Category Archives: Hospital Industry

17 health systems zeroing in on exec teams, administration in 2023

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At least 17 health systems announced changes to executive ranks and administration teams in 2023. 

The changes come as hospitals continue to grapple with financial challenges, leading some organizations to cut jobs and implement other operational adjustments. 

The following changes were announced within the last two months and are summarized below, with links to more comprehensive coverage of the changes. 

1. Middletown, N.Y.-based Garnet Health laid off 49 employees, including 25 leaders, to offset recent operating losses. The reductions represent 1.13 percent of the organization’s total workforce and $13 million in salaries and benefits. 

2. Greensburg, Pa.-based Independence Health System laid off 53 employees and has cut 226 positions — including resignations, retirements and elimination of vacant positions — since January, The Butler Eagle reported June 28. The 226 reductions began at the executive level, with 13 manager positions terminated in March. 

3. Coral Gables-based Baptist Health South Florida is offering its executives at the director level and above a “one-time opportunity” to apply for voluntary separation, according to a June 29 Miami Herald report. Decisions on buyout applications will be made during the summer.

4. MultiCare Health System, a 12-hospital organization based in Tacoma, Wash., will lay off 229 employees, or about 1 percent of its 23,000 staff members, including about two dozen leaders, as part of cost-cutting efforts, the health system said June 29. The layoffs primarily affect support departments, such as marketing, IT and finance.

5. Seattle Children’s is eliminating 135 leader roles, citing financial challenges. The management restructuring and reduction affects 1.5 percent of employees across the organization.

6. Bonnie Panlasigui was tapped as the first president of Summa Health System Hospitals.This new role was first announced in October as the Akron, Ohio-based system made 10 changes to its executive team: reshuffling three leaders’ roles, adding three positions and eliminating four. 

7. Allentown, Pa.-based Lehigh Valley Health Network named two new regional and hospital presidents. Bob Begliomini, PharmD, was appointed president of Lehigh Valley Hospital-Cedar Crest campus in Allentown, according to a news release shared with Becker’s. He will also lead the health system’s Lehigh region, which includes four hospital campuses. Jim Miller, CRNA, was selected to replace Mr. Begliomini as president of the Muhlenberg hospital. He was also named  president of the health system’s Northampton region, which includes three hospitals, Muhlenberg being one of them. 

8. McLaren St. Luke’s Hospital in Maumee, Ohio, will lay off 743 workers, including 239 registered nurses, when it permanently closes this spring. Other affected roles include physical therapists, radiology technicians, respiratory therapists, pharmacists and pharmacy support staff, and nursing assistants. The hospital’s COO is also affected, and a spokesperson for McLaren Health Care told Becker’s other senior leadership roles are also affected.

9. Habersham Medical Center in Demorest, Ga., laid off four executives. The layoffs were part of cost-cutting measures before the hospital joined Gainesville-based Northeast Georgia Health System.

10. Grand Forks, N.D.-based Altru Health announced it would trim its executive team as its new hospital project moves forward. The health system is trimming its executive team from nine to six and incentivizing 34 other employees to take early retirement.

11. Scripps Health eliminated 70 administrative roles, according to WARN documents filed by the San Diego-based health system in March. The layoffs took effect May 8 and affect corporate positions in San Diego and La Jolla, Calif.

12. Columbia-based University of Missouri Health Care announced it would eliminate five hospital leadership positions across the organization. According to MU Health Care, the move is a result of restructuring “to better support patients and the future healthcare needs of Missourians.”

13. Winston-Salem, N.C.-based Novant Health laid off about 50 workers, including C-level executives, the health system confirmed to Becker’s March 29. The layoffs affected Jesse Cureton, the health system’s executive vice president and chief consumer officer since 2013; Angela Yochem, its executive vice president and chief transformation and digital officer since 2020; and Paula Dean Kranz, vice president of innovation enablement and executive director of the Novant Health Innovation Labs. 

14. Philadelphia-based Penn Medicine announced that it would eliminate administrative positions. The change is part of a reorganization plan to save the health system $40 million annually, the Philadelphia Business Journal reported March 13. Kevin Mahoney, CEO of the University of Pennsylvania Health System, told Penn Medicine’s 49,000 employees changes include the elimination of a “small number of administrative positions which no longer align with our key objectives,” according to the publication. 

15. Sovah Health, part of Brentwood, Tenn.-based Lifepoint Health, eliminated the COO positions at its Danville and Martinsville, Va., campuses. The responsibilities of both COO roles are now spread across members of the existing administrative team. 

16. Valley Health, a six-hospital health system based in Winchester, Va., eliminated 31 administrative positions. The job cuts are part of the consolidation of the organization’s leadership team and administrative roles. They were announced internally on Feb. 28. 

17. Roseville, Calif.-based Adventist Health announced it would transition from seven networks of care to five systemwide to reduce costs and strengthen operations. Under the reorganization, the health system will have separate networks for Northern California, Central California, Southern California, Oregon and Hawaii. The reorganization will result in job cuts, including reducing administration by more than $100 million.

