Thought of the Day – Complex Thinkers vs Smooth Talkers
‘What they’ve done is extremely evil’: Hospital closures spark questions about private equity in healthcare
Private equity has piled into healthcare in recent years, but one company’s recent moves have some questioning whether it belongs in the industry.
Los Angeles-based Prospect Medical Holdings has come under fire for shuttering hospitals and service lines across multiple states after paying itself and shareholders $457 million from a $1.1 billion loan in 2018, CBS News reported Dec. 6. The company paid the loan by selling assets to a healthcare real estate trust.
Prospect Medical then turned around and leased the same assets from the trust, resulting in $35 million in annual rent charges.
The company began cutting services earlier in 2022 at the 168-bed Upper Darby, Pa.-based Delaware County Memorial, the report said. The hospital’s emergency department closed in November.
“What they’ve done is extremely evil, in my words,” emergency nurse Angela Neopolitano, who worked at Delaware County Memorial for 41 years, told CBS News. “To gain a dollar, you maybe destroyed lives, maybe even ended lives, because they can’t get the help they need.”
Paramedics in the hospital’s system at one point found that the credit cards used to refuel their ambulances had been disabled because Prospect Medical “didn’t pay their bill,” Ms. Neopolitano told CBS News.
Delaware County officials said Prospect Medical told them labor costs, inflation and strain from the pandemic all fed into its decision to cut services, the report said.
“I had the sense they were not giving us all the information,” county official Monica Taylor told CBS News.
The Pennsylvania Office of the Attorney General has filed a petition seeking to have Prospect Medical held in contempt and fined $100,000 per day for violating a court order prohibiting the hospital’s closure pending further order by the court.
Prospect Medical has said it plans to convert Delaware County Memorial into a 100-bed behavioral health facility, the report said.
Duke Health credit rating downgraded amid integration and macro concerns
Durham, N.C.-based Duke University Health System was downgraded to an “AA-” credit rating amid concern over its planned integration of the Private Diagnostic Clinic, a for-profit medical group with over 1,800 physicians, Fitch Ratings said Dec. 8.
The rating, declining from “AA,” applies both to specific bonds the group holds and to its overall Issuer Default Rating. In addition to the integration of the PDC, Fitch also cited concern over macro issues such as labor and inflationary pressures, which have helped to drag down operating results for the health group.
“While the transition of the PDC into the Duke Health Integrated Practice will only be effective in July 2023, the uncertainty of the proposed change had already caused some disruption to PDC’s ability to recruit physicians and may have had a negative impact on volumes,” Fitch said.
But while such integration will likely lead to an “extended period of lower operating results,” Duke Health is expected to gradually return to much stronger performance given its robust fundamentals, the ratings group added. Historically, the hospital system had pre-pandemic operating EBITDA margins of over 10 percent, compared with a fiscal year 2022 figure of just 2.1 percent.
The health system, which reported $4.5 billion of total operating revenues in 2022, said its CEO, A. Eugene Washington, MD, will step down in June 2023.
High labor costs, inflation make healthcare outlook negative, Moody’s says
Sustained high labor expenses and inflationary pressures will continue to affect the healthcare industry in 2023, keeping the outlook for nonprofit hospital systems negative, Moody’s said in a Dec. 7 report.
In addition to such pressures, persistent COVID-19 surges, supply chain disruptions and the need for continued cybersecurity investments will also increase expenses, the report said. And while operating revenue is expected to modestly improve next year, the ending of federal Coronavirus Aid, Relief and Economic Security Act funding, net Medicare cuts and the end of the public health emergency will negatively affect hospital revenues, Moody’s said.
“This level of operating cash flow production will likely prove insufficient over the long term to enable adequate reinvestment in facilities, maintain investment in programs, or support organizational growth — key considerations that drive our negative outlook,” said Brad Spielman, vice president, senior credit officer for Moody’s.
Some of the less well-funded healthcare systems could even face breaches of covenant amid such a challenging backdrop, Moody’s warned. Such covenants typically refer to issues like days of cash on hand or minimum coverage of debt.
Management in such challenged systems have taken measures to mitigate the danger of such breaches, the report said. These include liquidating investments and drawing on lines of credit as well as refinancing debt, an unfavorable option in the current economic situation.
“The present interest-rate environment, however, currently makes such a move relatively costly,” the report noted.
The Moody’s report follows quickly on the heels of a similar one from Fitch Ratings Dec. 1 that highlighted the “formidable challenge” of high labor expenses and inflationary pressures facing the industry.
