Verity to close Los Angeles hospital

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Verity Health System announced Jan. 6 that it plans to close St. Vincent Medical Center, a 366-bed hospital in Los Angeles.

El Segundo, Calif.-based Verity entered Chapter 11 bankruptcy in August 2018 and is seeking bankruptcy court approval to close St. Vincent Medical Center. The nonprofit health system is shutting down St. Vincent after a deal to sell four of its hospitals fell through.

Corona, Calif.-based KPC Group bid $610 million in January 2019 to acquire four hospitals from Verity, and the bankruptcy court approved the asset purchase agreement three months later. In early December, KPC’s Strategic Global Management missed the court-appointed deadline to purchase the hospitals.

In December, SGM appealed the court’s order setting the closing deadline. About one month later, Verity filed a lawsuit against KPC Group and its affiliates, alleging “intentional and misleading conduct” and breach of the asset purchase agreement, according to the Los Angeles Times.

The bankruptcy court will consider Verity’s request to close St. Vincent later this week. The health system said arrangements have already been made to transfer patients and specialty services to nearby facilities.

“We are deeply saddened to announce the planned closure of St. Vincent Medical Center,” Verity Health CEO Rich Adcock said in a news release. “This decision has not been taken lightly and comes only after exhausting every option to keep this hospital open.”

The closure of St. Vincent will not affect Verity’s other three hospitals in California: St. Francis Medical Center in Lynwood, Seton Medical Center in Daly City, and Seton Coastside in Moss Beach.





Since 2005, 162 rural hospitals have shuttered, with 60% of the closures occurring in southern states that did not expand Medicaid enrollment.


19 rural hospitals closed in 2019, up from 15 closures in 2018, and continuing a steady double-digit trend in closures since 2013.

Most hospitals closed because of financial problem, and 38% of rural hospitals are unprofitable.

Patients in communities affected by closure travel 12.5 miles on average for care. However, 43% of the closed hospitals are more than 15 miles to the nearest hospital, and 15% are more than 20 miles.

Despite a booming national economy, 2019 was the worst year for hospital closings since at least 2005.

The North Carolina Rural Health Research Program says that 19 rural hospitals closed this year, up from 15 closures in 2018, and continuing a steady double-digit trend in closures since 2013.

Since 2005, the North Carolina researchers tracked 162 hospital closings, with 60% of the closures occurring in southern states that did not expand Medicaid enrollment.

Texas led the way, with 23 hospital closures since 2005, followed by Tennessee with 13, and North Carolina with 11.

The closures have been blamed on a number of factors, including: the older, sicker, poorer, and less-concentrated rural demographic; bypassing by local residents seeking care at regional hospitals; hospital consolidation; value-based care; referral patterns of larger hospitals; the transition to outpatient services; and mismanagement.

Among the findings highlighted by the North Carolina Rural Health Research Program:

  • More than half of the rural hospitals that close cease to provide any type of health care, which were define as abandoned.
  • Most closures and “abandoned” rural hospitals are in South (60%), where poverty rates are higher, people are generally less healthy and less likely to have public or private health insurance.
  • Most hospitals closed because of financial problems. 38% of rural hospitals are unprofitable.
  • In 2016, 1,375 acute care hospitals out of 4,471 urban and rural acute care hospitals (31%) were unprofitable, including 847 rural hospitals (versus 528 unprofitable urban hospitals).
  • Patients in communities affected by closure travel 12.5 miles on average for care. However, 43% of the closed hospitals are more than 15 miles to the nearest hospital, and 15% are more than 20 miles.
  • The typical rural hospital employs about 300 people, serves a community of about 60,000. When the only hospital in a county closes, there is a decrease of about $1,400 in per capita income in the county.
  • University of Minnesota research shows that between 2004 and 2014, 179 rural counties lost all hospital-based OB services.
  • Over the last 15 years, the difference in mortality between rural and urban areas has tripled – from a 6% difference to an 18% difference in 2015.





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The Rural Health Model, the first of its kind, creates an alternative payment model that transitions hospitals from fee-for-service to global budget payments.


