House Subcommittee Takes Dim View of Healthcare Consolidation

https://www.healthleadersmedia.com/strategy/house-subcommittee-takes-dim-view-healthcare-consolidation

Lawmakers and witnesses alike cited the ill-effects of hospital mergers and acquisitions in a long list of industry behavior they find troubling.


KEY TAKEAWAYS

An economics and health policy professor from Carnegie Mellon suggested lawmakers should give the FTC more power to review nonprofit mergers.

Lawmakers from both sides of the aisle expressed dissatisfaction with the healthcare industry’s consolidation trend and voiced support for legislative action.

A hearing of the House Judiciary Committee’s antitrust subcommittee would not have been a comfortable place Thursday for any healthcare executive touting the benefits of a planned merger or acquisition.

Lawmakers and witnesses took turns criticizing rampant consolidation among hospitals and other healthcare companies. While the public is often told these deals will lead to improved efficiency and higher quality care, those purported benefits frequently fail to materialize, they said.

Since the hearing grouped payer and provider consolidation with anticompetitive concerns about the pharmaceutical industry—an area that both major parties have expressed interest in addressing through congressional action—the discussion could signal how lawmakers will approach any legislation to address the problems they perceive.

Rep. Doug Collins, a Republican from Georgia and the committee’s ranking member, said hospital consolidation has had an especially detrimental impact on rural communities in his state.


“These communities often already have few options for quality care, so as hospital consolidation has increased over the past 10 years, rural communities like my own have been hurt the most,” Collins said.

“At times, these mergers and acquisitions can help rural communities by keeping facilities open, but often they result in full or partial closures and shifting patients from nearby facilities to those hours away,” he added.

Some problems caused by consolidation, such as increased travel times for emergency services, can “literally mean the difference in life and death,” Collins said.

Jerry Nadler, a Democrat from New York and the committee’s chairman, said there’s no question that the recent spate of mergers has contributed to the industry’s problems.

“It is well documented that hospital mergers can lead to higher prices and lower quality of care,” Nadler said.

Martin Gaynor, PhD, an economics and health policy professor at Carnegie Mellon University and a founder of the Health Care Cost Institute, said in his testimony that there have been nearly 1,600 hospital mergers in the past 20 years, leading most regions to be dominated by one large health system apiece.

“This massive consolidation in healthcare has not delivered for Americans. It has not given us better care or enhanced efficiency,” Gaynor said. “On the contrary, extensive research evidence shows us that consolidation between close competitors results in higher prices, and patient quality of care suffers for lack of competition.”

Since hospitals that have fewer competitors can better negotiate favorable payment terms, this consolidated landscape “poses a serious challenge for payment reform,” he added.

“Our healthcare system is based on markets. That system is only going to work as well as the markets that underpin it,” Gaynor said. “Unfortunately, these markets do not function as well as they could or should.”

Gaynor recommended several possible policy changes, including an end to policies that make it harder for new competitors to enter a market and compete and an expanded authority for the Federal Trade Commission to review potentially anticompetitive conduct by nonprofit entities. He also said lawmakers should consider imposing FTC reporting requirements for even small transactions to enhance the tracking capabilities of enforcement agencies.

To support his claims, in his written testimony, Gaynor pointed to research he completed with Farzad Mostashari of Aledade Inc. and Paul B. Ginsburg of The Brookings Institution.

 

 

 

 

AHA Pushes Back on Politico’s Description of Nonprofit Hospital Financials

https://www.healthleadersmedia.com/finance/aha-pushes-back-politicos-description-nonprofit-hospital-financials

Image result for cherry picked

he American Hospital Association’s general counsel said Politico “cherry-picked” metrics from a recent Moody’s report.

In a blog post Wednesday, American Hospital Association (AHA) General Counsel Melinda Hatton rebuked Politico’s characterization of a recent Moody’s report on nonprofit hospital financials in 2018.

Hatton charged that Politico “cherry-picked” metrics from the report, homed in on a “single measure of financial viability,” and “ignored much of the medians data that tell a more complete story.”

Writing that the story “does not accurately capture financial pressures facing hospitals,” Hatton continued that the Moody’s report only represents a mid-year glimpse at nonprofit hospital finances. 

The public back and forth began with the May 13 edition of Politico’s Pulse newsletter, which described the state of U.S. hospitals as “OK,” citing data from Moody’s that indicated nonprofit hospital revenues grew faster than costs for the first time since 2015.

While mentioning that the average operating margin of nonprofit hospitals was 1.7% last year, Politico also noted that average operating cash flow margins finished at 8%.

