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South Carolina merger will create largest health system in state
Dive Brief:
- Two South Carolina health systems, Palmetto Health and Greenville Health System, on Thursday announced a new nonprofit company that will combine the two systems into one 13-hospital company with 1.2 million patients and $3.9 billion in annual net revenue.
- In the announcement, the two health systems said the merger will “have the potential to invest up to an additional $1 billion over the next five years in programs, technology, facilities and team members.”
- Nearly half of South Carolinians will live within 15 minutes of the new health company’s physician practices, hospitals and healthcare facilities.
Dive Insight:
The merger will result in South Carolina’s largest provider of charity and uncompensated care that will also account for one-third of the state’s Medicaid services. Palmetto Health Chief Executive Officer Charles D. Beaman Jr. said both organizations “are committed to ensuring our community members receive the healthcare they need, regardless of their ability to pay.”
It will also create South Carolina’s largest private employer with more than 28,000 employees and 2,800 physicians.
Palmetto’s facilities include the 649-bed Palmetto Health Richland, 413-bed Palmetto Health Baptist and 301-bed Palmetto Health Tuomey. Greenville’s system includes the 710-bed Greenville Memorial Hospital. The two health services already partner on a joint venture with 109-bed Baptist Easley Hospital.
The two organizations will continue providing separate services during the due diligence, third-party approval and integration planning stages.
Hospital M&A activity remains hot with this latest news. Recent M&A actions have involved health systems shedding hospitals to reduce debt, such as Quorum Health selling two hospitals to UPMC Susquehanna, consolidating services, such as Mayo Clinic’s plans to consolidate two hospitals, or expanding footprints like HCA looking to buy more hospitals.
The volume of healthcare M&A was up in the first quarter of this year and there is no sign of the trend slowing. The American Hospitals Association found in a recent analysis that most mergers in the past several years led to cost savings and quality improvement.
This South Carolina merger is all about scale and expanding footprint. “This new health company will have the scale, scope and resources required to address the serious health issues of the people it serves,” the two companies said in the announcement.
Thad Kresho, U.S. Health Services Deals Leader at PricewaterhouseCooper’s told Healthcare Dive earlier this year hospitals are seeking mergers “in response to the continued call for improved quality, patient engagement and new reimbursement models.”
AHCA could mean 725K fewer healthcare jobs by 2026
http://www.healthcaredive.com/news/ahca-could-mean-725k-fewer-healthcare-jobs-by-2026/445131/
Dive Brief:
- The American Health Care Act (AHCA), as it was passed in the House, would result in the loss of 924,000 jobs over 10 years and spark economic downturns in every state, according to research by the George Washington University Milken Institute School of Public Health and The Commonwealth Fund.
- The healthcare sector would be hit the hardest, with 725,000 jobs lost by 2026. There would be fewer healthcare jobs immediately in 17 states. The states that would be most affected overall include New York, Pennsylvania and Florida.
- The primary cause of the job disappearances and state economic downturns would be cuts to healthcare funding, such as more than $800 billion to Medicaid, and lower premium subsidies.
Dive Insight:
The analysis is of the House version of the bill, and the Senate is expected to make changes when it brings its own version up for a vote. But with those negotiations going on behind closed doors, there is not enough information to makes estimates based on the Senate bill.
The report is a warning call to the healthcare industry and another black mark on the increasingly unpopular AHCA. The bill is already opposed by most major industry groups. They balk at the huge cuts to Medicaid and the Congressional Budget Office estimates up to 23 million people would lose coverage.
The threat of jobs losses could become another rallying cry. In fact, healthcare executives shaken by the potential for repeal of the Affordable Care Act (ACA) are already scaling back hiring and new projects in the face of uncertainty. Former CMS Administrator Andy Slavitt said a poll he conducted found nearly 40% of executives said they are slowing hiring and 31% are cutting capital expenses.
Healthcare job growth spiked after the passage of the ACA, which the AHCA seeks to replace. The ACA helped create about 240,000 jobs in the industry, and employment increased from an average of 1.7% in 2010 to 2.5% from 2014 to 2016. But that trend has tempered. Healthcare has averaged 22,000 job gains a month so far this year. The average monthly gain in 2016 was 32,000.
The AHCA phases out Medicaid expansion, which has been an economic boon for states that decided to expand. The authors of the latest report said those states would be hit hardest in financial terms by the bill.