Ascension vs. CommonSpirit vs. Trinity: How the 3 largest nonprofit systems’ finances compare
The largest nonprofit health systems, Ascension, CommonSpirit Health and Trinity Health, reported net losses in the three months ended Sept. 30 compared to net incomes in the same period a year earlier.
Here’s how the three systems’ finances fared in the third quarter, according to financial documents:
1. St. Louis-based Ascension, a 144-hospital system, reported an operating loss of $118.6 million in the third quarter compared to an operating gain of $24.9 million in the same period last year. Third-quarter operating revenue hit $7.2 billion and operating expenses were $7.3 billion, both increasing from about $6.9 billion in the third quarter of last year. However, for the same period, it posted a $790.4 million loss on investments, down from a gain of $79.7 million in 2021. After factoring in nonoperating items, Ascension posted a net loss of $811 billion for the three months ended Sept. 30. A year earlier, it posted a net income of $80.4 million.
2. CommonSpirit Health, a 140-hospital system based in Chicago, posted $23 million income for the three months ending Sept. 30, down from $34 million over the same period in 2021. However, CommonSpirit received $325 million as part of the California provider fee program under the CMS-approved state plan amendment; after normalizing for the program, it reported a $227 million loss for the quarter. CommonSpirit’s quarterly operating revenue hit $8.53 billion. Salaries and benefits expenses increased 5.1 percent to $4.5 billion for the quarter due to high registry and contract labor as well as overtime, premium pay and inflation.
3. Livonia, Mich.-based Trinity Health, an 89-hospital system, reported $550.9 million net loss for the three months ending Sept. 30, compared to $398.4 million net income in the same period last year. Revenue for the period increased slightly to $5 billion after Trinity acquired the remaining stake in Iowa-based MercyOne from CommonSpirit. The transaction closed on Sept. 1 and added $126.2 million operating revenue to the quarter. Excluding MercyOne, Trinity’s revenue dropped $89.9 million compared to the same period last year. Third-quarter operating expenses rose almost 6 percent year over year to $5.2 billion, including a 5.8 percent increase in salary rates. Contract labor decreased $1 million during the quarter due to the MercyOne acquisition.
Amazon cuts Alexa’s health capabilities
Amazon has ended its support for its HIPAA-compliant Alexa health tool, Modern Healthcare reported.
- Amazon rolled out the tools on Alexa in 2019, offering applications with a collection of hospitals, as well as telehealth company Teladoc Health and pharmacy benefits management company Express Scripts.
- The application allowed users to check the status of prescription refills, ask about their last blood-sugar reading, or even book a telemedicine appointment. Amazon has said all data will be deleted by the end of next week, per Modern Healthcare.
The big picture: Amid tech’s biggest slump in two decades, companies are tightening their belts and decreasing investments in secondary devices and voice assistants, Axios’ Peter Allen Clark recently reported.
Be smart: Amazon isn’t going anywhere when it comes to health care, but it is making some strategic cuts as it maneuvers the current economic environment, as evidenced by its acquisition of One Medical followed by its shuttering of Amazon Care.
Some red state hospitals pitch Medicaid expansion to solve rural health woes
https://www.axios.com/2022/12/08/red-state-hospitals-medicaid-expansion-rural-health-woes
Hospitals in some non-Medicaid expansion states are pitching expansion as a way to help solve the rural health crisis. But the industry is hardly speaking with one voice.
Driving the news: Facilities with fewer commercially insured patients that treat a large number of uninsured people see expansion as a potential lifeline in tough economic times.
- In Mississippi, where up to 12 hospitals are in danger of closing, an expansion of the safety net program could generate $1 billion a year and create more than 11,000 jobs, according to one projection.
- Wyoming could realize $32 million in savings over the first two years of a limited expansion, per a state health department estimate.
- And in Texas, an expansion could reduce the $7 billion in uncompensated care hospitals there have to absorb each year, according to the state’s hospital association.
Yes, but: Republican lawmakers in the holdout states continue to oppose enlarging their Medicaid rolls, citing higher state costs of covering a bigger population.
- And hospital associations in North Carolina and Florida have opposed expansion plans, either out of concern about alienating key lawmakers or because the plans could bring other changes that disrupt dollars flowing to their members.
State of play: South Dakota voters approved a Medicaid expansion ballot measure this fall, leaving 11 non-expansion states.
- Democratic governors in North Carolina and Kansas think they may be wearing down Republican opposition, Politico reports, but still face uphill battles when the new legislative sessions begin.
Zoom in: Medicaid expansion can bring dollars into a state’s health care system, even if the program pays only a fraction of the actual cost of care.