The Rural Health Model creates an alternative payment model that transitions hospitals from fee-for-service to global budget payments.

Instead of getting paid for admissions, hospitals in the model will get a preset amount of money to provide services in the community.

State officials say the new payment model allows hospitals time to transform care to better meet the health needs of the community.

Eight more hospitals and one payer have joined a Pennsylvania initiative to shore up the financial footing of the state’s rural hospitals.

“I am especially pleased to see more hospitals joining this important initiative to improve their financial viability so that every Pennsylvanian has access to quality health care within a reasonable distance from home,” Gov. Tom Wolf said in a media release.

State officials the program is needed because nearly half of all rural hospitals in Pennsylvania are operating with negative margins and are at risk of closure. Four rural hospitals in Pennsylvania have shuttered since 2006, according to the North Carolina Rural Health Research Program.

So far this year, 19 rural hospitals across the nation have closed, making 2019 the worst year for rural hospital closures since at least 2005.

The Rural Health Model, the first of its kind, creates an alternative payment model that transitions hospitals from fee-for-service to global budget payments. Those global payments come from several payers, including private and public insurers.

Instead of getting paid for admissions, hospitals in the model will get a preset amount of money to provide services in the community.

State officials say the new payment model allows hospitals time to transform care to better meet the health needs of the community. This includes providing nontraditional roles, such as providing transportation and broadband internet access.

The eight hospitals are:

• Armstrong County Memorial Hospital in Kittanning.

• Chan Soon-Shiong Medical Center at Windber in Somerset County.

• Fulton County Medical Center in McConnellsburg.

• Greene Hospital in Waynesburg, Greene County.

• Monongahela Valley Hospital in Monongahela, Washington County.

• Punxsutawney Area Hospital in Punxsutawney, Jefferson County.

• Tyrone Hospital in Tyrone, Blair County.

• Washington Hospital in Washington, Washington County

A total of 67 hospitals are eligible for model based and nearly 20% of them will participate in in 2020, state officials said.

In addition, Aetna will join five other private payers  – Gateway, Geisinger, Highmark, Medicare and UPMC – which combine make up nearly half of the individual and small group market insurance population in the state.

The program is funded and administered by the newly created Rural Health Redesign Center Authority and the Pennsylvania Rural Health Redesign Center Fund.

In addition to providing access to care for rural communities, state officials say the model will ensure that, by remaining open, rural hospitals continue to be a vital economic driver for their communities.

“The Rural Health Model is a transformative step that changes the financial model for hospitals in rural areas,” said Pennsylvania Secretary of Health Rachel Levine, MD. “This is a step that will help achieve financial stability for these facilities and aims to improve the overall health of the community.”



Buyer of 4 California hospitals misses closing deadline

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Corona Calif.-based KPC Group missed the court-appointed deadline to purchase four hospitals from El Segundo, Calif.-based Verity Health, which entered Chapter 11 bankruptcy in August 2018.

KPC Group bid $610 million in January to purchase the four hospitals from Verity. Three months later, U.S. Bankruptcy Judge Ernest M. Robles approved the asset purchase agreement for KPC’s Strategic Global Management to acquire the hospitals. In late November, the judge ordered SGM to close the deal by Dec. 5.

After SGM failed to complete the purchase by the court-appointed deadline, Verity asked the court to issue an order requiring SGM’s principals to testify as to why the deal did not close and whether SGM has the financial ability to close the sale. Verity also asked the court to issue an order finding SGM in breach of the asset purchase agreement and allowing it to keep SGM’s $30 million deposit and proceed with other plans to sell the hospitals.

On Dec. 9, the court denied Verity’s request to force SGM’s executives to appear and testify in court.

“By failing to close, SGM risks the loss of its $30 million good-faith deposit as well as the possibility of damages for breach of contract in an amount of up to $60 million,” Judge Robles wrote in a Dec. 9 court filing. “Being compelled to offer testimony will not motivate SGM to close where the threat of the loss of up to $90 million has failed to accomplish that end.”

The judge assured Verity that it would have the chance to litigate the issues of whether SGM breached the asset purchase agreement and whether it’s entitled to keep the good-faith deposit.

