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Wayne State tab for physician group bankruptcy may top $16 million
Wayne State University is fronting what could potentially total more than $16 million in payments for the School of Medicine’s faculty practice, University Physician Group, to rebuild after bankruptcy.
U.S. Bankruptcy Court in Detroit last Monday approved UPG’s reorganization plan and exit from bankruptcy after the nonprofit medical practice suddenly filed for Chapter 11 bankruptcy protection in November.
After “extensive negotiations” with UPG, Wayne State agreed to provide financial assistance under a restructuring support agreement, according to a version of the reorganization plan submitted April 9.
A 15-year term loan from Wayne State will be used to pay 80 percent of unsecured claims that are currently projected at approximately $10.7 million, but could rise as court proceedings are finalized, according to a document in U.S. Bankruptcy Court in Detroit.
The Detroit university is also providing a revolving loan of at least $2.5 million that could range up to $7.5 million for UPG’s working capital needs.
A Wayne State representative declined to provide additional comment on the restructuring plan.
The November bankruptcy filing was driven by discovery earlier in that year that financial losses of the 20-year-old faculty practice plan were double the $5.5 million expected and a new, more drastic turnaround plan was required, Crain’s reported at the time. Over the past decade, UPG’s number of physicians declined by 50 percent, which hurt clinical revenue and made its leased network of suburban offices untenable, the filing said.
The court-approved reorganization strategy created with consulting firm AlixPartners will help determine the future of UPG. It is expected to carry UPG from its 2018 loss of $8.1 million to $3 million in profit by 2022, according to the release and reorganization documents.
To carry out the reorganization, the practice plan’s leadership formed six interdisciplinary teams to “transform and modernize” financial operations, its footprint, patient access, doctor compensation, business relationships and organization culture, among other things, last week’s news release said.
Closing clinics
As part of restructuring, UPG is shrinking the amount of clinical space it operates from 260,000 square feet to 115,000 by the end of the year, Charles Shanley, M.D., University Physician Group’s president and CEO, told Crain’s on Tuesday. The practice plan downsized sites in Southfield, Dearborn and Livonia and closed its clinical practice locations in Lake Orion and Port Huron, as well as a surgical center in Troy.
“We desperately needed to consolidate and modernize the clinical footprint,” he said.
UPG is shrinking to seven sites, Shanley added. The large majority are in Midtown Detroit, with UPG opting to focus its presence less on the suburbs and more in Detroit and at WSU’s School of Medicine.
“We are on a path to be a leading urban academic practice, in a thriving city, recognized for innovative delivery of high-value care to the most complex and vulnerable members of the community,” Shanley said in the release. “Our future lies in streamlining access for the Detroit community … to high-quality and cost-effective care in collaboration with Detroit’s primary care physicians, federally qualified health centers, the Detroit Medical Center, Barbara Ann Karmanos Cancer Institute and Henry Ford Health System.”
The practice plan employs 244 physicians, with 23 more who have been hired and are in the credentialing process. A net total of five physicians have left since the bankruptcy filing.
UPG has been looking since last summer at sites around Midtown where it could create a multidisciplinary ambulatory site, allowing patients to walk a short distance to another specialist doctor instead of needing to travel to another facility.
It’s also looking at locations in Midtown where it could shift its administrative offices from Troy. That move-out is expected to finish by the end of October, marking the end of the site consolidation process.
Henry Ford, DMC ties
The November filing came several weeks after UPG and the Detroit Medical Center reached a five-year contract in September for clinical and medical administrative services. The deal renewed a longtime affiliation between the for-profit hospital chain owned by Tenet Healthcare Corp. of Dallas and the Wayne State group, appearing to calm what had been a disintegrating relationship.
UPG’s financial crisis — alongside mismanagement, lack of teamwork and other issues — have shown it will likely never become the large, profitable group envisioned by former Wayne State Medical School Dean John Crissman in 1999, Crain’s previously reported.