OPPS Rule to Update Outpatient Payments, Hospital Price Transparency

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CMS proposes in the Outpatient Prospective Payment (OPPS) rule to increase Medicare outpatient payments by 2.8 percent next year while bolstering hospital price transparency enforcement.

The OPPS rule states that payment rates for hospitals that meet applicable quality reporting requirements will increase in 2024 based on the projected market basket percentage increase of 3.0 percent, less 0.2 percentage points for the productivity adjustment.

Meanwhile, ambulatory surgical centers (ASCs) would also see a 2.8 percent increase in payment rates next year under the proposed ASC rule that was released alongside the OPPS rule.

CMS also proposes to continue using the productivity-adjusted hospital market basket update to ASC payment system rates for another two years despite plans to shift away from the system as hospital procedures shift to ASC settings. But disruptions to care patterns during the COVID-19 pandemic have prompted CMS to extend the application of the hospital market basket update.

The OPPS and ASC proposed rules also include a new benefit category for Medicare beneficiaries who require more frequent services than individual outpatient therapy visits but less intensive services than a partial hospitalization program. The benefit would be the Intensive Outpatient Program and include its own payment and program requirements for services across various settings, including hospital outpatient departments, community mental health centers, and federally qualified health centers.

Starting next year, CMS also proposes establishing payment for intensive outpatient program services as part of Opioid Treatment Programs. These intensive behavioral health services are available for individuals with mental health conditions and substance use disorders.

Other payment policies proposed in the rule include an update to Medicare payment rates for partial hospitalization program services, remote mental health services, and OPPS and ASC dental services, as well as changes to community mental health center Conditions of Participation (CoPs). The proposed rule also contains updates to the 340B payment rate, which CMS proposed to remedy via previous rulemaking to return improper payments to eligible hospitals.

“This proposed rule reflects CMS’ commitment to ensure Medicare is comprehensive in its ability to address patient needs, filling gaps in the health care system including behavioral health,” Meena Seshamani, MD, Deputy Administrator and Director for CMS’ Center for Medicare, said in a statement. “Through these proposals, we will ensure people get timely access to quality care in their communities, leading to improved outcomes and better health.”

HOSPITAL PRICE TRANSPARENCY CHANGES ON HORIZON

In addition to payment updates, the OPPS proposed rule also includes extensive updates to hospital price transparency requirements to increase compliance and enforcement.

Previous OPPS rules have required hospitals to make standard charges, including payer-specific negotiated rates, available to the public in a machine-readable file on their websites and through a more patient-friendly list of shoppable services. Hospitals face financial penalties of up to $2 million if they do not comply with the requirements.

However, a recent website assessment conducted by CMS found that about 70 percent of hospitals were fully meeting display criteria for the machine-readable file, 27 percent were partially meeting display criteria, and just 3 percent failed to post any required pricing data online by the fall of 2022. The rates improved from a previous compliance assessment in early 2021 when 30 percent of hospitals did not publish the required pricing data.

However, the latest OPPS rule aims to increase compliance by altering enforcement actions. For example, the rule would allow CMS to require an authorized hospital official to certify the accuracy and completeness of the data in the machine-readable file. Hospitals may also have to submit additional documentation to determine hospital compliance and an acknowledgment of receipt of the warning notice if CMS deems them out of compliance.

If CMS has to take action to address noncompliance, CMS may also notify the hospital’s health system leadership of the issue and work with the health system to address compliance issues across its system.

Finally, CMS proposes to publicize a hospital’s assessment of compliance, any compliance actions taken against a hospital, and notifications sent to health system leadership.

Additionally, the OPPS rule would update hospital price transparency requirements, requiring hospitals to display the required pricing data using a CMS template versus any machine-readable file format. Pricing data would also have to be encoded in a CSV or JSON format using a CMS template layout and other specified technical instructions.

CMS aims to increase machine-readable file accessibility by proposing a requirement to place a “footer” at the bottom of a hospital’s homepage that links to the webpage with the pricing data. Hospitals would also have to ensure that a .txt file is included in the root folder of the publicly available website chosen by the hospital for posting its machine-readable format.

Healthcare stakeholders can comment on the OPPS and ASC proposed rules through September 11th. CMS expects to release the final rules in November.

Value-vased care battle: Kaiser-Geisinger vs. Amazon, CVS, Walmart

Posted on by • Posted in Amazon, Amazon Care, Competition, CVS Health, Disruption, Fee for Service Reimbursement, Geisinger Health, Health System, Hospital, Hospital Industry, Innovation, Innovative Care Models, Kaiser Permanente, Risant Health, Transformation, Transformation Strategy, Transformation Sustained, Transformational Change, Value-Based Healthcare, Walmart • Leave a comment

https://www.linkedin.com/pulse/value-vased-care-battle-kaiser-geisinger-vs-amazon-cvs-pearl-m-d-/

For decades, research studies and news stories have concluded the American system is ineffective,

too expensive and falling further behind its international peers in important measures of performance: life expectancy, chronic-disease management and incidence of medical error.

As patients and healthcare professionals search for viable alternatives to the status quo, a recent mega-merger is raising new questions about the future of medicine.