“Hospitals, health systems, clinics and pharmacies might be forced to close or lay off staff as federal funding for healthcare is cut and the number of uninsured patients grows,” the researchers wrote.
Report: $262B in healthcare claims initially denied last year
Dive Brief:
- A new report by Change Healthcare found an estimated 9% of claims submitted to payers last year was initially denied. Of the estimated $3 trillion in charges submitted to payers, $262 billion was initially denied.
- The report said as much as 3.3% of net patient revenue, an average of $4.9 million per hospital, was “put at risk due to denials.”
- Change Healthcare said 63% of the claims were recoverable and providers spent $8.6 billion to appeal the claims, which cost an average of $118 per claim.
Dive Insight:
Change Healthcare published “Healthy Hospital Revenue Cycle Index” on Monday at the Healthcare Financial Management Association ANI 2017 conference. The organization said the results “reinforce the tremendous opportunity hospitals have to accelerate cash flow and reduce administrative costs by using advanced analytics to better manage the revenue cycle.”
Change Healthcare bases its index on primary institutional inpatient and outpatient claims processed by the organization in 2016. The company reviewed more than 3.3 billion provider transactions at 724 hospitals that valued $1.8 trillion.
The report found that the Pacific states had the highest denial rate (10.89%) and the most common denial causes were “registration/eligibility” (23.9%) and “missing or invalid claim data” (14.6%).
With many hospitals facing razor-thin margins, these kinds of revenue cycle issues play a role in whether a hospital can grow and reinvest in its facilities. This report shows the importance of a strong revenue cycle that provides relevant information that payers can use to approve claims.
Memorial Hermann Health System cuts 350 more employees
http://www.healthcaredive.com/news/memorial-hermann-health-system-cuts-350-more-employees/446069/
Dive Brief:
- Memorial Hermann Health System in Houston announced it is laying off 350 employees from its 25,000-employee workforce, Houston Chronicle reported. The system laid off 112 employees in January.
- Memorial Hermann’s interim President Chuck Stokes pointed to uncertainty in the healthcare industry, escalating costs, declining reimbursements and a softened local economy as the reasons for the layoffs. Stokes took over for former CEO Benjamin Chu, who abruptly left the system last week after serving in the position for about a year.
- Stokes said the system is profitable and the cuts do not affect patient care. Instead, the layoffs are a result of needing to “prosper under the new normal in healthcare.”
Dive Insight:
Stokes’ talk of “the new normal in healthcare” is something all health systems are facing. Hospitals are merging, acquiring other hospitals and shedding facilities in an attempt to compete in a healthcare system that has fewer hospital admissions, rising costs and lower reimbursements.
Memorial Hermann is one of a growing number of health systems that have decided to cut staff as a way to cope. Recently, other major systems shed employees. Summa Health cut 300 positions, Sutter Health closed a nursing unit and laid off 72 employees, NYC Health + Hospitals cut 476 positions and Banner Health offered severance packages to employees.
No hospitals are immune to these cuts. For-profit health systems are dealing with similar financial problems as nonprofits. Rural and safety-net hospitals might be more at-risk, but large metro systems are also facing issues.
In addition to layoffs, healthcare has seen its share of M&A activity of late as a reaction to the “new normal.”
Over the past month, Palmetto Health and Greenville Health System, both in South Carolina, announced a new nonprofit company that will combine the two systems into one 13-hospital company with 1.2 million patients and $3.9 billion in annual net revenue. Also, Quorum Health recently sold two hospitals to UPMC Susquehanna and Mayo Clinic’s announced it plans to consolidate two hospitals. On the flip side, HCA is looking to buy more hospitals.
Richard Gundling, senior vice president of healthcare financial practices at the Healthcare Financial Management Association, recently told Healthcare Dive that the trend of healthcare M&A will continue as hospitals figure out ways to handle risk-based contracting and other Medicare changes. He said for-profits will likely look for M&A options, especially in rural areas, in hopes of bringing scale, which he said all hospitals want.
Hospitals that transition to new payment models while increasing quality and safety measures, and lowering expenses will be a better position to deal with future changes, he said. “Focusing on increasing value to patients and purchasers is a no-fail strategy,” Gundling said.