Wayne State University’s medical school also needs to look at revenue options to replace what it would have taken in through an affiliation deal with Henry Ford Health System, according to previous Crain’s reporting. Henry Ford Health System CEO Wright Lassiter III pulled the plug in March after months of negotiations.
The bankruptcy is unrelated to WSU’s negotiations with Henry Ford Health System, Shanley told Crain’s on Tuesday.
“I think there’s general enthusiasm among the leadership of the school of medicine and the university to maintain and enhance our relationship with Henry Ford and resume conversations toward a synergistic partnership,” he said. “We’re all enthusiastic and supportive of that. It’s critical to the mission of the school of medicine and it’s good for the city of Detroit. I think it’s just a matter of reinitiating those discussions.”
A look at the changing ROI of employing doctors
Click to access MerrittHawkins_PressRelease_2019.pdf
A recent report from Merritt Hawkins provided an opportunity for us to test out a new, interactive tool for data visualization this week. The recruiter surveyed hospital Chief Financial Officers about the “return on investment” (ROI) they expect from employing physicians. The report compared average salaries paid to key specialties with the anticipated “downstream” revenue each physician is expected to produce for the hospital or health system.
To explore the data, click on the graphic below—you’ll be able to see where each specialty ranked, and (by clicking between tabs), see how the expected ROI has changed since the last time the survey was conducted in 2016. We’ve grouped the doctors into three categories: primary care; medical specialists; and proceduralists.
A few interesting highlights from exploring the data: employed physician salaries rose for every single specialty across the past three years. While specialists may bring in more revenue per doctor, primary care physicians continue to have the highest return on investment of physician salary dollars.
But take a look at the change in size of the bubbles, representing ROI, between 2016 and 2019. ROI remained pretty stable for both adult primary care and the specialists who support high-margin services like orthopedics, neurosurgery and obstetrics.
In contrast, the highest ROI growth is seen in pediatrics and psychiatry—suggesting systems are finding new ways to link these specialties to downstream services. Let us know what you think of this interactive tool, and what other kinds of analysis you think might be interesting using it. (We think it’s pretty nifty.)
Wonky Supreme Court Ruling on Medicare DSH Formula to Affect More Than Money
Moving forward, the government will have to complete notice-and-comment rulemaking for a broader set of its decisions.
KEY TAKEAWAYS
Monday’s decision by the Supreme Court kicks the dispute back to the District Court level. What happens next is unclear.
Beyond the money at stake, this case increases the rulemaking burden on HHS and CMS, though the extent of that burden is disputed.
Hospitals that treat high numbers of low-income patients secured a big win this week at the U.S. Supreme Court.
Seven of the justices agreed that officials in the U.S. Department of Health and Human Services stepped out of line when they rejiggered a Medicare reimbursement formula for disproportionate share hospitals (DSH) five years ago without a formal notice-and-comment process.
The decision carries implications well beyond the money hospitals say they are owed.
“It’s a big deal for the hospitals, obviously,” says Helen R. Pfister, JD, a New York–based partner with Manatt Health.
By the government’s estimates, the dispute implicates $3-4 billion in payments over nine years. That’s how much more the Centers for Medicare & Medicaid Services would have paid in DSH reimbursements, had the formula not been changed, according to court records.
“But I think it’s also a big deal in terms of the fact that the Supreme Court has clearly indicated that, going forward, CMS is going to have to do notice-and-comment rulemaking for a much more expansive set of agency decisions than they thought and argued in this case that they would need to do,” Pfister adds.
Precisely how much of the routine work completed by HHS and CMS will be affected by this broader take on notice-and-comment rulemaking remains to be seen. While some stakeholders have raised concerns the added burden could stifle the government’s work, others contend any inconvenience imposed will be both manageable and beneficial.
In any case, the impact of Monday’s decision will flow along two distinct paths, affecting not only hospital finances but also, for better or worse, the way HHS and CMS operate.
What’s Next, Procedurally?
In 2016, nine hospitals led by Allina Health Services lost their case against HHS at the U.S. District Court in D.C., where a judge ruled that notice-and-comment rulemaking wasn’t required. In 2017, however, three judges at the D.C. Circuit Court of Appeals reversed the lower court’s decision and sent the dispute back for further proceedings.