Though neither party has terminated the sale process, the judge said Verity can “explore options for the alternative disposition of the hospitals” without violating the asset purchase agreement.

The next bankruptcy court hearing is slated for Dec. 30.




10 latest hospital closures

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From reimbursement landscape challenges to dwindling patient volumes, many factors lead hospitals to close.

Here are 10 hospitals that have closed in the past four months, beginning with the most recent:

1. Dallas-based Steward Health Care closed St. Luke’s Medical Center in Phoenix on Nov. 24. Officials said the hospital closed due to dwindling patient volumes. St. Luke’s Medical Center’s occupancy rate remained below 40 percent over the past two years, President James Flinn wrote in a letter to the local community in October.

2. Nix Medical Center, a 208-bed hospital in San Antonio, closed in November. A few months earlier, Los Angeles-based Prospect Medical Holdings said it was closing the hospital because community demand for acute care at Nix Medical Center has declined over the past year.

3. Southcross Hospital in San Antonio closed Oct. 11. The hospital and its operator, San Antonio-based Arete Healthcare, entered Chapter 11 bankruptcy in November.

4. Haskell County Community Hospital in Stigler, Okla., closed Oct. 2, according to the Cecil G. Sheps Center for Health Services Research. Haskell County Community Hospital is one of several hospitals previously owned by Kansas City, Mo.-based EmpowerHMS that filed for bankruptcy protection earlier this year.

5. Brentwood, Tenn.-based Quorum Health closed MetroSouth Medical Center in Blue Island, Ill., on Sept. 30. Quorum announced in June that it filed an application with the Illinois Health Facilities and Services Review Board to close the 314-bed hospital.

6. East Ohio Regional Hospital in Martins Ferry closed Sept. 27. The hospital’s president and CEO cited mounting financial losses as one of the factors that forced the hospital to shut down.

7. Ohio Valley Medical Center in Wheeling, W.Va., closed in September. Hospital officials said the “unwanted, yet unavoidable,” decision was made due to an unsuccessful search for a strategic partner, lack of interest from potential buyers and a more than $37 million operating loss over the last two years.

8. Hahnemann University Hospital in Philadelphia closed in early September. Hahnemann announced in June that it would close Sept. 6. The hospital pushed back the closure date after a bankruptcy judge approved the sale of its residency programs on Sept. 5.

9. Westlake Hospital in Melrose Park, Ill., closed in August, according to the Chicago Sun-Times. Los Angeles-based Pipeline Health revealed plans to close Westlake Hospital in February, a few weeks after acquiring the 230-bed hospital from Dallas-based Tenet Healthcare.

10. North Metro Medical Center in Jacksonville, Ark., closed Aug. 20, leaving local residents without an emergency room. No notice was given before the hospital shut down.




Healthcare delivery is moving “up and out”


Our graphic this week captures a phenomenon that we’ve observed in our strategy work with regional, “super-regional” and national health systems. We call it the “up and out” phenomenon—healthcare delivery is increasingly being pulled up and out from local, siloed hospitals. The traditional hospital enterprise, operating in what we refer to below as the “fee-for-service zone”, has typically pursued a service approach that delivers all things to all people. Commonly, the combination of reimbursement incentives and health system governance structures has encouraged hospital executives to prioritize facility profitability over system performance.

One important source of value creation for regional systems is service line rationalization—essentially, consolidating key services in one facility rather than performing duplicative services in every hospital. Centralizing open heart surgery, for example, in one “center of excellence” in a region often results in both lower cost and higher quality, thanks to clinical and operational scale economies. But the economies of scale don’t necessarily run out at the regional level—for some high-end specialty services (transplants, for example) it makes sense to consolidate at a super-regional or national level. For a better outcome and lower price, consumers will be increasingly willing to travel to receive the best value care.

