Financial updates for Cleveland Clinic, Sutter + 9 other health systems

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The following 11 health systems recently released financial updates:

1. Naples, Fla.-based NCH Healthcare System saw its revenue and net income improve in the 2018 fiscal year. The health system ended fiscal 2018 with net income of $37.3 million, up 45.3 percent from $20.4 million reported in the year prior.

2. Salt Lake City-based Intermountain Healthcare saw its revenues and operating income improve in fiscal year 2018. After incorporating nonoperating income, which was $240.2 million lower than the year before, Intermountain ended fiscal 2018 with net income of $598.5 million. That’s down 8.6 percent from $655.1 million reported in fiscal 2017.

3. Boston-based Dana-Farber Cancer Institute‘s revenue climbed 11.5 percent year over year to $487.2 million in the first quarter of fiscal year 2019. After factoring in a $31.6 million investment loss, Dana-Farber recorded a net loss of $1.2 million in the first three months of fiscal 2019. That’s compared to the first quarter of fiscal 2018, when the hospital recorded net income of $46.1 million.

4. Bronx, N.Y.-based Montefiore Medical Center saw operating revenue increase in 2018 but ended the period with a lower overall operating margin. After factoring in nonoperating gains and losses, the medical center recorded net income of $26.6 million for 2018, down 52.9 percent year over year from net income of $56.5 million.

5. Renton, Wash.-based Providence St. Joseph Health saw operating revenue increase in fiscal year 2018 but ended the period with a net loss. After factoring in investment losses, Providence St. Joseph ended 2018 with a net loss of $445 million compared to net income of $780 million the year prior.

6. Cleveland Clinic‘s revenue increased in 2018, but the system’s operating income and net income declined year over year. After factoring in nonoperating losses, Cleveland Clinic ended 2018 with net income of $103.9 million, down 91 percent from $1.2 billion in the year prior.

7. Trinity Health recorded higher revenue in the first half of fiscal year 2019 than in the same period of the year prior, but the Livonia, Mich.-based health system ended the first two quarters of the current fiscal year with a net loss. After factoring in nonoperating losses of $419.6 million, including investment losses due to turbulent financial markets, Trinity reported a net loss of $301.5 million in the first half of fiscal 2019. That’s compared to the first six months of fiscal 2018, when the system posted net income of $806.4 million.

8. Quorum Health‘s revenue declined year over year in the fourth quarter of 2018, and the Brentwood, Tenn.-based company ended last year with a net loss. After factoring in expenses and one-time charges, Quorum ended the fourth quarter of 2018 with a net loss of $20.7 million, compared to a loss of $26.8 million in the same period of the year prior. Looking at full-year results, Quorum’s net loss widened from $114.2 million in 2017 to $200.2 million in 2018.

9. Sacramento, Calif.-based Sutter Health reported its first annual loss in 23 years due to investment losses caused by turbulent financial markets in the fourth quarter of 2018 and recognizing less revenue from the California Hospital Fee Program. Sutter reported a net loss of $198 million in 2018, compared to net income of $893 million in the year prior.

10. Columbia, Md.-based MedStar Health saw its revenue increase in the first half of fiscal year 2019, but ended the six-month period with a net loss due to the investment markets’ unfavorable performance. After including nonoperating results, MedStar ended the first half of fiscal 2019 with an $87.5 million net loss, compared to net income of $171.5 million in the first half of the prior year.

11. Philadelphia-based Temple University Health System saw its financial position improve in the six months ended Dec. 31. TUHS ended the six-month period with an operating loss of $26.2 million, compared to an operating loss of $39.1 million in the six months ended Dec. 31, 2017.


As small hospitals ally with big ones, do patients benefit?

After seven years of a vigorous fight, Jim Hart worried he was running out of options.

Diagnosed with prostate cancer at age 60, Hart had undergone virtually every treatment — surgery, radiation and hormones — to eradicate it. But a blood test showed that his level of prostate-specific antigen, which should have been undetectable, kept rising ominously. And doctors couldn’t determine where the residual cancer was lurking.

“I didn’t like the sound of that,” said Hart, a retired international oil specialist for the federal government. “I wanted it gone,” he added, especially after learning that he had inherited the BRCA2 gene, making him vulnerable to other cancers.

So when Andrew Joel, Hart’s longtime urologist at Virginia Hospital Center in Arlington, mentioned the hospital’s membership in the Mayo Clinic Care Network and suggested consulting specialists at the Rochester, Minn., hospital for a second opinion, Hart enthusiastically agreed.