In April,  Kaiser Permanente acquired Geisinger Health under the banner of newly formed Risant Health. With more than 185 years of combined care-delivery experience, Kaiser and Geisinger have long been held up as role models of the value-based care movement.

Eyeing the development, many speculated whether this deal will (a) ignite widespread healthcare transformation or (b) prove to be a desperate attempt at relevance (Kaiser) or survival (Geisinger).

Whether incumbents like Kaiser Permanente and Geisinger can lead a national healthcare transformation or are displaced by new entrants will depend largely on whether they can deliver value-based care on a national scale.

In Search Of Healthcare’s Holy Grail

Value-based care—the simultaneous provision of high quality, convenient and affordable medical care—has long been the aim of leading health systems like Kaiser, Geisinger, Mayo Clinic, Cleveland Clinic and dozens more.

But results to-date have often failed to match the vision.

The need for value-based care is urgent. That’s because U.S. health and economic problems are expected to get worse, not better, over the next decade. According to federal governmental actuaries, healthcare expenditures will rise from $4.2 trillion today to $7.2 trillion by 2031. At that time, these costs are predicted to consume an estimated 19.6% of the U.S. Gross Domestic Product.

Put simply: The U.S. will nearly double the cost of medical care without dramatically improving the health of the nation.

For decades, health policy experts have pointed out the inefficiencies in medical care delivery. Research has estimated that inappropriate tests and ineffective procedures account for more than 30% of all money spent on American medical care.

This combination of troubling economics and untapped opportunity explain why value-based care has become medicine’s holy grail. What’s uncertain is whether the transformation in healthcare delivery and financing will be led from inside or outside the healthcare system.

Where The Health-System Hopes Hang

For years, Kaiser Permanente has led the nation in clinical quality and patient outcomes based on independent, third-party research via the National Committee for Quality Assurance (NCQA) and Medicare Star ratings. Similarly, Geisinger was praised by President Obama for delivering high-quality care at a cost well below the national average.

And yet, these organizations, and many other highly regarded national and regional health systems, are extremely vulnerable to disruption, especially when their strategy and operational decisions fail to align.

Kaiser, for its part, has struggled with growth while Geisinger’s care-delivery strategy has proven unsuccessful in recent years. Failed expansion efforts forced KP to exit multiple U.S. markets, including New York, North Carolina, Kansas and Texas. More recently, several of its existing regions have failed to grow market share and weakened financially.

Meanwhile, Geisinger has fallen on hard times after decades of market domination. As Bob Herman reported in STAT News: “Failed acquisitions, antitrust scrutiny, leadership changes, growing competition from local players, and a pandemic that temporarily upended how patients got care have forced Geisinger to abandon its independence. The system is coming off a year in which it lost $240 million from its patient care and insurance operations.”

Putting the pieces together, I believe the Kaiser-Geisinger deal represents an industry undergoing massive change as health systems face intensifying pressure from insurers and a growing threat from retailers like Amazon, CVS and Walmart. This upcoming battle over the future of value-based care represents a classic conflict between incumbents and new entrants.

Can The World’s Largest Companies Disrupt U.S. Healthcare?

Retail giants, including Amazon, Walmart and CVS, are among the nation’s 10 largest companies based on annual revenue.

They have a broad geographic presence and strong relationships with almost all self-funded businesses. Nearly all have acquired the necessary healthcare pieces—including clinicians, home-health services, pharmacies, insurance arms and electronic medical record systems—to replace the current medical system.

And yet, while these companies expand into medical care and financing, their core businesses are struggling, resulting in announced store closures and layoffs. As newcomers to the healthcare market, they have been forced to pay premium dollars to acquire parts of the delivery system. All have a steep learning curve ahead of them.

The Challenge Of Healthcare Transformation

American medicine is a conglomerate of monopolies (insurers, hospitals, drug companies and private-equity-owned medical practices). Each works to maximize its own revenue and profit. All are unwilling to innovate in ways that benefit patients when doing so comes at the sacrifice of financial performance.

One problem stands at the center of America’s soaring healthcare costs: the way doctors, hospitals and drug companies are paid.

The dominant payment methodology in the United States, fee-for-service, rewards healthcare providers for charging higher prices and increasing the number (and complexity) of services offered—even when they provide no added value.

The message to doctors and hospitals is clear: The more you do, and the greater market control you have, the higher your income and profit. This is the antithesis of value-based care.

The alternative to fee-for-service payments, capitation, involves paying a single, up-front sum to the providers of care (doctors and hospitals) to cover the total annual cost for a population of patients. This model, unlike fee-for-service, rewards effectiveness and efficiency. Capitation creates incentives to prevent disease, reduce complications from chronic illness, and diminish the inefficiencies and redundancies present in care delivery. Capitated health systems that can prevent heart attacks, strokes and cancer better than others are more successful financially as a result. 

However, it’s harder than it sounds to translate what’s best for patients into everyday decisions and actions. It’s one thing to accept a capitated payment with the intent to implement value-based care. It’s another to put in place the complex operational improvements needed for success. Here are the roadblocks that Kaiser-Geisinger will face, followed by those the retail giants will encounter.

