House GOP tax plan eliminates tax-exempt bonds that finance hospitals

https://www.beckershospitalreview.com/finance/house-gop-tax-plan-eliminates-tax-exempt-bonds-that-finance-hospitals.html

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House Republicans recently unveiled a tax reform plan that calls for the elimination of private activity bond issuance, which is likely to significantly impact the entire nonprofit hospital sector.

Nonprofit hospitals issue tax-exempt bonds to finance capital projects. Under the tax plan, interest on newly issued private activity bonds would no longer be tax-exempt. This change would reduce financing options for lower-rated healthcare organizations by raising the cost of capital, according to S&P Global Ratings.

“From a credit perspective, higher borrowing rates can lead to budget imbalances, a challenge for all, and a hallmark of struggling credits,” said S&P. “We believe operating margin pressure is likely to be exacerbated by the House tax proposal, as it will pressure costs and hurt margins for a considerable portion of our rated healthcare providers.”

The American Hospital Association also noted how the tax plan could negatively impact healthcare providers. “For many communities, tax-exempt financing, such as private activity bonds, has been a key to maintaining vital hospital services,” said Tom Nickels, executive vice president of the AHA. “If hospital access to tax-exempt financing is limited or eliminated, hospitals’ ability to make investments in new technologies and renovations in the future will be challenged.”

Senate Finance Committee Chair Orrin Hatch, R-Utah, released a draft of Senate Republicans’ tax plan on Thursday. Unlike the House tax proposal, the Senate’s tax plan would not eliminate hospitals’ ability to access low-cost capital financing through tax-exempt bonds.

Advocate Health Care’s net income falls 27%

https://www.beckershospitalreview.com/finance/advocate-health-care-s-net-income-falls-27.html

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Downers Grove, Ill.-based Advocate Health Care saw net income fall as expenses climbed in the third quarter of fiscal year 2017.

The nonprofit health system reported net income of $169.6 million in the third quarter ended Sept. 30, according to unaudited financial documents. That is down 26.8 percent compared to $231.8 million in the third quarter of 2016. Advocate Health Care attributed the decrease to lower return on investment in the most recent quarter compared to the same period last year.

At the same time, the system reported a 13.8 percent increase in expenses. Advocate Health Care recorded expenses of $1.5 billion in the third quarter of 2017, up from $1.3 billion reported in the same quarter of 2016. The uptick in expenses reflected inflation increases and labor costs, with Advocate Health Care posting a one-time expense of $10 million for employees accepting early retirement plans.

Advocate Health Care also saw revenue increase 13.8 percent to $1.6 billion in the third quarter of this year compared to the same period in 2016. When excluding the elimination of revenue under contracts with the system’s physician arm, Advocate Physician Partners, total revenue reflected higher admissions and medical group visits, among other factors.

Advocate Health Care ended the third quarter of 2017 with operating income of $56.2 million, up $7.2 million from the same period in 2016. The system attributed the change to higher inpatient volumes and payment rates. Advocate Health Care achieved the same operating margin for the third quarter of this year as the third quarter of 2016: 3.6 percent.

The evolving CFO role, in quotes

https://www.beckershospitalreview.com/finance/the-evolving-cfo-role-in-quotes.html

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As healthcare evolves, so too are the roles of hospital and health system CFOs.

The CFO role is becoming more strategic as organizations face additional financial pressures and navigate the shift to value-based care. CFOs today generally play a greater role in operations and are seen as business partners by CEOs.

Four panelists provided thoughts on this evolving role during a session at the Becker’s Hospital Review 6th Annual CEO + CFO Roundtable in Chicago. Here are quotes from the panelists.

Jim McNey, senior vice president and CFO of North Kansas City (Mo.) Hospital, addressed the development of Centrus Health, a physician-led clinically integrated network including City, Mo.-area physicians across NKCH, the University of Kansas Health System, Merriam, Mo.-based Shawnee Mission Health and Kansas City Metropolitan Physician Association. In these types of scenarios, he said the CFO almost acts like a “salesman.”

“You have to sell these ideas to people who may not be receptive. … You’ve got to go out. You’ve got to get educated. You’ve got to stay current on what’s going on. …You can’t ever quit learning.”