A Mayo immunologist told Joel about a new PET scan, not then available in the Washington area, that can detect tiny cancer hot spots. Hart flew to Mayo for the scan, which found cancer cells in one lymph node in his pelvis. He underwent chemotherapy at Virginia Hospital Center and five weeks of radiation at the Mayo Clinic. Since September 2016, there has been no detectable cancer.

“This collaboration was sort of a magic process,” Hart said. “I feel very fortunate.”

‘Benefit by association’

Hart’s experience showcases the promise of a much-touted but little understood collaboration in health care: alliances between community hospitals and some of the nation’s biggest and most respected institutions.

For prospective patients, it can be hard to assess what these relationships actually mean — and whether they matter.

Leah Binder, president and chief executive of the Leapfrog Group, a Washington-based patient safety organization that grades hospitals based on data involving medical errors and best practices, cautions that affiliation with a famous name is not a guarantee of quality.

“Brand names don’t always signify the highest quality of care,” she said. “And hospitals are really complicated places.”

Affiliation agreements are “essentially benefit by association, ” said Gerard Anderson, a professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health. “In some cases it’s purely branding and in other cases it’s a deep association.”

A key question is “how often does the community hospital interact with the flagship hospital? If it’s once a week, that’s one thing. If it’s almost never, that’s another,” Anderson said.

Feeling ‘plugged in’

To expand their reach, flagship hospitals including Mayo, the Cleveland Clinic and Houston’s MD Anderson Cancer Center have signed affiliation agreements with smaller hospitals around the country. These agreements, which can involve different levels of clinical integration, typically grant community hospitals access to experts and specialized services at the larger hospitals while allowing them to remain independently owned and operated. For community hospitals, a primary goal of the brand name affiliation is stemming the loss of patients to local competitors.

In return, large hospitals receive new sources of patients for clinical trials and for the highly specialized services that distinguish these “destination medicine” sites. Affiliations also boost their name recognition — all without having to establish a physical presence.

In some cases, large hospital systems have opted for a different approach, largely involving acquisition. Johns Hopkins acquired Sibley Memorial and Suburban hospitals in the Washington area, along with All Children’s Hospital in St. Petersburg, Fla. The latter was re-christened Johns Hopkins All Children’s Hospital in 2016.

New York’s Memorial Sloan Kettering Cancer Center has embraced a hybrid strategy. It operates a ring of facilities surrounding Manhattan and has forged alliances with three partners in Connecticut, Pennsylvania and Florida.

“Every one of these models is different,” said Ben Umansky, managing director for research at the Advisory Board, a Washington-based consulting firm.

Local hospitals, he said, particularly those operating “in the shadows of giants,” may be better able to retain patients “by getting a name brand on their door. . . . There is a sense that they are plugged in.” (Virginia Hospital Center, for example, competes with Hopkins, MedStar Washington Hospital Center, which has an alliance with the Cleveland Clinic, and the Northern Virginia-based Inova system.)

Doctors can obtain speedy second opinions for their patients and streamline visits for those with complex or unusual medical needs, processes that can be daunting and difficult without connections.

Michael Kupferman, senior vice president of the MD Anderson Cancer Network, said it seeks to “elevate the quality of cancer care” by forming partnerships with “high-quality [hospitals] to keep patients at home and provide the imprimatur of MD Anderson.”

Virginia Hospital Center’s association with Mayo is “not just a branding affiliation, it’s a deep clinical affiliation,” said Jeffrey DiLisi, senior vice president and chief medical officer at the Arlington facility.

Despite extensive marketing, many patients seem unaware of the linkage. “We still think a lot about ‘How do we communicate this?’ ” DiLisi said.

Although affiliation agreements differ, many involve payment of an annual fee by smaller hospitals. Officials at Mayo and MD Anderson declined to reveal the amount, as did executives at several affiliates. Contracts with Mayo must be renewed annually, while some with MD Anderson exceed five years.

Acceptance is preceded by site visits and vetting of the community hospitals’ staff and operations. Strict guidelines control use of the flagship name.

“It is not the Mayo Clinic,” said David Hayes, medical director of the Mayo Clinic Care Network, which was launched in 2011. “It is a Mayo clinic affiliate.”

Of the 250 U.S. hospitals or health systems that have expressed serious interest in joining Mayo’s network, 34 have become members.