Meanwhile, many services currently performed in the hospital can be more efficiently performed in non-hospital settings and should be distributed across the market in ways that are more convenient and accessible for patients. Traditional hospital economics make the “inpatient-to-outpatient shift” problematic, but as price and access become important consumer engagement levers, there’s little use fighting that shift. Indeed, the logical setting for much care delivery is in the patient’s home itself. This puts systems in the position of pushing care delivery to the hyper-local level, a strategy that can be powered by digital medicine delivered at a national level. All of this raises an important question for the regional health system: as hands-on care is increasingly pulled “up” to the national level (centers of excellence) and pushed “out” to the community setting (home-based care), and as national providers of digital health services can deliver services to anywhere, from anywhere, what is the value of the regional system? We’re working with a number of members to better understand and prepare for this new operating model.


Critical Steps for a Hospital Turnaround

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Operational changes can improve a hospital’s performance and prospects, but time is of the essence.

The challenges many community hospitals face have become so unrelenting as to threaten long-term financial viability. It’s important that this threat be met with prompt action and operational changes that can improve the immediate situation as well as sustainability. A formal turnaround plan includes analyses and actions, and becomes a roadmap to redirect hospitals and help them stay on track to serve as community resources for years to come.

What prevents some struggling hospitals from getting an earlier start on a turnaround plan?

JK: Leaders from ailing community hospitals sometimes don’t recognize the severity of their problems or that certain indicators call for quick, corrective action. Some common alarm signals that leaders may tune out at first include a downward trend of days cash on hand, shifts in patient volume across the delivery spectrum, medical staff dissatisfaction or defection, and even bond covenant concerns. Recognizing that problems need to be addressed and changes must be made is the first step toward improvement.

Once it’s clear that “business as usual” isn’t working, how does the turnaround process start?

JK: Typically, the process starts with an operational assessment to evaluate strategy, operations, supply chain, revenue cycle and leadership with the aim of reducing costs and increasing revenue—the tried-and-true formula for financial solvency. The analysis includes a review of data and documents, as well as interviews with board, executive and physician leaders. The process reveals any organizational problems or vulnerabilities that aren’t immediately apparent, and it forms the basis for a turnaround plan, including a detailed action plan. An open mind and fresh perspective are important to be able to see options to go beyond operations as they have always been.

What are some of the key areas an operational assessment looks at for potential savings and cost reduction?

JK: Almost every hospital has room to improve staff productivity. Labor is a hospital’s greatest expense, so optimizing productivity by having the right number and mix of staff can make a big impact. Community hospitals that do not have a productivity tool to achieve and maintain the right staffing levels can typically find savings of 15 to 20 percent in salaries and benefits by implementing a tool. In those hospitals where there’s already some productivity monitoring, implementing a more effective tool or improving processes can result in 5 to 10 percent savings. After labor, supply costs are the second highest expense for a hospital, so that’s another key focus area for cost reduction and savings. Industry benchmarks show that many community hospitals have an opportunity to reduce supply costs by as much as 20 percent.

Assessing revenue cycle is also imperative to help identify, monitor and collect every dollar a hospital is due. Gains can be made in this area by renegotiating health plan contracts, streamlining billing for faster payment, auditing medical record coding and reviewing the chargemaster.

Why do the early stages of a turnaround include benchmarking?

JK: Hospitals can potentially identify significant cost-saving opportunities by comparing themselves to hospitals of similar size and volume. Comparing clinical, operational and financial data also identifies areas for improvement and where to allocate time and money for improvement initiatives. For example, a CHC-managed hospital that recently underwent a successful turnaround had discovered through benchmarking that its staff ratios were higher and its benefits were more expensive compared to similar hospitals. This information prompted leaders to take a closer look at the hospital’s situation, and they found it made sense from a sustainability perspective to downsize staff and bring benefit packages to competitive levels. These actions slashed the hospital’s annual expenses by $5.3 million.

To support and sustain a turnaround effort, who needs to be involved?

JK: It’s a collaborative process requiring the participation of the board of trustees, executive leaders, physician leaders, and in many cases an outside management firm to evaluate the situation and develop a specific plan of action. As we discussed, leaders of struggling hospitals usually see the need for improvement but don’t recognize the severity of their situation. Because of that blind spot, it’s often external stakeholders or bondholders who set corrective action in motion by seeking outside assistance.