In 2018, attorneys for HHS asked the Supreme Court to review the appellate decision. Now that the justices have affirmed the Circuit Court’s decision, the parties have up to seven days to file a status report at the District Court level on where the case stands, according to court records. That filing, expected by early next week, could shed light on where things are headed procedurally.
Pfister says she doesn’t think anyone knows for the time being whether the government will automatically revise DSH payments for the affected fiscal years, pursue another round of notice-and-comment rulemaking, or take some other course of action in response to the Supreme Court ruling.
And the parties themselves aren’t saying much. When asked about the agency’s plans, a CMS spokesperson told HealthLeaders on Wednesday that the agency is still reviewing the decision. Allina referred questions to its law firm, which declined to comment.
Beyond the nine plaintiff hospitals involved in this week’s Supreme Court decision, there are hundreds of plaintiffs suing HHS on similar grounds. Dozens of follow-on lawsuits have been consolidated into a single docket pending before U.S. District Judge Amy Berman Jackson. Parties to that proceeding have up to 14 days to file a status report in light of the Supreme Court’s decision, according to court records.
An Overly Burdensome Decision?
The government’s attorneys had issued dire warnings about the potential consequences of the decision the Supreme Court ultimately reached.
The notion that CMS must go through a notice-and-comment process for the sort of routine process at issue in this case could “substantially undermine effective administration of the Medicare program” because it would apply not just to DSH formula calculations but to “nearly every instruction” the agency gives to its contractors as well, U.S. Solicitor General Noel J. Francisco argued on HHS’ behalf.
Pfister largely rejects the government’s dire take on the decision’s impact.
“I think that might have been a little bit hyperbolic,” she says.
But other stakeholders outside the government have taken the Supreme Court’s ruling as a troubling sign of uncertainty to come.
“This is a frightening decision, that throws a lot of doubt on the validity of thousands of pages of Medicare sub-regulatory guidance,” Adam Finkelstein, JD, MPH, counsel with Manatt Health and a former health insurance specialist with the CMS Innovation Center, wrote in a tweet.
Stephanie A. Kennan, senior vice president of federal public affairs for McGuire Woods Consulting in Washington, D.C., tells HealthLeaders that she thinks the government’s argument “is somewhat overblown.” Officials should be able to manage any added burden from this ruling, even if it slows them down a bit, she says.
“I think it may mean they cannot move as quickly on some policies as they would like to,” Kennan says.
A Boon to Public Input?
The benefits of a more-transparent process justify any added hassle that may stem from having to go through a mandatory comment process more often as a result of this decision, Kennan says.
“In this case, they have to do 60-day comment periods, which can seem like an eternity if you want to keep the process moving, regardless of whether you’re the agency or a stakeholder,” she says. “The transparency is probably worth the 60 days.”
But others reject the notion that this decision should be seen as balancing effective governance with transparency.
“Allina isn’t a vindication of the importance of public participation in agency decision-making. It’s a testimonial to the heedlessness of lawyers who impose silly procedural rules on an administrative state they only dimly understand,” Nicholas Bagley, JD, a law professor at the University of Michigan who teaches on administrative law and health law, wrote in a series of tweets.
“Bear in mind,” he added, “that CMS is a tiny, beleaguered agency … To further encumber it will make Medicare more capricious, not less, as staffers tend to senseless procedures instead of doing their jobs.”
Moving forward, HHS and CMS will continue to have discretion to determine whether to go through notice-and-comment with a given action, Pfister says. The difference now, she says, is that there’s a stronger incentive for government officials to cover themselves; otherwise, another case like Allina’s could pull them into another round of prolonged litigation.
Organizers: Johns Hopkins Reaches Settlement With Nurses Seeking To Unionize
Johns Hopkins Hospital has reached a settlement with registered nurses seeking to unionize, their national organizing committee said.