3 Challenges For Kaiser-Geisinger:

  1. Involving Clinical Experts. Kaiser Permanente is a two-part organization and when the insurance half (Kaiser) decided to acquire Geisinger, it did so without input or involvement from the half of the organization responsible for care-delivery (Permanente). This spells trouble for Geisinger, which must navigate a complex turnaround without the operational expertise or processes from Permanente that, in the past, helped Kaiser Permanente grow market share and lead the nation in clinical quality.
  2. Going All In. To meet the healthcare needs of most its patients, Geisinger relies on community doctors who are paid on a fee-for-service basis. Generally, the fee-for-service model is predicated on the assumption that higher quality and greater convenience require higher prices and increased costs. With Geisinger’s distributed model, it’ll be very difficult to deliver consistent, value-based care.
  3. Inspired Leadership. Major improvements in care delivery require skilled leadership with the authority to drive clinical change. In Kaiser Permanente, that comes through the medical group and its physician CEO. In Geisinger’s hybrid model, independent doctors have no direct oversight or central accountability structure. Although Risant Health could be an engine for value-based medical care, it’s more likely to serve the role of a “holding company,” capable of recommending operational improvements but incapable of driving meaningful change.

3 Challenges For The Retail Giants:

  • More Medical Offerings. Amazon, Walmart and CVS are successfully acquiring primary care (and associated telehealth) services. But competing with leading health systems will require a more wholistic, system-based approach to keep medical care affordable. This won’t be easy. To avoid ineffective, expensive specialty and hospital services, they will need to hire their own specialists to consult with their primary care doctors. And they will have to establish centers of excellence to provide heart surgery, cancer treatment, orthopedic care and more with industry-leading outcomes. But to meet the day-to-day and emergent needs of patients, they also will have to establish contracts with specialists and hospitals in every community they serve.  
  • Capitalizing On Capitation. Already, the retail giants have acquired organizations well-versed in delivering patient care through Medicare Advantage, a capitated alternative to traditional (fee-for-service) Medicare plans. It’s a good start. But the retailers must do more than dip a toe in value-based care models. They must find ways to gain sufficient experience with capitation and translate that success into value-based contracts with self-funded businesses, which insure tens of millions of patients.
  • Defining Leadership. Without an effective and proven clinical leadership structure, the retail giants will be no more effective than their mainstream competitors when it comes to implementing improvements and shifting the culture of medicine to one that is customer- and service-focused.

Be they incumbents or new entrants, every contender will hit a wall if they cling to today’s failing care delivery model. The secret ingredient, which most lack and all will need to embrace in the future, is system-ness.

For all of the hype surrounding value-based care, fragmentation and fee-for-service are far more common in American healthcare today than integration and capitation.

Part two of this article will focus on how these different organizations—one set inside and one set outside of medicine—can make the leap forward with system-ness. And, in the end, you’ll see who is most likely to emerge victorious.

Taking a historical view of hospital operating margins

Posted on by • Posted in Competition, Financial Distress, Financial Performance, Financial Pressure, Financial Reserves, Financial Stewardship, Financial Strength, Financial Viability, Financially Distressed, Health System, Hospital, Hospital Industry, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Metrics, Operating Performance, Operating Revenue • Leave a comment

https://mailchi.mp/cc1fe752f93c/the-weekly-gist-july-14-2023?e=d1e747d2d8

So far, 2023 is shaping up to be a slightly better year for hospital performance, but it comes on the heels of unprecedented financial difficulties for the sector.

In the graphic above, we evaluated nearly 30 years of historical data from Kaufman Hall and the American Hospital Association to provide a broader perspective on hospital operating margins over time. 2020 and 2022 have been the only years in which a majority of hospitals—53 percent—posted a negative operating margin. 

During the most comparable periods of recent economic hardship, the “dot-com bubble burst” of the late 1990s and the 2009 Great Recession, the share of hospitals with negative operating margins amounted to only 42 and 32 percent, respectively.

With this context, hospitals’ current financial distress is more severe than anything we’ve seen in the past three decades. 

Healthcare is clearly no longer recession-proof: a four percent operating margin—the level needed for health systems to not only sustain operations but also invest in growth—feels even more elusive as labor costs remain high, surgical care continues to shift to outpatient settings, the second half of the Baby-Boom generation ages into Medicare, and deep-pocketed competitors compete for profitable services.

Quantifying private equity’s takeover of physician practices

Posted on by • Posted in Antitrust, Federal Trade Commission (FTC), Health Policy, Health System, High Prices, Hospital, Hospital Industry, Market Consolidation, Market Power, Mergers & Acquisitions, Physician Acquisition, Physician Employment, Physician Practice Acquisition, Private Equity • Leave a comment

https://mailchi.mp/cc1fe752f93c/the-weekly-gist-july-14-2023?e=d1e747d2d8

A detailed report, published by a group of organizations including the American Antitrust Institute, provides one of the highest-quality examinations of the growth of private equity (PE)-backed physician practices, and the impact of this growth on market competition and healthcare prices.