- Numerous studies show that Medicaid expansion can have a positive financial impact on hospitals’ operating and profit margins, particularly smaller rural facilities, Robin Rudowitz, vice president at the Kaiser Family Foundation, told Axios.
- The program could provide a reprieve for hospitals that were kept afloat in part by federal pandemic aid that’s now drying up.
- “We have hospitals with 12 days cash on hand. We’ve lost a nursing home this year. We have seen decreased services. We’ve lost OB services in a few places, and we’ve seen over the years the decrease in mental health,” Wyoming Hospital Association vice president Josh Hannes told state lawmakers last month, per Politico.
- Expanding Medicaid in other states has also led to a significant decline in uncompensated care costs, as well as improved states’ health outcomes, including overall mortality.
Yes, but: Medicaid expansion is not necessarily a silver bullet that will rescue every struggling facility.
- Some state hospital associations are seeking other types of relief, from cuts in hospital bed taxes or higher reimbursements for existing Medicaid beneficiaries.
Of note: Rural, small hospitals have the most to gain from Medicaid expansion, because they serve a smaller patient populations with a larger pool of uninsured people.
- Congress sweetened the deal for non-expansion states in the American Rescue Plan Act, with a 5% increase in the federal Medicaid Assistance Percentage for the state’s current Medicaid recipients, which lasts for two years.
- In Texas, whose uninsured rate is the highest in the nation, hospital leaders think Medicaid expansion could help cover many in the working class whose jobs do not offer health plans.
- “If you could get those folks coverage at a Medicaid rate it would obviously help the financial situations of (rural) hospitals, and if you could get them to a medical home you could deal with more acute medical conditions going forward,” John Hawkins, president of the Texas Hospital Association, told reporters last week.
The bottom line: While rural hospitals all over are facing headwinds, those in non-expansion states are bearing the brunt of the pain. And while there is a potential lever for those states, it doesn’t appear likely their elected officials are willing to pull it.
18M Are at Risk of Losing Medicaid Coverage at the End of Covid Emergency
Of these 18 million people, 3.8 million people will become completely uninsured, according to the Urban Institute’s report. The estimate is higher than HHS’ August prediction of 15 million people losing coverage after the public health emergency.
If the Covid-19 public health emergency expires in April, about 18 million people could lose Medicaid coverage, a new report concludes.
The Urban Institute, which published the report, found that of these 18 million people, 3.8 million people will become completely uninsured. About 3.2 million children will likely move from Medicaid to separate Children’s Health Insurance Programs. Additionally, about 9.5 million people will receive employer-sponsored insurance. Lastly, more than 1 million people will enroll in a plan through the nongroup market.
The Urban Institute’s estimates, published Monday, is higher than the U.S. Department of Health & Human Services’ (HHS) prediction of 15 million people losing coverage after the public health emergency ends. HHS’ report was published in August and stated that 17.4% of Medicaid and Children’s Health Insurance Program enrollees would leave the program. The Urban Institute’s report did not provide a percentage.
To conduct the study, researchers from the Urban Institute relied on the most recent administrative data on Medicaid enrollment, as well as recent household survey data on health coverage. It used a simulation model to estimate how many Americans will lose Medicaid insurance.
In 2020, Congress passed the Families First Coronavirus Response Act due to the Covid-19 pandemic. It barred states from disenrolling people during the public health emergency, and in return, states received a temporary increase in the federal Medicaid match rates. From February 2020 to June 2022, Medicaid enrollment increased by 18 million people, an unprecedented number, according to the Urban Institute.
Currently, the public health emergency is set to end in January. But since the government has to provide a 60-day notice before the expiration —and did not do so in November — it is expected to be extended to April.
Because many of the affected enrollees who will lose Medicaid coverage will be eligible for coverage through federal or state Marketplaces, the Urban Institute recommends coordination between the Marketplaces and state Medicaid agencies
Researchers called on the government to take action so Americans are prepared for the end of the public health emergency.
“State Medicaid officials and policymakers must continue to ensure that individuals currently enrolled in Medicaid are aware of the approaching end of the public health emergency, and that they have a plan to maintain or find new health coverage through their employer, the federal healthcare Marketplace, or Medicaid,” the Urban Institute said.
Malls are dying. These 2 health systems want to bring them back to life.
Instead of building new facilities, more and more health systems are now expanding their operations outside of traditional care settings by repurposing vacant retail spaces in malls, aiming to provide patients more convenient and accessible care, Lauren Berryman writes for Modern Healthcare.
