catholic health system Ascension and private equity firm TowerBrook hold a majority stake in R1 RCM, which used to be named Accretive Health and was prohibited from doing business in Minnesota due to its aggressive collections practices. Two Ascension executives sit on R1’s board.
  • Bon Secours Mercy Health recently sold off a majority stake in its billing firm, Ensemble Health Partners, for $1.2 billion, the Wall Street Journal reported.

Researchers have cited administrative costs as a sizable source of health care waste. Some startups are trying to address this issue, but traditional billing and service firms are only getting larger and have providers as investors.

 

 

 

Tenet plans to spin off revenue-cycle subsidiary Conifer

Posted on by • Posted in For Sale, For-Profit, Health System, Rev Cycle Management, Securities and Exchange Commission (SEC) • Leave a comment

https://www.modernhealthcare.com/finance/tenet-plans-spin-revenue-cycle-subsidiary-conifer?utm_source=modern-healthcare-daily-dose-wednesday&utm_medium=email&utm_campaign=20190724&utm_content=article1-readmore

After nearly two years of fielding underwhelming offers for its revenue-cycle subsidiary, Tenet Healthcare Corp. has settled on a decidedly different maneuver: It will spin it off as a separate, publicly-traded company.

Leaders with Dallas-based Tenet have spent the past 18 months finalizing a deal on Conifer Health Solutions. While CEO Ron Rittenmeyer conceded on an investor call Wednesday that an outright sale would have been the company’s first choice, there are several benefits to a tax-free spin off.

Shareholders win in that they’ll get shares in the new company in addition to their Tenet stock, but Rittenmeyer couldn’t say say yet how many they will receive.

“From a shareholder standpoint, I believe it’s a no-brainer,” he said.

The stock market responded positively to Wednesday’s news. Tenet’s shares were up about 14.5% at market close.

Rittenmeyer said the deal, which isn’t scheduled to close for another two years, is also the best path forward for Tenet in that it will have a “reasonable” impact on the company’s debt. Tenet’s long-term debt stood at $14.8 billion as of March 31. He characterized the deal as a “debt-for-debt exchange” that will be tax free. Tenet also would have had to pay taxes on a sale.

The aim of Tenet’s asset sales, including—hypothetically—Conifer, have been to lower the company’s debt. But analysts questioned how much spinning off Conifer will truly achieve that purpose, and some said they believe it could actually increase the company’s debt ratio.

Rittenmeyer said in an interview Tenet has long maintained it will bring down debt through a combination of performance and asset sales, which are ongoing.

“The spin-off will be a debt-to-debt exchange that will put debt on the new company and pay off debt at Tenet,” he said. “So our debt will come down by that process.”

Tenet won’t disclose how much of its debt will shift to Conifer until 6 months before the deal closes, Rittenmeyer told investors on Wednesday morning’s call. He wouldn’t say whether Conifer will have more, less or similar leverage to Tenet. One thing’s for sure, he said Tenet does not plan to overleverage the new company.

“There’s no way we plan to load up Conifer and cause that to have a capital structure problem on the way out,” Rittenmeyer said. “We want it to be successful, so it’s a balancing act.”

Others aren’t convinced that will be the case. Brian Tanquilut, a healthcare equity analyst with Jefferies, thinks the deal will actually increase Tenet’s debt ratio because Conifer’s departure from Tenet will pull more from its earnings than it will from its debt, he said.

“There will be more debt sitting on Tenet’s books than what you’re moving off earnings proportionally to the Conifer spin,” he said.

John Ransom, a managing director in healthcare equity research with Raymond James & Associates, agreed that the deal could nudge Tenet’s debt ratio higher depending on how it plays out, although Conifer will likely pay a dividend to Tenet.

It makes sense that Tenet doesn’t want to load up the new company with debt, Ransom said.

“I think they want to try to dress this up as more of a growth company,” he said.

The deal won’t close until the end of the second quarter of 2021. To get there, Tenet will have to meet regulatory approvals from the Internal Revenue Service and Securities and Exchange Commission, Rittenmeyer said.

Tenet also announced Wednesday the departure of Conifer’s CEO, Stephen Mooney. He will be replaced on an interim basis by Tenet’s Chief Operating Officer, Kyle Burtnett, while the company searches for a permanent replacement. Rittenmeyer said that wasn’t connected to the Conifer announcement, but that Mooney simply wanted to pursue other endeavors.

“It’s very positive; no negative,” Rittenmeyer said. “We’re not pushing him out the door.”

In February, Tenet was in exclusive talks over what would have been a very different Conifer deal. Rittenmeyer revealed Wednesday Tenet had considered a merger with another company that would have ultimately been spun out. He said Tenet decided against that because it wasn’t clear that plan would have yielded enough of a financial return.

Tenet received nine preliminary bids to purchase Conifer, including three that were high enough to consider, Rittenmeyer said. Tenet spoke with 74 potential buyers overall, including 16 strategic buyers and 58 financial buyers. However, the company encountered a number of setbacks when it came to those deals.

Some of the would-be buyers were offering company stock in addition to cash, but Tenet wanted an all-cash sale, Rittenmeyer said. Additionally, he said the bids were not high enough to reflect the performance improvements Tenet has added to Conifer.

A number of the bids included stipulations Tenet could not agree to, such as not being accountable for collecting 100% of Tenet’s cash, “which is critically important to us,” Rittenmeyer said. In the end, none of the proposals would have assured Tenet would have effective recourse if cash collection fell short, Rittenmeyer said.

Some would-be buyers expected Tenet to guarantee that if it sold a hospital, the buyer would continue to use Conifer or, if it didn’t, Tenet would pay Conifer’s new owner for the sold asset’s revenue-cycle management, Rittenmeyer said.

This deal was complicated by the fact that Tenet continues to divest hospitals to pay down its debt, Tanquilut said. Since Tenet is Conifer’s largest customer, buyers would be taking on a shrinking company, he said.

“How do you value an asset that we know at least for its largest client will see shrinking revenue?” Tanquilut said.

On Wednesday’s call, Rittenmeyer said early in the process, shareholders said they believed buyers would pay high multiples for Conifer, possibly in the mid- to high-teens.

Ransom said Tenet likely received an unreasonably high valuation from an investment bank, which may have contributed to the extended time it spent seeking a buyer.

“Whoever told them they were going to get a high-teens valuation, that’s insane,” Ransom said. “They probably shouldn’t have bought that.”