From 2012 to 2021, the annual number of practice acquisitions by private equity groups increased six-fold, and the number of metropolitan areas in which a single PE-backed practice held over 30 percent market share rose to cover over one quarter of the country. (Check out figure 3B at the bottom of page 20 in the report to see if you live in one of those markets.)

The study also found an association between PE practice acquisitions and higher healthcare prices and per-patient expenditures. In highly concentrated markets, certain specialties, like gastroenterology, saw prices rise by as much as 18 percent.

The Gist: As the report highlights, one of the greatest barriers to assessing PE’s impact on physician practices is the lack of transparency around acquisitions and ownership structures. This analysis brings us closer to understanding the scope of the issue, and makes a strong case for regulatory and legislative intervention. 

Recent proposed changes to federal premerger disclosure requirements offer a good start, but many practice acquisitions are still too small to flag review, and slowing future acquisitions will do little to unwind the market concentration already emerging. 

PE is also not the sole actor contributing to healthcare consolidation, and proposed remedies may target the activities of payers and health systems considered anti-competitive as well.

CMS proposes $9B repayment to 340B hospital participants

Posted on by • Posted in Center for Medicare and Medicaid Services (CMS), Dept of Health and Human Services (HHS), District Court, District Court of Appeals, Health System, Hospital, Hospital Industry, Medicare 340B Drug Discount Program, Medicare Budget Neutrality, Medicare Reimbursement, Supreme Court • Leave a comment

https://mailchi.mp/cc1fe752f93c/the-weekly-gist-july-14-2023?e=d1e747d2d8

Earlier this week, the Centers for Medicare and Medicaid Services (CMS) issued a proposal to remedy its four years of payment cuts to the more than 1,600 hospitals participating in the 340B Drug Pricing Program through one-time, lump-sum payments that will total roughly $9B. 

In 2018, CMS reduced drug reimbursement to 340B covered-entity hospitals by nearly 30 percent, in an attempt to align reimbursement with hospitals’ actual drug acquisition costs. The Supreme Court overturned those cuts in 2022, ruling that the Department of Health and Human Services (HHS) had violated rulemaking procedure. As CMS rulemaking on Medicare payment must be budget-neutral, the agency will offset the remedy payments with a 0.5 percent cut to all hospitals for non-drug items and services covered under the Hospital Outpatient Prospective Payment System (OPPS) over the next 16 years. Stakeholders have until September 5th to comment on the proposed rule. Once the final rule is published later this year, CMS plans to repay 340B participant hospitals within 60 days of their application for remedy.

The Gist: After worries about how last year’s Supreme Court ruling would be implemented, 340B participant hospitals will be relieved to receive their payment corrections up front instead of over time, especially given current margin challenges.

But while this issue is now set to be resolved, other critical decisions about the 340B program’s fate are pending before courts. Earlier this year, Bayer and EMD Serono became the 20th and 21st drugmakers to restrict discounts to contract pharmacies, following an appellate court decision in January that sided with the pharmaceutical manufacturers.

Meanwhile, appellate courts in other jurisdictions are set to hear at least two more cases on the issue, amid conflicting rulings about whether HHS can enforce contract pharmacy discounts.

9 recent health system downgrades and outlook revisions

Posted on by • Posted in Balance Sheet, Credit Downgrade, Credit Quality, Credit Ratings, Financial Ratios, Financial Reserves, Financial Stewardship, Financial Viability, Health System, Hospital, Hospital Industry, Liquidity, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Metrics, Operating Performance, Operating Revenue • Leave a comment
https://www.beckershospitalreview.com/finance/9-recent-health-system-downgrades-and-outlook-revisions.html?origin=RCME&utm_source=RCME&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

Here is a summary of recent credit downgrades and outlook revisions for hospitals and health systems.

The downgrades and downward revisions reflect continued operating challenges many nonprofit systems are facing, with multiyear recovery processes expected.

Downgrades:

Yale New Haven (Conn.) Health: Operating weakness and elevated debt contributed to the downgrade of bonds held by Yale New Haven (Conn.) Health, Moody’s said May 5. The bond rating slipped from “Aa3” to “A1,” and the outlook was revised to stable from negative.

The system saw a second downgrade as its default rating and that on a series of bonds were revised one notch to “A+” from “AA-” amid continued operating woes, Fitch said June 28.

Not only have there been three straight years of such challenges, but the operating environment continues to cast a pall into the second quarter of the current fiscal year, Fitch said.

UC Health (Cincinnati): The system was downgraded on a series of bonds, Moody’s said May 10.

The move, which involved a lowering from a “Baa2” to “Baa3” grade, refers to such bonds with an overall value of $580 million.

In February, UC Health suffered a similar downgrade from “A” to “BBB+” on its overall rating and on some bonds because of what S&P Global termed “significantly escalating losses.”

UNC Southeastern (Lumberton, N.C.): The system, which is now part of the Chapel Hill, N.C.-based UNC Health network, saw its ratings on a series of bonds downgraded to “BB” amid operating losses and sustained weakness in its balance sheet, S&P Global said June 23.

While UNC Southeastern reported an operating loss of $74.8 million in fiscal 2022, such losses have continued into fiscal 2023 with a $15 million loss as of March 31, S&P Global said. The system had earlier been placed on CreditWatch but that was removed with this downgrade.