Britt Tabor, executive vice president and CFO/treasurer of Chattanooga, Tenn.-based Erlanger Health System, noted the move away from the traditional CFO role.

“What I’ve seen … is there’s [now] dramatic input of the CFO from a strategic and operation standpoint. I’m meeting with two or three physicians a week talking about the business model of the health system.

“As pressures have come, we’ve hired a lot of doctors. I do think physicians are getting the idea that we’ve got to balance the quality, the patient care and the business scene,” he added.

Angela Lalas, senior vice president of finance for Loma Linda (Calif.) University Health, talked about the skills necessary for today’s CFO.

“We’ve [previously] looked at finance professionals as number crunchers and more focused on historical. Now it’s more communication and interpersonal skills [are the] top needs for finance professionals to become impactful and effective.”

Brad Fetters, COO of Prism Healthcare Partners, a healthcare consulting firm, described the finance discipline as “becoming more sophisticated.”

“What I mean by that is the leadership used to be kind of the scorecard — they were in the room to make sure the numbers jived up — then somebody else was working with physicians and influencing. What you’re seeing now … in other industries … [is] when CEOs abruptly leave … they promote the CFO because they’ve gotten more strategic, there [are]softer skills around influencing and changing behaviors. That’s what you’ve got to do with this information so those successful CFOs are in the room kind of influencing everybody.”

 

Mayo Clinic’s operating income more than doubles

https://www.beckershospitalreview.com/finance/mayo-clinic-s-operating-income-more-than-doubles.html

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Rochester, Minn.-based Mayo Clinic recorded operating income of $182 million in the third quarter of 2017, more than double its operating income of $86 million in the same period last year, according to recently released bondholder documents.

Mayo saw revenues climb 9.3 percent year over year to $2.97 billion in the third quarter of 2017. The financial boost included an increase in patient service revenue and premium revenue.

The system kept its expenses in check in the most recent quarter. Mayo said expenses rose to $2.79 billion in the third quarter of this year, up 5.9 percent from the same period of the year prior.

Mayo’s operating margin in the most recent quarter was 6.1 percent, compared to the third quarter of 2016, when the organization recorded a 3.2 percent margin.

How the Cleveland Clinic grows healthier while its neighbors stay sick

https://www.politico.com/interactives/2017/obamacare-cleveland-clinic-non-profit-hospital-taxes/

 

The Clinic is a global success story, but its host community remains mired in poverty.

On the Cleveland Clinic’s sprawling campus one day last year, the hospital’s brain trust sat in all-white rooms and under soaring ceilings, looking down on a park outside and planning the next expansion of the $8 billion health system. A level down, in the Clinic’s expansive alumni library, staff browsed century-old texts while exhausted doctors took naps in cubbies. And in the basement, a cutting-edge biorobotics lab was simulating how humans walk using a cyborg-like meld of metallic and cadaver parts.

And about a block away — and across the street that separates the Clinic from the surrounding Fairfax neighborhood — a woman named Shelley Wheeler was trying to reattach the front door of her house. She’d had a break-in the night before.

Wheeler has lived in the neighborhood for almost 50 years and seen it wither; her street is dotted by vacant lots and blighted homes. Infant mortality is almost three times the national average. But she’s also warily watched as one player continues to grow: The health system with gleaming towers that are visible from her front stoop.

“Cleveland Clinic is just eating everything up that they can,” she said, pointing to the 17-block stretch of land where the system has steadily expanded — to the frustration and protests of Wheeler and her neighbors.

“At some point, Cleveland Clinic is going to come” for her land, she added. “When, we don’t know. I’m trying to save my house,” Wheeler said — before excusing herself to meet with police investigating her break-in.

There’s an uneasy relationship between the Clinic — the second-biggest employer in Ohio and one of the greatest hospitals in the world — and the community around it. Yes, the hospital is the pride of Cleveland, and its leaders readily tout reports that the Clinic delivers billions of dollars in value to the state. It’s even “attracting companies that will come and grow up around us,” said Toby Cosgrove, the longtime CEO, pointing to IBM’s decision to lease a building on the edge of campus. “That will be great [for] jobs and economic infusion in this area.”