For patients considering a hospital that has such an affiliation, Binder advises checking ratings from a variety of sources, among them Leapfrog, Medicare, and Consumer Reports, and not just relying on reputation.

“In theory, it can be very helpful,” Binder said of such alliances. “The problem is that theory and reality don’t always come together in health care.”

Case in point: Hopkins’s All Children’s has been besieged by recent reports of catastrophic surgical injuries and errors and a spike in deaths among pediatric heart patients since Hopkins took over. Hopkins’s chief executive has apologized, more than a half-dozen top executives have resigned and Hopkins recently hired a former federal prosecutor to conduct a review of what went wrong.

“For me and my family, I always look at the data,” Binder said. “Nothing else matters if you’re not taken care of in a hospital, or you have the best surgeon in the world and die from an infection.”




Sean Parker: Health care’s big breakthroughs aren’t going to come out of Google or Amazon

Sean Parker, the tech billionaire and cancer research philanthropist, may be a product of a Silicon Valley tech giant — but he’s skeptical about the impact those companies will have as they increasingly make a play in medicine.

“I just don’t think the innovations that are going to drive this revolution in health care and discovery are going to come out of Amazon or Google,” Parker said Tuesday at an event put on by the Washington Post. “Google has a big group that’s focused on this — they’re really smart, they’re not unsophisticated, they’re not naive — but I don’t think that’s where you’re going to see the big breakthroughs happening.”

Silicon Valley’s tech giants have invested significant resources in health care and science in recent years — and attracted big-name talent.

Amazon, along with JPMorgan and Berkshire Hathaway, has launched a new health care company aimed at developing solutions that could be implemented elsewhere in the U.S. health care system.

Alphabet, Google’s parent company, has been scooping up some of the biggest names in health care. Google just hired David Feinberg, the forward-thinking CEO of the Geisinger health system, the Pennsylvania health plan and hospital system confirmed last week. Dr. Toby Cosgrove, the longtime president and CEO of Cleveland Clinic, joined Google earlier this year. And Dr. Robert Califf, the former commissioner of the Food and Drug Administration, last year joined Verily, Alphabet’s unit working on solutions to disease.

While coders face their own formidable challenges, Parker said, “tech people coming from tech to biology so dramatically underestimate the complexity of the human body. It’s not designed by us. It doesn’t work in ways that make sense.”

Parker, the former president of Facebook, has since become a major funder of research into therapies that seek to fight cancer by harnessing the patient’s own immune system through his foundation Parker Institute for Cancer Immunotherapy, which he founded in 2016. It has funded prominent research scientists across the country, most notably James Allison, one of the recipients of this year’s Nobel Prize in medicine.



Cleveland Clinic may grow to 15 hospitals

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The boards of Cleveland Clinic and Vero Beach, Fla.-based Indian River Medical Center voted to approve a series of agreements allowing IRMC to integrate into the Cleveland Clinic, the organizations announced Oct. 3.

Here are five things to know:

1. The advisers and legal teams of both organizations shared details of the agreements with board members during a public meeting Sept. 25. Board members and trustees spent the last week analyzing the details and finalized their decision Oct. 3. Officials from both organizations will formally sign the agreements later this week.

2. Under the deal, IRMC and its affiliates will become part of the Cleveland Clinic, which also agreed to commit at least $250 million to IRMC over the next 10 years.

3. Cleveland Clinic will maintain full governance over IRMC and has committed to maintaining maternity care, inpatient well-baby care/pediatrics and gynecology services, behavioral health services, and other inpatient and outpatient services for at least 10 years. However, the hospital district will phase out support for indigent care at IRMC during the three years after the transaction closes.

4. The deal is still pending regulatory approval.

5. Cleveland Clinic recently inked a definitive agreement to purchase Martin Health System, a three-hospital institution in Stuart, Fla. If both deals are successful, Cleveland Clinic will comprise 15 hospitals in addition to its main campus.


Scripps Sees ‘Sober Warning,’ Slashes CEO Positions

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Organizational overhaul prompted by signs of ‘harder times to come.’

Scripps Health failed to meet its operating budget last fiscal year for the first time in 15 years, prompting the San Diego-based health system to restructure its executive team and look to cut corporate services costs by $30 million.

Although the system remains on solid financial footing, the news came as “a sober warning of harder times to come,” Scripps president and CEO Chris Van Gorder wrote in a memo to staff and physicians last week. The memo, which Scripps released in full to HealthLeaders Media, was as much a rallying cry as it was a bulletin of somber news.