Politico stated that industry observers regard operating cash flow margin as a better reflection of “how much money a hospital is actually collecting” than the operating margin.

Politico’s description tied into the push for greater accountability from hospitals regarding high prices, specifically referencing a recent RAND Corp. study that found private insurers paid more than twice what Medicare paid to hospitals in 2017.

Hospital groups like the AHA and the Federal of American Hospitals pushed back on the RAND study from last week, taking issue with its sample size and reliance on Medicare payment rates as the benchmark for hospital prices.

Writing about the Moody’s report, Hatton wrote that while hospitals did experience a “modest uptick” in revenue growth last year, such growth trailed historical levels as hospitals faced challenging patient volumes, low reimbursement rates, and shifting payer mixes.

She also noted that the Moody’s report found that inpatient services remained flat in 2018, widespread provider consolidation has offered “stability in light of downward financial pressures,” and that hospitals are continuing to put “efficiency improvements” into place.

“Many of the expenses hospitals’ are experiencing now, and will likely experience in the future, are beyond their control,” Hatton wrote. “Wages and benefits are the single largest cost for hospitals, and are likely to increase in the future as the nation experiences a robust labor market, and a nursing shortage persists in many communities. The high cost of specialty drugs is also a driver of the cost of care.”

“These complexities make for a nuanced story, but any story worth telling is worth telling well,” Hatton wrote.

 

 

 

 

 

Nonprofit Hospital Consolidation to Continue in 2019

https://www.healthleadersmedia.com/finance/nonprofit-hospital-consolidation-continue-2019

Despite increased scrutiny from regulators, nonprofit health systems will remain active through mergers and acquisitions this year, according to a new Moody’s report.

The deluge of M&A activity among nonprofit health systems is expected to continue on in 2019, with the potential for some “unconventional relationships,” according to a Moody’s report released Friday morning.

Driven by tight financial conditions challenging the nonprofit hospital business model, as well as the entrance of nontraditional corporate players to healthcare and the potential changes to the ACA, more M&A activity is expected throughout the year.

Moody’s expects nonprofit health systems to engage in partnerships with other hospitals but also seek to align with companies specializing in data analytics or ridesharing services to continue the transition from inpatient care to outpatient care.

Nonprofit health systems are also aiming to increase their footing when negotiating with payers, which involves strategic decisions to diversity service options and increase their geographic reach.

The report cites ProMedica’s acquisition of HCR Manorcare and Tower Health’s purchase of five for-profit acute care hospitals as examples of nonprofit systems taking a short-term credit hit to gain stable long-term positioning for the organization.

Though M&A activity is expected to be widespread and a primary objective for many nonprofit systems, the Moody’s report warned that additional scrutiny from state and federal regulators is on the way.

The requirements put in place on the CHI-Dignity Health merger by California Attorney General Xavier Becerra, along with price increase restrictions imposed by Massachusetts Attorney General Maura Healey on CareGroup and Lahey Health, are cited as examples of the terms health systems should expect to meet.

For-profits will tap into capital markets

The Moody’s report also indicates that for-profit hospitals will delve further into capital markets so long as they remain receptive and buoyed by low interest rates. This approach could lead to lower interest costs and improve liquidity, which would bolster their credit standing.

Jessica Gladstone, Moody’s associate managing director and lead analyst on for-profit hospitals, told HealthLeaders that rising interest rates would a material impact on many for-profit hospitals.

“High cash interest costs relative to earnings are already consuming the majority of cash for many FP hospital companies,” Gladstone said. “For companies with floating rate debt, rising interest rates (depending on the amount of the increase) could leave some FP hospitals with very little free cash flow left to pay down debt or otherwise invest to grow operations.”

Gladstone added that while many of the same headwinds facing for-profit hospitals remain a challenge in 2019, executives can be encouraged by the opportunities ahead to refinance high-cost debt and achieve cost savings.

Several deals are listed as potential opportunities that could benefit for-profit healthcare organizations in 2019 regarding changes to capital structure, interest cost savings, as well as M&A activity:

Additional highlights from the Moody’s report:

  • Expect smaller community and regional nonprofit hospitals to join cooperatives to gain leverage at the negotiating table on supply costs among other price points.
  • Growing investment by private equity firms in physician practices and ambulatory services, will put a pinch on nonprofit systems.
  • The entrance of Amazon, Walmart, and Apple can’t be discounted as another driver of M&A activity in 2019.
  • Vertical mergers like CVS-Aetna and the continued rise of telemedicine will drive patients away from traditional areas of care delivery, like hospitals.
  • Though major changes to the ACA remain unlikely due to the split government in Congress, smaller changes could still make a significant impact.
  • The report cites potential changes to site-neutral payments, Medicare quality-factor penalties, and DSH payment reductions as examples.