But it’s also a tax-exempt organization that, like many hospitals, fought to preserve its not-for-profit status in the years leading up to the Affordable Care Act. As a result, it doesn’t have to pay tens of millions of dollars in taxes, but it is supposed to fulfill a loosely defined commitment to reinvest in its community.

That community is poor, unhealthy and — in the words of one national neighborhood-ranking website — “barely livable.”

More than one-third of residents in the census tract around the Clinic have diabetes, the worst rate in the city, according to the latest data from the Centers for Disease Control and Prevention. That’s just one of numerous chronic and preventable health conditions plaguing the area around the Clinic. Meanwhile, neighborhood residents say there are too few jobs and talk of hearing gunfire every night.

It’s the paradox at the heart of the Cleveland Clinic, as it lures wealthy patients and expands into cities like London and Abu Dhabi. Its stated mission is to save lives. But it can’t save the neighborhood that continues to crumble around it.

The neighborhood

The area around the Cleveland Clinic’s main campus has higher rates of diseases such as coronary heart disease, cancer, diabetes and chronic kidney disease.

An oasis of prosperity

The local joke is that Cleveland’s economy is powered by its basketball team’s superstar LeBron James. But leaving the airport, the first billboard advertises the real engine of the city: its local hospitals. And no hospital is bigger, richer or more influential than the Cleveland Clinic — which was praised by both Mitt Romney and Barack Obama in their 2012 debates, a rare point of agreement between the candidates. (The Clinic took out full-page ads to celebrate.)

While Cleveland isn’t especially prosperous, the Clinic’s campus is a world apart, evoking an upscale resort or an airport’s international terminal — an alternate universe where smokers and fast-food restaurants are banned, where foreign-language speakers are numerous and where live music and farmers markets are frequent.

The streets of the Clinic’s 165-acre campus are smooth; the bike lanes paved; a 77-foot-wide fountain greets visitors outside the main lobby. The buildings are all sleek steel and glass — a deliberately white color scheme that resembles an Apple store. Guests can take tours to see the thousands of pieces of art dotting the rooms and walls, picked out by the Clinic’s three full-time curators. A spine of green parks wind between more than a dozen buildings. High-profile speakers like Facebook’s Sheryl Sandberg and Microsoft’s Satya Nadella drop by for televised conversations with Clinic CEO Cosgrove.

All the major buildings are connected by skyways, some of which feature flat-screen TVs that loop ads for the Clinic’s own services. A doctor on staff could spend years entirely inside this bubble, from parking in an adjacent garage every morning — where art prints from artists like Andy Warhol and Roy Lichtenstein hang in the corridors — to eating at the 24-hour Au Bon Pain, never setting foot on the sidewalks outside.

The beautiful, sheltered campus reflects decades of willful development, says Richey Piiparinen, who studies urban planning at Cleveland State University and says that the Clinic — like many big-city institutions — has deliberately walled itself off. “It’s divorced from the neighborhood. It’s [even] policed differently,” Piiparinen said, referencing the Clinic’s private force of 122 officers.

Step off campus, and the cracked sidewalks and trash welcome you to a different world; a dozen empty liquor bottles littered one half-block alone.

Just a few blocks from the Clinic’s high-end Intercontinental Hotel — where the flagship restaurant serves $49 steaks and $220 bottles of Dom Perignon — a McDonald’s sign announces $1 soft drinks. There are boarded-up buildings and weed-choked vacant lots. One store advertises bail bonds.

The population of the two neighborhoods that surround the Clinic — Fairfax and Hough, which are about 95 percent African-American — dwindled to 18,000 as of 2010, down from more than 38,000 in 1980 and more than 100,000 in 1960. There’s visible blight and houses with peeling paint. One fence was draped by an assortment of raggedy clothes, slowly getting soaked in a rainstorm. Unlike the Clinic just blocks away, there are no bike lanes.

And the poverty manifests in poor health outcomes, with the rate of preventable illnesses like chronic heart disease and high cholesterol well above the local and national averages. The Clinic’s own community assessment, published last year, ranked Fairfax and Hough as “highest need” possible in terms of health care access.