Butler (Pa.) Health: The system, now merged with Greensburg, Pa.-based Excela Health to form Independence Health System, saw its credit rating downgraded significantly, falling from “A” to “BBB.”

The move reflects continued operating challenges and low patient volumes, Fitch said June 26.

Such operating challenges, including low days of cash on hand, could result in potential default of debt covenants, Fitch warned.

Outlook revisions:

Redeemer Health (Meadowbrook, Pa.): The system had its outlook revised to negative amid “persistent operating losses,” Fitch Ratings said June 14. The health system, anchored by a 260-bed acute care hospital, reported a $37 million operating loss in the nine months ending March 31, Fitch said.

Thomas Jefferson University (Philadelphia): The June 9 downward revision of its outlook, which includes both the health system and the university’s academic sector, was due to sustained operating weakness, S&P Global said.

IU Health (Indianapolis): While it saw ratings affirmed at “AA,” the 16-hospital system had its outlook downgraded amid persistent inflationary pressures and large capital expense, Fitch said May 31.

UofL Health (Louisville, Ky.): Slumping operating income and low days of cash on hand (42.8 as of March 31) contributed to S&P Global revising its outlook for the six-hospital system to negative May 24.

The Five Most Important Questions Hospitals must Answer in Planning for the Future

Posted on by • Posted in Board, C-Suite, Health System, Hospital, Hospital Industry, Leadership, Leadership Vision, Strategic Leadership, Strategy • Leave a comment
The Five Most Important Questions Hospitals must Answer in Planning for the Future

As hospital leaders convene in Seattle this weekend for the American Hospital Association Leadership Summit, their future is uncertain.

Last week’s court decision in favor of hospitals shortchanged by the 340B drug program and 1st half 2023 improvement in operating margins notwithstanding, the deck is stacked against hospitals—some more than others. And they’re not alone: nursing homes and physician practices face the same storm clouds:

  • Decreased reimbursement from government payers (Medicare and Medicaid) coupled with heightened tension with national health insurers seeking bigger discounts and direct control of hospital patient care.
  • Persistent medical-inflation driving costs for facilities, supplies, wages, technologies, prescription drugs and professional services (legal, accounting, marketing, et al) higher than reimbursement increases by payers.
  • Increased competition across the delivery spectrum from strategic aggregators, private equity and health insurers diversifying into outpatient, physician services et al.
  • Increased discontent and burnout among doctors, nurses and care teams who feel unappreciated, underpaid and overworked.
  • Escalating media criticism of not-for-profit hospitals/health system profitability, debt collection policies, lack of price transparency, consolidation, executive compensation, charity care, community benefits and more.
  • Declining trust in the system across the board.

Most hospitals soldier on: they’re aware of these and responding as best they can. But most are necessarily focused only on the near-term: bed needs, workforce recruitment and staffing, procurement costs for drugs and supplies and so on.  Some operate in markets less problematic than others, but the trends hold true directionally in every one of America’s 290 HRR markets.

Planning for the long-term is paralyzed by the tyranny of the urgent:

survival and sustainability in 2023 and making guarded bets about 2024 dominate today’s plans. That’s reality.  Though the healthcare pie is forecast to get bigger, it’s being carved up by upstarts pursuing profitable niches and mega-players with deep pockets and a take-no-prisoners approach to their growth strategies. The result is an industry nearing meltdown.

Each traditional sector thinks it’s moral virtue more honorable than others. Each blames the other for avoidable waste and inaction in weeding out its bad actors. Each is pays lip service to “value-based care” and “system transformation” while doubling-down on making sure changes are incremental and painless for the near-term. And each believes the long-term destination of the system will be different than the past but no two agree on what that is.

Hospitals control 31% of the spend directly and as much as 43% with their employed physicians included. So, they’re a logical focus of attention from outsiders. Whether not for profit, public or investor owned, all are thought to be expensive and non-transparent and increasingly many are seen as ‘Big Business’ with excessive profits. Complaints about heavy-handed insurer reimbursement and price-gauging by drug companies fall on death ears in most communities. That’s why most are focused on near-term survival and few have the luxury or tools to plan for the future.

As a start, answers to the questions below in the 3-5 (mid-term) and 8–10-year (long-term) time frames is imperative for every hospital leadership team and Board:

  • Is the status quo sustainable? With annual spending projected to increase at 5.4%/year through 2031– well above population and economic growth rates overall– will employers remain content to pay 224% of Medicare rates to produce profits for hospitals, doctors, drug and device makers and insurers? Will they continue to pass these costs through to their customers and employees while protecting their tax exemptions or will alternative strategies prompt activism? Might employers drive system transformation by addressing affordability, effectiveness, consumer self-care and systemness et al. with impunity toward discomfort created for insiders? Or, might voters reject the status quo in subsequent state/federal elections in favor of alternatives with promised improvement? And who will the winners and losers be?
  • Are social determinants a core strategy or distraction? 70% of costs in the health system are directly attributable to social needs unmet—food insecurity. loneliness et al. But in most communities, programs addressing SDOH and public health programs that serve less-privileged populations are step-children to better funded hospitals and retail services targeted to populations that can afford them. Is the destination incremental bridges built between local providers and public health programs to satisfy vocal special interest groups OR comprehensive integration of SDOH in every domain of operation? Private investors are wading into SDOH if they’re attached to a risk-based insurance programs like Medicare Advantage and others, but sparingly in other settings. Does the future necessitate re-definition of “community benefits” or new regulations prompting providers, drug companies and payers to fair-share performance. Is the future modest improvement in the “Health or Human Services” status quo OR is system of “Health and Social Services” that’s fully integrated? And might interoperability and connectivity in the entire population become “true north” for tech giants and EHR juggernauts seeking to evade anti-trust constraint and demonstrate their commitment to the greater good? There’s no debate that SDOH is central to community health and wellbeing but in most communities, it’s more talk than walk. Yesterday, SDOH was about risk factors; today, it’s about low-income populations who lack insurance; tomorrow, it’s everyone.
  • How should the health system of the future be funded? The current system of funding is a mess: In 2021, the federal government and households accounted for the largest shares of national health spending (34 % and 27%, respectively), followed by private businesses (17%), state and local governments (15%), and other private revenues (7%). It will spend $4.66 trillion, employ 19 million and impact every citizen (and non-citizen) directly.  But 4 of 10 households have unpaid medical bills. Big employers in certain industries provide rich benefits while half of small businesses provide none. Medicare depends on employer payroll taxes for the lion’s share of its Part A (Hospital) funding exposing the “trust fund” to a shortfall in 2028 and insolvency fears…and so on. Increased public funding via taxes is problematic and debt is more costly as interest rates go up and the municipal bond market tightens. Voters and private employers don’t seem inclined to pay higher taxes for healthcare–:is it worth $13,998 per capita today? $20,426 in 2031? Will high-cost inpatient care and specialty drugs become regulated public utilities in which access and pricing is tightly controlled and directly funded by government? Will private investors and strategic aggregators be required to take invest in community benefits to offset the disproportionate costs borne by hospitals, public health clinics and others? Is there a better formula for funding U.S. healthcare? Other systems of the world spend more on social services and preventive health and less on specialty care. They spend a third less and get comparable if not better outcomes though each is stretched to deal with medical inflation. And in most, government funding is higher, private funding lower and privileged populations have access to private services they pay for directly.  Where do we start, and who demands the question be answered?
  • How will innovations in therapeutics and information technology change how individuals engage with the system? Artificial intelligence will directly impact 60% of the traditional health delivery workforce, negating jobs for many/most. Non-allopathic therapies, technology-enabled self-care, precision medicines, non-invasive and minimally invasive surgical techniques are changing change how care is delivered, by whom and where. Thus, lag indicators based on visits, procedures, admissions and volume are increasingly useless. How will demand be defined in the future? Who will own the data and how will it be accessed? And how will the rights of patients (consumers) be protected in courts and in communities? In the future, information-driven healthcare will be much more than encounter data from medical records and claims-based analyses from payers. It will be sourced globally, housed centrally and accessed by innovators and consumers to know more about their health now and next. Within 10 years, generative AI coupled with therapeutic innovation will fundamentally change roles, payments and performance measurement in every domain of healthcare. Proficiency in leveraging the two will anchor system reputations and facilitate significant market share shifts to high value, high outcome, lower cost alternatives…whether local or not.
  • How will regulators and court decisions enact fair competition, consumer choices and antitrust protections? The current political environment is united around reforms that encourage price transparency and affordability. FTC and DOJ leaders are aligned on healthcare oversight with a decided bent toward heightened enforcement and tighter scrutiny of proposed deals (both vertical and horizontal integration). But their leaders’ terms are subject to political appointments and elections: that’s an unknown. And while recent rulings of the conservative leaning Supreme Court are problematic to many in healthcare, their rulings are perhaps more predictable than policies, rules and regulations directly impacted by election results.

For hospital leaders gathering in Seattle this week, and in local board meetings nationwide, necessary attention is being given the near-term issues all face. But longer-term issues lurk: the future does not appear a modernized version of the past for anyone in U.S. healthcare, especially hospitals. And among hospitals, fundamental precepts—like tax exemptions for “not-for-profit” hospitals, community benefits and charity care in exchange for tax exemption, EMTALA et al. regulations that require access without pre-condition are among many that will re-surface as the long-term view of the health system is re-considered.

To that end, the questions above deserve urgent discussion in every hospital board room and C suite. Trade-offs aren’t clear, potential future state hospital scenarios are not discreet and winners and losers unknown. But a fact-driven process recognizing a widening array of players with deep pockets and fresh approaches is necessary.

The Hospital Makeover—Part 2

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America’s hospitals have a $104 billion problem.

That’s the amount you arrive at if you multiply the number of physicians employed by hospitals and health systems (approximately 341,200 as of January 2022, according to data from the Physicians Advocacy Institute and Avalere) by the median $306,362 subsidy—or loss—reported in our Q1 2023 Physician Flash Report.