 

 

 

 

Walmart implements a narrow network for diagnostic imaging

Image result for walmart  
Starting last March, retail giant Walmart now requires that its employees use a select network of 800 diagnostic imaging providers, or face additional out-of-pocket costs, according to an article this week from Kaiser Health News. Lisa Woods, Walmart’s senior director of benefits design, said high error rates in imaging studies were the driver for establishing the program, with the perspective that “a quality MRI or CT scan can improve the accuracy of diagnoses early in the care journey.”

The network was created in partnership with New York-based Covera Health, a technology company that has amassed information on thousands of imaging facilities nationwide, and uses independent radiologists to evaluate a sample of studies to determine facility and radiologist error rates. According to the article, while many employers have steered employees to lower-cost imaging networks, Walmart is the first to do so based on quality of the studies.
 
Whether this network will be effective in achieving its stated goal—reducing misdiagnoses that lead to unnecessary care and surgery—remains an open question. Poor-quality imaging undoubtedly leads to repeat studies, which carry significant costs. But many other factors (clinical judgement, incentives, patient preferences) contribute to the decision to perform surgery. Defining imaging “quality” beyond the blunt measures of repeat rates, technical adequacy and radiologist sub-specialization is highly complex, and requires correlation with pathology and clinical outcomes data—a high bar for an outsourced analytics provider.

Despite Walmart’s goals, it will be difficult for imaging providers to differentiate their services solely on quality. The high variability in imaging prices is well-documented, and choice of provider is largely made by consumers, for whom imaging is a commodity service.

Without an activist employer or payer to steer them, consumers will likely continue to choose their imaging providers based on their doctor’s recommendation and out-of-pocket costs.

 

The false promise of “no regrets” investments

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At the end of my meeting last week with a health system executive team, the system’s COO asked me a question: “Your concept of Member Health describes exactly how we want to relate to our patients, but we’re not sure about the timing. Could you give us a list of the ‘no regrets’ investments you’d recommend for health systems looking to do this?

We frequently get asked about “no regrets” strategies: decisions or investments that will be accretive in both the current fee-for-service system as well as a future payment and operational model oriented around consumer value. The idea is understandably appealing for systems concerned about changing their delivery model too quickly in advance of payment change. And there is a long list of strategies that would make a system stronger in both fee-for-service and value: cost reduction, value-driven referral management, and online scheduling, just to name a few.

But as I pointed out, the decision to pursue only the no-regrets moves is a clear signal that the organization’s strategy is still tied to the current payment model. If the system is really ready to change, strategy development should start with identifying the most important investments for delivering consumer value.

It’s fine to acknowledge that a health system is not yet ready, but I cautioned the team that they should not rely on the external market to provide signals for when they should make real change. External signals—from payers, competitors, or disruptors—will come too slow, or perhaps never.

At some point, the health system should be prepared to lead innovation, introduce a new model of value to the market and define and promote the incentives to support it. Real change will require disruption of parts of the current business and cannot be accomplished with “no-regrets investments” alone.

 

Warning: Signs of credit crisis grow

https://www.axios.com/credit-crisis-banks-us-debt-4b77bbc4-395b-4c1e-9be4-b29d72548315.html

A credit card machine catching on fire

A recent survey of bank officers shows U.S. institutions are tightening their lending standards and raising rates on commercial loans and credit cards.

Details: Bankers say they have increasing concern about future economic growth, despite continued U.S. labor market strength and solid economic fundamentals. The data banks are seeing runs contrary to the overall narrative of a strong U.S. economy.

Driving the news: Credit card delinquency rates in Q1 hit the highest level since 2012, driven in part by a spike in overdue payments by people ages 18–29, according to a report out this week from the New York Federal Reserve.

What’s happening: In addition to the inability to make credit card payments, the rise in younger borrowers’ delinquency rates — by far the highest among all age groups — reflects the cohort jumping into the credit card market at a faster rate, as well as the eagerness of banks to latch on to younger consumers. Still, the delinquency rate remains well below that seen during the financial crisis.

  • More young people are opening credit cards now than they did in the the past decade — about 52% in 2018 verses 46% in 2008, per the New York Fedpushing up the likelihood of more delinquencies.
  • Credit card accounts among young borrowers fell in 2009 following the passage of the Card Act, which added new rules for consumers under 21 looking to borrow and limited how much banks could advertise to young people.
  • “There has been some recovery in credit card prevalence in recent years, consistent with increased issuance in card accounts,” according to the Fed.