Summa Health to cut 300 positions, scale back services in face of $60M operating loss
Dive Brief:
- Facing steep operating losses, Summa Health will shed 300 positions and rein in its services, Cleveland.com reported. Half of the eliminated positions are currently empty.
- The Akron-based health system recorded $30 million in profits in 2016, but expects $60 million in operating losses this year brought on by low inpatient and outpatient numbers.
- “This year, inpatient and outpatient volumes are dramatically down and, as a result, we are facing staggering operating losses, interim President and CEO Cliff Deveny said in an internal memo to staff on Monday. “While we have considerable cash in reserve to protect us for the short term, this trend must stop immediately.”
Dive Insight:
Summa’s future has been uncertain since CEO Thomas Malone resigned in January. His departure followed a letter signed by 240 Summa physicians giving him a vote of no confidence and urging him to leave. The physicians complained of not being consulted on major changes that would affect patient care at Summa and questioned the nonprofit health system’s decision to sever a contract with emergency physicians.
As patient care shifts from inpatient to outpatient/virtual settings and hospitals face reimbursement cuts, nonprofit and for-profit hospitals alike are struggling to keep operating losses under control. In March, for example, Cleveland Clinic reported a 71% drop in operating income from $480.2 million in 2015 to $139.9 million last year — despite a 12% jump in revenues to $8 billion. Among expenses weighing the system down were pharmaceuticals (up 23%), labor (up 19%) and supplies (up 13%).
More than half of hospitals in the U.S. suffered operating losses in 2016, Cleveland Clinic CEO Toby Cosgrove said earlier this year during a panel to discuss changing demands on healthcare systems. While healthcare reforms are forcing hospitals to transform care delivery, they aren’t being funded adequately to do so, he said.
NYC Health + Hospitals suffered a $76 million operating loss in the first half of fiscal 2017, softened slightly by about $78 million in capital contributions from the city. The health system blamed the loss in part on timing of government payments and the need to count costs like depreciation. The health system has experienced several years of operating losses and had hoped to flip their luck with implementation of a $764 million Epic EHR. However, implementation fell far behind H+H’s original spring 2016 systemwide go-live deadline.
And Boston-based Partners HealthCare suffered $108 million in operating losses for fiscal 2016. The health system has struggled financially since purchasing Neighborhood Health Plan, Medicaid managed care subsidiary in 2012. Partners was hit with a nursing strike and expenses related to implementation of a new EHR system.
Longer-Term Effects of the Better Care Reconciliation Act of 2017 on Medicaid Spending
Click to access 52859-medicaid.pdf
In the Congressional Budget Office’s assessment,
Medicaid spending under the Better Care Reconciliation
Act of 2017 would be 26 percent lower in 2026
than it would be under the agency’s extended baseline,
and the gap would widen to about 35 percent in 2036
(see Figure 1). Under CBO’s extended baseline, overall
Medicaid spending would grow 5.1 percent per year
during the next two decades, in part because prices for
medical services would increase. Under this legislation,
such spending would increase at a rate of 1.9 percent per
year through 2026 and about 3.5 percent per year in the
decade after that.
CBO and the staff of the Joint Committee on Taxation
do not have an insurance coverage baseline beyond the
coming decade and therefore are not able to quantify the
legislation’s effect on insurance coverage over the longer
term. However, the agencies expect that after 2026,
enrollment in Medicaid would continue to fall relative to
what would happen under the extended baseline.
On the basis of consultation with the budget committees,
CBO’s just-released cost estimate for the bill measured
the costs and savings relative to CBO’s March
2016 baseline projections, with adjustments for legislation
that was enacted after that baseline was produced.1
For consistency, this longer-term analysis uses CBO’s
extended baseline published in July 2016.2
CBO analyzed these longer-term effects at the request of the
Ranking Members of the Senate Budget Committee and
the Senate Finance Committee.
Effects on Spending
Over the next decade, CBO projects, a large gap would
grow between Medicaid spending under current law and
under this bill. In later years, that gap would continue to
widen because of the compounding effect of the differences
in spending growth rates. CBO projects that the
growth rate of Medicaid under current law would exceed
the growth rate of the per capita caps for all groups covered
by the caps starting in 2025.
In CBO’s extended baseline, Medicaid spending is projected
to be 2.0 percent of GDP in 2017 and 2.4 percent
by 2036. The 35 percent reduction in that spending that
CBO estimates for 2036 under this legislation would
result in Medicaid spending of 1.6 percent of GDP.