“This settlement makes clear that nurses have the right to form a union, we have a right to speak with our coworkers about a union, and Johns Hopkins does not have the legal right to target and intimidate nurses who engage in union activity,” registered nurse Alex Laslett said in a statement. “We are organizing at Johns Hopkins because we know a union affords nurses the protection we need to advocate freely for the best care for our patients.”
Hopkins reached a settlement of claims filed by the National Nurses Organizing Committee/National Nurses United with the National Labor Relations Board. The board found that the hospital created the impression that union activity would lead to surveillance and unlawful surveillance. The hospital enforced a rule barring nurses access to break rooms in connection with union activity and prohibited nurses from talking about the union at work, the NLRB found.
The settlement requires management to post signs throughout the hospital affirming nurses’ right to unionize. Those signs must be in place by June 14.
“In Catholic social teaching, we teach and believe that all workers have a fundamental human right to organize and to form unions and when an employer such as Johns Hopkins violates this fundamental right, they are acting unjustly and must be held accountable,” Father Ty Hullinger, a pastor in East Baltimore and a member of the Coalition for a Humane Hopkins, said in a statement. “This settlement puts Johns Hopkins on notice that the community is watching their actions and holding them to a standard that is moral and just.”
Officials with the national union said nursing staff at Hopkins asked for help organizing a union to address high turnover due to poor staffing, inadequate equipment and low pay.
UPMC halts prepayment plan for Highmark Medicare Advantage members
The plan would have required those members to pay in full for out-of-network visits to UPMC hospitals and physician offices.
Highmark Medicare Advantage members will not have to pay in advance for medical services at UPMC hospitals and physician offices that will be out of network if the UPMC-Highmark consent decrees are allowed to expire June 30.
UPMC officials informed the Pennsylvania Insurance Department of the change Wednesday, according to a news release on UPMC’s website. They had said in late 2018 that UPMC would require patients with out-of-network Medicare Advantage plans to pay in advance for any nonemergency treatment and then seek reimbursement from their insurer.
In addition, UPMC will accept direct payment from Highmark for out-of-network emergency care at the same rate UPMC Health Plan now pays Highmark’s Allegheny Health Network hospitals, including Saint Vincent Hospital.
“As the consent decrees near their end on June 30, our intent is to ensure that Highmark members can receive emergency and other care that they need without being caught in the middle of billing issues created by their insurer,” UPMC spokesman Paul Wood said in the news release.
UPMC’s decision came after federal officials said they might be taking a closer look at UPMC’s prepayment policy, the Pittsburgh Post-Gazette reported.
UPMC will bill Highmark directly for its Medicare Advantage members who use out-of-network services and will accept reimbursement at the Medicare fee schedule amount, UPMC said in the news release.
The announcement comes about a week before a Pennsylvania Commonwealth Court judge will hold a hearing in Harrisburg regarding the state attorney general’s office’s attempt to modify and extend the consent decrees past June 30. The hearing is scheduled for Tuesday and Wednesday.
Supreme Court rejects HHS’ Medicare DSH changes
The U.S. Supreme Court on Monday ruled that HHS improperly changed its Medicare disproportionate share hospital payments when it made billions of dollars in cuts.
In a 7-1 decision, the justices said HHS needed a notice-and-comment period for the Medicare DSH calculation change. Justice Neil Gorsuch wrote in the decision that HHS’ position for not following the procedure was “ambiguous at best.”
“Because affected members of the public received no advance warning and no chance to comment first, and because the government has not identified a lawful excuse for neglecting its statutory notice-and-comment obligations, we agree with the court of appeals that the new policy cannot stand,” Gorsuch wrote.
Under the new Medicare DSH formula, the CMS began to lump Medicare Advantage enrollees in with traditional Medicare enrollees to calculate a hospital’s DSH payment.
But Medicare spending is about $700 billion per year, and the program covers nearly one-fifth of Americans.
“Not only has the government failed to document any draconian costs associated with notice and comment, it also has neglected to acknowledge the potential countervailing benefits,” Gorsuch wrote. “Notice and comment gives affected par-ties fair warning of potential changes in the law and an opportunity to be heard on those changes—and it affords the agency a chance to avoid errors and make a more informed decision.”