“You have one of the best global brands in health care, but some of the worst health care disparities” next door, Piiparinen said. “That’s the impact of not being connected to the neighborhoods.”

A climate of mistrust

It wasn’t always this way.

Almost a century ago, when the Cleveland Clinic set up shop on Euclid Avenue, the street was known as Millionaire’s Row. Industrialists like John Rockefeller and other elites made their homes on the boulevard. But the neighborhood turned over as taxes went up and wealthy residents fled to the suburbs. Today, there’s a very different millionaires row: The line of doctors’ luxury cars every morning, driving in from Cleveland’s suburbs in their high-end SUVs and even a few Teslas.

That daily traffic helped lead to a $331 million construction project called the Opportunity Corridor, a new three-mile highway that’s backed by the Clinic, run by the state transportation department and involves ripping up streets and tearing down dilapidated parts of town. (When asked about the project’s purpose, the Clinic’s top tour guide explained that the current road to campus “goes through neighborhoods that people don’t want to go through” and the Opportunity Corridor would help staff and patients get to the hospital faster.)

The construction project has been bogged down by controversy, however. A local councilman, T.J. Dow, temporarily blocked the project in early 2016, warning that the redevelopment wouldn’t benefit the residents of his community. The city later withheld millions of dollars in funding, saying the state wasn’t meeting its promised goals for minority hiring, before reaching a new deal last year.

Area residents circulate scare stories about the Clinic that are a mix of half-truths and outright myths. Several old churches in the neighborhood have burned down in recent years, and after the Clinic bought one newly vacant lot, some residents engaged in wild speculation — without any evidence — that the Clinic was responsible for the blaze. The Clinic has built power stations in the neighborhood that, despite no scientific proof, have alarmed locals who are worried about health risks.

That fear goes both ways: Even longtime Clinic leaders are uneasy about the neighborhood that they’ve spent years in. “I should’ve warned you: Don’t walk around here at night,” one 15-year executive advised.

Neighborhood residents are especially dismissive of the disproportionately white or foreign patients they see flock to the Clinic, suggesting that their presence is subtly gentrifying the neighborhood. A signature project by the local development corporation — which is backed in part by Clinic donations — was a large Middle Eastern market that’s a few blocks off campus and clearly intended for international customers. Over the course of four nights in an on-campus hotel last year — no matter the hour — as many as eight Middle Eastern men would sit around a table off the lobby, drinking tea and wearing garb that stood out in gloomy, rainy Cleveland. The hotel also offered subtle cues about who its best customers are; in the gym, there wasn’t a working channel showing the NCAA men’s basketball tournament, but there were nearly two dozen international channels, mostly in Arabic.

International patients are especially appealing to the Clinic and other top hospitals because they pay full fare — much more than the Medicaid rates for poor patients and a lot more than the fractional pay or charity care write-offs from treating the uninsured.

The campus’ expansion and seeming priorities aren’t lost on residents. One elderly African-American woman, a retired nurse who worked for decades in the city’s public hospital, said she’d talk about the Clinic only if I didn’t use her name. “You know what we call it?” she said, lowering her voice. “The plantation.”

“Cleveland Clinic and Toby Cosgrove really need to renegotiate their relationship with the black community,” said John Boyd, whose family has lived about two blocks away from campus since 1923 — and who says he’s scared to go to the Clinic for treatment. “[They’ve] been absolutely no benefit to the black community.”

Tensions break out

Those tensions spilled out at a community meeting in March 2016, as more than 100 black residents vented for hours about the Opportunity Corridor project.

The standing-room-only meeting — deliberately held in an events room at a local police station, Councilman Dow told the crowd, because previous meetings had been so rowdy — was framed as a chance to discuss the Opportunity Corridor’s effect on the community. Dow and two other black councilmen, Zack Reed and Jeffrey Johnson, stood at the front of the room — along with a pair of white out-of-town developers, who had projects tied to the corridor.

The atmosphere was heated from the opening moments, as some community members stood to harangue Dow, asking if he was holding up the project to seek side deals; others worried that the community was giving up valuable land for too little return.