The rise of ‘medical malls’
In recent years, shopping malls have struggled to stay in business and many big-city health systems have taken over available retail spaces in vacant malls.
These “medical malls” are established inside of converted shopping malls as either full medical centers or a combination of leased spaces offering outpatient health care services alongside leased retail spaces. The facilities offer convenience for patients and providers and cost significantly less than expanding an existing facility.
“Most of these hospitals are in areas where there’s just no room to grow. And if you do, it’s so expensive,” said Andrew McDonald, a former hospital administrator who leads health care consulting at LBMC. “These buildings are old. They’re antiquated. They’re very expensive to maintain.”
According to McDonald, malls are a good fit—especially for large health systems—because they allow providers to move everything short of the ED and ICU and keep them clustered. Typically, physicians’ offices are scattered across a hospital district, but in a mall setting, almost everything is under the same roof.
“It just creates a whole lot more efficient flow for the patient going through the health care system with whatever infirmity they may have,” he added.
How 2 health systems made the ‘mall-to-medicine’ transition
Currently, there are 32 enclosed malls in the United States that house health care services in some part of their footprint, according to a database created by Georgia Tech urban design professor Ellen Dunham-Jones.
One health system that has taken advantage of available retail space is Vanderbilt University Medical Center (VUMC). Since 2009, VUMC has transformed 450,000 square feet of empty mall space, which formerly housed Reebok and JCPenney stores, into a women’s clinic, dermatology clinic, comprehensive spine clinic, and other specialty sites.
The health system also has several offsite clinics that work with the medical mall and offer telehealth options and free shuttle rides to and from the Monroe Carell Jr. Children’s Hospital and Vanderbilt Medical Center East.
In March, VUMC signed a letter of intent to negotiate a lease for 600,000 square feet in another mall just outside of Nashville and plans to add several new medical facilities there.
“I think that speaks to the success we experienced with our first foray,” said Janice Smith, an RN and VP of adult ambulatory operations at VUMC.
Another health system that has embarked on the “mall-to-medicine” transition is Medical University of South Carolina (MUSC) Health. According to hospital leaders, moving into the mall space makes sense because of its multiple entry points, ample parking, and interstate access.
“There were a lot of big wins for us, and it checked a lot of boxes from a care delivery standpoint,” said Tom Crawford, MUSC Health’s COO.
Originally, MUSC Health planned to break ground on a new piece of land, but then they decided to open new clinics inside of a former mall JCPenney in 2019. “It offered the bones that could be easily flipped into a healthcare facility,” Crawford said.
The facility, which is called the West Ashley Medical Pavilion, now houses an ambulatory surgery center, diagnostic imaging center, and infusion center. MUSC Health has also reached a deal with the mall’s owners to have first right of refusal to adjacent stores if it wants to continue expanding.
This proximity to a shopping mall has proven beneficial for visitors and family members who are waiting for patients. “Because that facility is hooked into the mall, it’s considered the same property,” said Ginger Davis, from Trademark Properties, a real estate company that handles leasing and development planning for Citadel Mall where the West Ashley Medical Pavilion is located. “Instead of having a waiting room full of people, they can go to Target.”
Medical malls have also helped their surrounding communities by generating new foot traffic and business that was not there before. “There’s been this resurgence in that area, and it’s wonderful that any organization can offer that back to the city,” Smith said.
Optum expecting $214B in revenue in 2023
UnitedHealth Group expects Optum to see a long-term double-digit revenue growth rate and bring in a range between $212 billion to $214 billion in 2023 revenues.
The Minnetonka, Minn.-based healthcare giant shared Nov. 29 it projects growth margins of over 20 percent for technology products and low- to mid-single-digit growth for pharmacy care services.
2023 projections:
Optum Health
Revenues: $91 billion to $92 billion
Earnings: $7.4 billion to $7.6 billion
Optum Insight
Revenues: $18.6 billion to $19.3 billion
Earnings: $4.4 billion to $4.5 billion
OptumRx
Revenues: $105.5 billion to $106.5 billion
Earnings: $4.8 billion to $4.9 billion
UnitedHealth Group expects 2023 revenues of $357 billion to $360 billion, net earnings of $23.15 to $23.65 per share, and adjusted net earnings of $24.40 to $24.90 per share. Cash flows from operations are expected to be $27 billion to $28 billion.
UnitedHealthcare expects 2023 revenues to range from $274 billion to $276 billion. By the end of this year, the payer’s revenues are expected to hit $249.2 billion, up from $222.9 billion in 2021.
HENRY KOTULA 