The majority opinion also emphasized the size and scope of Medicare, noting that “even seemingly modest modifications to the program can affect the lives of millions.” “As Medicare has grown, so has Congress’s interest in ensuring that the public has a chance to be heard before changes are made to its administration,” Gorsuch wrote.
During oral arguments in the case in January, Gorsuch and Justice Sonia Sotomayor doubled down on the economic magnitude of the change, which HHS estimated to be between $3 billion and $4 billion between fiscal 2005 and 2013.
Justice Stephen Breyer dissented from the majority, and Justice Brett Kavanaugh recused himself because he participated in the U.S. Court of Appeals for the D.C. Circuit ruling that the Supreme Court upheld.
Breyer wrote he believed the government had the legal grounds to skip the public comment period in this policy.
“The statutory language, at minimum, permits this interpretation, and the statute’s history and the practical consequences provide further evidence that Congress had only substantive rules in mind,” he wrote. “Importantly, this interpretation of the statute, unlike the court’s, provides a familiar and readily administrable way for the agency to distinguish the actions that require notice and comment from the actions that do not.”
Will you get your Money’s Worth?
All about Interim Executive Services in healthcare administration.
Will you get your Money’s Worth?
Abstract: This article is a continuation of the series on the value proposition of Interim Executive Consulting. In this article, I look at the value proposition from the consultant’s perspective.
Recently, I was discussing an interim opportunity in a smaller hospital with a referral source. The prospective argument was that the client did not have the capacity (did not want) to pay a market rate fee. You never hear hospitals argue with their lawyers or other consultants on this point, but I digress.
Based on my experience, there are two things that you can be sure of in any interim engagement. One is that as soon as you think you have an idea of what is going on around you, you had better get ready for a big and sometimes very nasty surprise. The other is that you are going to find challenges and problems in the situation that the client either intentionally withheld or that the client had no idea of in the first place. Some clients have told me after skeletons started falling from closets that they harbored the fear that if they were fully transparent that an interim consultant would refuse the gig. What they do not know is that as professional Interim Executives, we usually do not get the call until the situation is challenging and that if we are distressed by the surprises and uncertainty that characterize Interim Executive Services, we would have found something else to do. Remember, firefighters run toward a fire when everyone else is running away.
Another principle of doing interim work in my experience is that there is no correlation between the size of the organization and its capacity to produce drama, challenges, and vexing problems. An argument can be made, and my on-point experience confirms that the risk is higher the smaller the organization because smaller organizations do not have the intellectual and bandwidth resources necessary to avoid creating or falling into serious problems. If the issues have anything to do with compliance, the potential risks to the interim executive increase exponentially, especially if they are going to be executing documents or making representations on behalf of the organization. Compliance related signatory authority risk is a risk that cannot be insured by either the consultant or the client. I told the referral source that if anything, there should probably be a significant premium associated with going into a smaller place.
What is a client to do? I try to mitigate this risk for my client by offering a no-notice, no-fault termination clause in my contract. The day that the client decides that I am not providing value, I am out of there. I do not wish to become a perceived burden to an organization during what is already likely an awkward transition. I have not been released from an interim engagement. To the contrary, the opposite is true. In every one of my interim engagements, the timeline has been extended, extensively in some cases once the client appreciates the value proposition. My average ’90 – 120′ day gig lasts around nine months, and my longest has been over two years.
I have stated repeatedly in these articles that I do not follow bad people and I stand by that contention. However, this does not mean that there will not be serious problems in an organization. I followed a CFO that was compelled to resign among other things for digging in over what he believed was a non-compliant acquisition of a physician practice that had millions of dollars of goodwill baked into the deal along with lavish estimates of the value of furniture, fixtures, and equipment. In another situation, the CEO had been overridden on multiple occasions by a Board that was determined to do non-compliant deals with physicians. I could go on and on about these types of challenges.