Subsidizing physician employment has been around for a long time and such subsidies were historically justified as a loss leader for improved clinical services, the potential for increased market share, and the strengthening of traditionally profitable services.

But I am pretty sure the industry did not have $104 billion in losses in mind when the physician employment model first became a key strategic element in the hospital operating model. However, the upward reset in expenses brought on by the pandemic and post-pandemic inflation has made many downstream hospital services that historically operated at a profit now operate at breakeven or even at a loss. The loss leader physician employment model obviously no longer works when it mostly leads to more losses.

This model is clearly broken and in demand of a near-term fix. Perhaps the critical question then is how to begin? How to reconsider physician employment within the hospital operating plan?

Out of the box, rethink the physician productivity model. Our most recent Physician Flash Report data shows that for surgical specialties, there was a median $77 net patient revenue per provider wRVU. For the same specialties, there was a median $80 provider paid compensation per provider wRVU. In other words, before any other expenses are factored in, these specialties are losing $3 per wRVU on paid compensation alone. Getting providers to produce more wRVUs only makes the loss bigger.

It’s the classic business school 101 problem.

If a factory is losing $5 on every widget it produces, the answer is not to produce more widgets. Rather, expenses need to come down, whether that is through a readjustment of compensation, new compensation models that reward efficiency, or the more effective use of advanced practice providers.

Second, a number of hospital CEOs have suggested to me that the current employed physician model is quite past its prime. That model was built for a system of care that included generally higher revenues, more inpatient care, and a greater proportion of surgical vs. medical admissions. But overall, these trends were changing and then were accelerated by the Covid pandemic. Inpatient revenue has been flat to down. More clinical work continues to shift to the outpatient setting and, at least for the time being, medical admissions have been more prominent than before the pandemic.

Taking all this into account suggests that in many places the employed physician organizational and operating model is entirely out of balance. One would offer the calculated guess that there are too many coaches on the team and not enough players on the field. This administrative overhead was seemingly justified in a different loss leader environment but now it is a major contributor to that $104 billion industry-wide loss previously calculated.

Finally, perhaps the very idea of physician employment needs to be rethought.

My colleagues Matthew Bates and John Anderson have commented that the “owner” model is more appealing to physicians who remain independent then the “renter” model. The current employment model offers physicians stability of practice and income but appears to come at the cost of both a loss of enthusiasm and lost entrepreneurship. The massive losses currently experienced strongly suggest that new models are essential to reclaim physician interest and establish physician incentives that result in lower practice expenses, higher practice revenues, and steadily reduced overall subsidies.

Please see this blog as an extension of my last blog, “America’s Hospitals Need a Makeover.” It should be obvious that by analogy we are not talking about a coat of paint here or even new appliances in the kitchen.

The financial performance of America’s hospitals has exposed real structural flaws in the healthcare house. A makeover of this magnitude is going to require a few prerequisites:

  1. Don’t start designing the renovation unless you know specifically where profitability has changed within your service lines and by explicitly how much. Right now is the time to know how big the problem is, where those problems are located, and what is the total magnitude of the fix.
  2. The Board must be brought into the discussion of the nature of the physician employment problem and the depth of its proposed solutions. Physicians are not just “any employees.” They are often the engine that runs the hospital and must be afforded a level of communication that is equal to the size of the financial problem. All of this will demand the Board’s knowledge and participation as solutions to the physician employment dilemma are proposed, considered, and eventually acted upon.

The basic rule of home renovation applies here as well: the longer the fix to this problem is delayed the harder and more expensive the project becomes. The losses set out here certainly suggest that physician employment is a significant contributing factor to hospitals’ current financial problems overall. It would be an understatement to say that the time to get after all of this is right now.

Entering the next “golden age” of medical innovation

Posted on by • Posted in Cancer Treatment, Clinical Innovation, CRISPR Gene Therapy, CRISPRs, Disruptive Technology, Health System, Hospital, Hospital Industry, Innovation, Innovative Care Models, Medical Innovation, mRNA-based Vaccines, Strategic Change, Strategy, Strategy Clinical, Strategy Demand-Driven, Strategy Development, Weight Loss Drugs • Leave a comment

https://mailchi.mp/7f59f737680b/the-weekly-gist-june-30-2023?e=d1e747d2d8

The New York Times Magazine published an encouraging piece about the impressive series of recent medical breakthroughs, many of which have been in the works for decades. 

Challenging the conventional wisdom that disruptive scientific breakthroughs have slowed over time, the article points out that the last five years of medicine have featured the rollout of mRNA vaccines, the first instance of a person receiving CRISPR gene therapy, and development of next-generation cancer treatment and weight-loss drugs. 

The Gist: The expanding innovation pipeline not only brings excitement and optimism for patients and physicians, but also has the potential to dramatically impact long-established care delivery pathways. 

Case in point: used at scale, new weight loss drugs could curb obesity-related chronic diseases and joint replacements—while possibly increasing the incidence of Alzheimer’s disease and cancer as more people live longer lives. 

Providers planning for facility and other long-term investments must think through scenarios about how these early, but very promising, innovations could alter demand and shift care delivery needs over coming decades.