“We can sit back and fool ourselves into thinking change is not really needed, and risk the consequences,” Van Gorder wrote. “Or like our founders, we can have the courage to boldly move ahead and do what’s needed for our patients, our community and their legacy.”

The memo outlined several organizational changes coming to Scripps in the next 30-60 days, including the following:

  • CEOs: Rather than keeping a CEO at each Scripps hospital, the system will establish three regional CEOs.
  • COOs: In the absence of a CEO, COOs will take over daily operations at each hospital.
  • Corporate services: Scripps will look to cut costs on corporate services by $30 million. It will evaluate a shared-services model for corporate services to improve accountability.

The southern region—which will get one of the three new CEO positions—includes Scripps Mercy San Diego and Chula Vista, overseen by current CEO Tom Gammiere. The northern region will include sites in Encinitas, Green, and La Jolla, which are overseen by CEOs Carl J. EtterRobin B. Brown Jr., and Gary G. Fybel, respectively. The third region will comprise Scripps ancillary services.

It appears Etter, Brown, and Fybel are the most likely candidates to fill the new northern-region CEO and ancillary-services CEO positions. It’s possible, though, that Scripps could bring in outside talent, promote from within, or even shift Gammiere to the northern region. This is an overhaul, after all.

Scripps Not Alone

In his memo last week, Van Gorder noted that Scripps is far from the only healthcare organization to face the kind of financial pressures that prompted these changes.

“Hospitals and health systems across the country, small and large, are being affected in similar ways,” he wrote, citing two peer institutions: Partners HealthCare and the Cleveland Clinic.

Partners HealthCare, based in Boston, reported an operating loss of $108 million last year, Van Gorder noted. Last spring, Partners offered buyouts to 1,600 workers at its Brigham and Women’s Hospital and announced plans to cut costs by more than $600 million over three years, as The Boston Globereported.

“This is an effort fundamentally to change not our values and our culture, but how we manage ourselves, how we focus on efficiency, the patient experience, the service we deliver, and try to be reflective of the pressures of being efficient,” Partners CFO Peter K. Markell told the Globe.

Cleveland Clinic, meanwhile, saw its operating income slump 71% last year, Van Gorder noted. The clinic’s president and CEO, Toby Cosgrove, MD, said the healthcare challenges putting pressure on systems these days are “unprecedented in their size, speed, and scope.”

Harvard Business Review (HBR) and other publications have covered the problem, Van Gorder told his team, noting that declining reimbursement rates are squeezing healthcare organizations nationwide.

“For the past decade, the consensus strategy among hospital and health-system leaders has been to achieve scale in regional markets via mergers and acquisitions, to make medical staffs employees, and to assume more financial risk in insurance contracts and sponsored health plans,” HBR’s Jeff Goldsmith wrote in October. “In the past 18 months, the bill for this strategy has come due, posing serious financial challenges for many leading U.S. health systems.”

Ex-Cleveland Clinic Innovation executive pleads guilty in $2.7M fraud case, prison time likely

Money, handcuffs and a stethoscope

The former head of Cleveland Clinic Innovations pleaded guilty Tuesday for his role in defrauding the nonprofit academic medical center out of more than $2.7 million via a shell company.

Gary Fingerhut was arraigned in U.S. District Court and pleaded guilty to one count of conspiracy to commit wire fraud and honest services fraud and one count of making false statements, Crain’s Cleveland Business reports.

Although he won’t be formally sentenced until Jan. 30, Fingerhut’s attorney told the publication that federal prosecutors will ask U.S. District Judge Christopher Boyko for a sentence of between 41 and 51 months in federal prison. He may also be ordered to pay restitution to the Cleveland Clinic.

Fingerhut served as the executive director of the clinic’s innovation arm for two years until an FBI investigation revealed in 2015 that he was involved in a fraudulent scheme with the chief technology officer of a spinoff company to contract with a company that never intended to perform or provide any goods and services. The deal was in violation of Cleveland Clinic’s ethics and compliance policies and requirements, which prohibit employees from receiving any financial benefit from companies the Clinic did business with, and the organization fired Fingerhut.

Federal prosecutors said Fingerhut accepted at least $469,000 in payments in return for not disclosing the fraud scheme, which diverted nearly $3 million from the Clinic.

Fingerhut’s attorney, J. Timothy Bender of Bender, Alexander & Broome in Cleveland, told Crain’s that Fingerhut is very sorry for his role in the fraud scheme.