Why it matters: After the financial crisis, young people had been largely debt-averse — particularly with credit cards — as a result of the the Great Recession. But that trend looks to be reversing.

  • “Banks were a little concerned going forward and [expect to] tighten standards,” David Norris, head of U.S. credit at TwentyFour Asset Management, tells Axios.
  • “I think from the viewpoint of the marketplace, if that’s going to continue … it works its way into consumer spending habits, consumer attitudes, and that can affect the demand side of the economy.”

That move comes as U.S. debt is $1 trillion higher than its previous record…

The N.Y. Fed’s latest report shows that total household debt increased by $124 billion in Q1. It was the 19th consecutive quarter with an increase, and household debt is now $993 billion higher than the previous peak of $12.68 trillion in the third quarter of 2008.

Between the lines: Delinquency rates are trending up again, and not just for younger consumers.

  • The report found that seriously delinquent credit card balances have also risen for consumers aged 50–69.
  • For borrowers aged 50–59 and 60–69, the 90-day delinquency rate increased by nearly 100 basis points each.

“People are probably extending themselves too much,” said TwentyFour’s David Norris, also noting that the headline numbers for Q1 U.S. GDP were a bit misleading.

  • “Banks are seeing this currently and they’re beginning to get concerned about credit quality and the quality of borrowers and they’re trying to tighten standards. This is a signal that we need to watch out for.”

A deeper look at the credit card delinquencies that are steadily rising…

  • In the Fed’s latest U.S. bank senior loan officers survey, which provided data from the fourth quarter of 2018, loan officers predicted more delinquencies this year as a result of the growth of “non-prime” borrowers. They’ve cited that as a reason for an anticipated pullback in credit and an increase in rates.
  • U.S. card holders are expected to pay $122 billion just in interest charges this year. That’s 50% more than what they paid just 5 years ago.
  • The average credit card assessed interest rate is now 16.91%. It was 13.14% in the first quarter of 2014.
  • The average interest rate on retail cards is more than 25%.

 

 

 

Health care CEOs made $2.6 billion in 2018

https://www.axios.com/newsletters/axios-vitals-3dafd3d8-dd1c-47ed-a1f0-287e7f37fc6f.html?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top

https://docs.google.com/spreadsheets/d/1AY1nXwBnQVlata0RgdLz17OI4XaK6785hfAsiLFz84U/edit#gid=0

Illustration of George Washington with a stethoscope around his neck.

The CEOs of 177 health care companies collectively made $2.6 billion in 2018 — roughly $700 million more than what the National Institutes of Health spent researching Alzheimer’s disease last year, according to a new Axios analysis of financial filings.

Why it matters: The pay packages reveal the health care system’s real incentives: finding ways to boost revenue and stock value by raising prices, filling more hospital beds, and selling more drugs and devices, Axios’ Bob Herman reports.

By the numbers: The median pay of a health care CEO in 2018 was $7.7 million. Fourteen CEOs made more than $46 million each.

  • The figures were calculated by using actual realized gains of stock options and awards, which are in the annual proxy disclosures companies file with the Securities and Exchange Commission.

The highest-paid health care CEO last year was Regeneron Pharmaceuticals CEO Leonard Schleifer, who made $118 million. A spokesperson said Schleifer “has built Regeneron from a start-up into a leading innovative biopharmaceutical company” and that he “generally holds his option awards until nearly the end of the full 10-year option term.”

  • Pharmaceutical CEOs represented 11 of the 25 highest compensation amounts last year.
  • Executives of medical device and equipment companies that don’t attract as much attention — such as Intuitive Surgical, Masimo, Hill-Rom and Exact Sciences — also were sitting at the top.

Between the lines: A vast majority of CEO pay comes from exercised and vested shares of stock. Salaries are almost an afterthought.

  • But health care executives routinely earned millions of dollars in cash bonuses, based on factors like revenue goals and financial metrics that experts say can be manipulated.
  • Quality of care is either not a factor at all in CEOs’ bonuses at all, or a marginal one.

Details: McKesson CEO John Hammergren received a $4 million bonus for hitting financial targets last year, just as the company was facing a slew of lawsuits over its role in the opioid crisis. McKesson did not immediately respond to questions.

  • Community Health Systems CEO Wayne Smith recorded a $3.3 million bonus even though his hospital chain continued to hemorrhage money. His bonus was heavily weighted by an adjusted metric that made CHS look profitable, and none of his bonus was tied to patient outcomes. CHS did not respond.

Worth noting: The analysis does not include compensation from not-for-profit hospital systems, because their 2018 tax filings have not been released yet.