Under this legislation, after the next decade, states
would continue to need to arrive at more efficient
methods for delivering services (to the extent feasible)
and to decide whether to commit more of their
own resources, cut payments to health care providers
and health plans, eliminate optional services, restrict
eligibility for enrollment, or adopt some combination
of those approaches. Over the long term, there would
be increasing pressure on more states to use all of those
tools to a greater extent.
House narrowly passes malpractice reform legislation
http://www.healthcaredive.com/news/house-narrowly-passes-malpractice-reform-legislation/446208/
Dive Brief:
- Lawmakers in the House voted 218-210 this week to pass the Protecting Access to Care Act of 2017, paving the way for the potential of major tort reforms this year.
- H.R. 1215 would cap noneconomic damages in malpractice litigation at $250,000 and limit the fees lawyers can charge in healthcare lawsuits. It also protects providers from liability in product liability lawsuits involving an FDA-approved drug or medical device.
- Sponsored by Rep. Steve King (R-Iowa), the bill would apply to lawsuits where a patient’s coverage was provided through a federal program, subsidy or tax benefit. That includes patients insured under the Affordable Care, veterans, service members, civil servants and Medicare and Medicare beneficiaries.
Dive Insight:
The bill is designed to protect providers from superfluous lawsuits and unnecessary costs and would preempt state laws with higher limits on damages or no limits at all. According to a Congressional Budget Office analysis, the measure would save taxpayers $50 billion over the next 10 years.
American Medical Assocation President Dr. David Barbe praised the House action, calling H.R. 1215 “an important first step toward fixing” a broken medical liability system, adding, “By redirecting healthcare spending from defensive medicine, additional dollars can go to patient care, safety and quality improvements, and to health information technology systems that would help improve care and outcomes.”
Republicans in Congress are eyeing 2017 as a major year for tort reform. Though clinicians will likely champion H.R. 1215, some have questioned whether the reform is necessary. According to Doctors Company, a major malpractice insurer, the rate of malpractice has been halved since 2003. Tort reform has been on the mind of HHS Secretary Tom Price for 20 years so a Republican-controlled Congress allows for such reforms to be made.
President Donald Trump’s administration also expressed his support for the legislation. His fiscal year 2018 budget proposal includes a provision that would alter the collateral source rule to allow evidence of a plaintiff’s income from other sources to be introduced at trial.
In addition to H.R. 1215, three other tort reform bills are under review. H.R. 720, the Lawsuit Abuse Reduction Act, would discourage the filing of frivolous claims by requiring mandatory sanctions on those who do and eliminating the ability of plaintiffs and their lawyers to avoid sanctions by withdrawing claims after a motion to sanction.
Another bill, the Fairness in Class Action Litigation Act, H.R. 985, would make it more difficult for plaintiffs’ attorneys to file class action lawsuits by requiring that all claimants in the class experienced the same type and degree of injury.
Finally, the Innocent Party Protection Act, H.R. 725, would let defendants sued in state courts remove the case to the federal level if the plaintiff and defendant are from different states and more than $75,000 in damages is on the line.
A week after CEO’s ouster, St. Luke’s CFO stepping down
St. Luke’s Health System’s top financial executive is following the CEO out the door, another casualty of the Catholic network’s ongoing struggles in the Houston market.
Jenny Barnett-Sarpalius, senior vice president and chief financial officer, will step down Friday, the St. Luke’s system announced in an internal email Wednesday. The resignation came a week after the system announced the resignation of St. Luke’s CEO Michael Covert.
Since August, St. Luke’s has laid off 810 employees and cut its payroll by 1,295 jobs. In March, the nation’s two largest credit-rating services downgraded the debt ratings of Catholic Health Initiatives, St. Luke’s Colorado-headquartered owner.
Barnett-Sarpalius, who has 30 years of experience in finance and accounting, joined St. Luke’s in 2015. She previously worked for the Memorial Hermann Health System, CHRISTUS Health, Catholic Health East and Trinity Health.
CHI, the third-largest hospital system in the nation with 104 hospitals in 19 states, acquired the then-St. Luke’s Episcopal Health System in 2013 in a $2 billion deal.
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HENRY KOTULA 