Problems do not have to be compliance related to be challenging and of high potential value. During the course of every engagement, I am routinely asked, “Is this the worst you have ever seen?” Most of the time the answer is no, and in every case, it is situation specific. I was engaged by a hospital to assess the revenue cycle. Other than the AR being currently fairly valued following multiple unfavorable audit adjustments, about everything else in the revenue cycle process was broken as the client had expected. The resulting intervention increased cash collections more than $10 million in the next year on around $300 million of revenue. As an aside, in an organization of this size with a typical operating margin in the 3% range, this intervention more than doubled operating income so, in context, it was a pretty big deal. This organization was trying to save money by doing things like buying thinner tongue depressors and cutting the amount of soap housekeeping could put in mop buckets while it threw away all of the savings and more in the revenue cycle. It was the worst revenue cycle operation I have seen measured by results or lack thereof. This same organization had some of the strongest and highest performing functions in other areas that I have experienced. Even in the revenue cycle, I got to meet some of the smartest, most dedicated people I have ever known. They were handicapped by a dearth of leadership and decrepit systems. None of this supported a conclusion that the organization was terrible or on balance, it was the worst I have ever seen although the revenue cycle concerns did have something to do with the prior CFO being ‘freed up to seek other opportunities.’
What is a consultant to do? My advice is to the degree possible and reasonable, stand your ground on your professional fee. It would be nice if you knew you were going to a cake-walk that would mainly be a paid vacation and that you could confidently offer a come-on rate to land the gig. You know the reality is that you are probably going into a complicated, high-stress situation that is going to tax all of your physical and mental capacity. This situation is exacerbated by desperate or ignorant consultants and firms that will take any gig at any rate when they have an unsophisticated buyer or just to have something to do. I have considered offering such a price based on not finding any problems. For example, I could offer a 30% – 50% discount for a lush sabbatical that would be reversed if (when) issues begin to emerge. Maybe I could even bargain to double my rate upon discovery of the first compliance problem. Unfortunately, the world does not work this way, and if you are up against an unsophisticated or ignorant potential client, there is an excellent chance you are going to be undercut by an equally ignorant potential consultant. You have to decide for yourself how much risk you are willing to take on. How much is it worth to you to put yourself, your net worth and your family’s livelihood into play in a situation where you may be exposing yourself to the risk of becoming the target of a government compliance investigation? In a bad case scenario, you could become a witness in a hostile position vis-a-vis the client. The government is currently pursuing multiple felony charges against John Holland (look him up on the internet) even though he alleges and there is apparently little evidence that he benefited directly or indirectly from compliance problems that occurred in organizations he served. By the way, John may and probably did inherit some of the issues that resulted in criminal charges, i.e., the problems were present in the organization when he started. Tell me again Mr. cut-rate consultant or firm how anxious you are to get yourself into a situation like this? By the way, if you are placed by a firm and compliance problems emerge, you are going to be on your own. Do not forget this.
If you are a decision maker and you are getting resistance to rate discounting from interim executive services providers, it is probably because of their prior experiences and bias about potential problems in your organization. Instead of dismissing them for something cheaper, you might want to understand better where they are coming from and how that might translate into risk you are bearing that you might not even recognize. You have to accept the fact that you would not be seeking interim services if you did not have a significant challenge on your hands. Your best defense against getting into a deal that could make the situation worse is to negotiate an agreement that can be exited rapidly and without recourse. You may have problems that are as yet undiagnosed. Your run in your current situation could be riding on the ability of the interim executive you choose to pull your bacon out of a fire and potentially save many of your direct reports’ jobs in the process. What is that worth to you?
Contact me to discuss any questions or observations you might have about these articles, leadership, transitions or interim services. I might have an idea or two that might be valuable to you. An observation from my experience is that we need better leadership at every level in organizations. Some of my feedback is coming from people that are demonstrating an interest in advancing their careers, and I am writing content to address those inquiries.
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Breaking down blockchain’s role in healthcare
HIMSS Director of Informatics Mari Greenberger says that as pilot tests move into production, healthcare organizations should rally around a use case and understand who needs to be involved to reduce redundancies and costs.
HENRY KOTULA 