But after a rough start, the councilmen began winning over the crowd after channeling their frustration toward the out-of-town developers and invoking the community’s distrust of the Clinic.

“I told Dr. Cosgrove, the people in my neighborhood don’t trust the Clinic,” Reed said, warning that the system’s vague promises of helping the community didn’t usually end well. “We the people of color, the poor people, get what I call the hot dog and beer jobs.”

“I said to Dr. Cosgrove, you got to take down that invisible wall,” Reed added. “If you only believe you can work across the street if you’ve got a medical degree, then it’s us against them … We’ve got to train people in the neighborhood to work there.”

“Now you’re talking,” a woman shouted from the crowd.

“We need a hand up, not a handout,” Dow added.

After the meeting, the councilmen acknowledged the difficult relationship between the city and its flagship institution.

“If there’s anything that Cleveland Clinic does for the neighborhood, it’s that they’re located in Cleveland — and everyone who works there pays taxes,” Johnson said. But the hospital doesn’t do enough to provide emergency care, he charged; unlike its neighbor University Hospitals, it’s not a Level 1 trauma center, and the Clinic was sued by the city in 2010 and again in 2011 for failing to provide sufficient services when it closed one of its hospitals in economically deprived East Cleveland.

That lawsuit was resolved, but some bad feelings still linger — along with the perception that the Clinic is more concerned with complex procedures that attract foreign patients than the well-being of its neighbors.

“You can come from the Mideast and get a heart, but you can’t run down there” for an emergency, Johnson complained. “There’s something fundamentally wrong with that.”

‘We have more than fulfilled our duties’

Clinic leaders see it differently – and not just about its commitment to the neighborhoods. The hospital that the Clinic closed in East Cleveland was replaced by a new community center that leaders tout as a “model of success.”

“We have three obligations,” Cosgrove told POLITICO in a nearly hourlong interview. “We need to provide great health care, we need to provide great jobs and we need to support education. And we have done all those three things.”

The Clinic is ranked second in the U.S. News & World Report hospital rankings, an ever-present point of pride around the campus and in its marketing materials. It employs nearly 50,000 people in Ohio, just a few hundred jobs behind the state’s top employer, Walmart. And it spends millions of dollars on its own physician education as well as making community investments, like partnering with a local high school on a fast-track health and science program.

The Clinic also has put $500,000 into a program to get rid of blighted homes in the neighborhood, Cosgrove said, and has channeled funds and support into the Fairfax Renaissance Development Corp., which is involved in job training and other community services.

“This particular area of town, 40 years ago, was way worse than it is now,” Cosgrove said.

One of the Clinic’s most significant community investments is in the Langston Hughes Community Health and Education Center, a facility that’s a mile from campus and which offers services like free exercise equipment, adult day care and even some primary care. It’s a hub for uninsured neighborhood residents to be steered toward health coverage, and patient navigators on staff said they end up directing about 90 percent of residents with medical needs to the Clinic. And it has devoted fans who say the center is one of the only safe places in the neighborhood.

“I wish we had more [services] like it,” said Juliet Jones, a retired nurse who lives two blocks away — and who carries a miniature baseball bat whenever she leaves her house, worried about community violence and drug dealers. Jones says she can barely sleep at night, hearing gunshots and prowlers. Nearly every lot on her street is vacant, including the house Jones owns next door; after repeated break-ins, her daughter moved out.

Donnell Ezell is another patron of the center and, in many ways, a clear Clinic success story: The former occupational therapy assistant worked for the Clinic for years and got thousands of dollars in financial assistance to help buy a home and move into the neighborhood. Now retired, Ezell uses the Langston Hughes center to exercise and help his daughter, who was born with special needs, and he speaks with pride about what the hospital has done for him; a Clinic-branded chair, emblazoned with his name, is prominently displayed in his living room.

But the question isn’t whether the Clinic is doing good things for the community, critics say. It’s whether it’s doing enough.

Thanks to a loosely defined 50-year-old IRS regulation, the hospital is required to provide only “community benefit” in exchange for its tax exemption — no matter what those taxes would be worth. And in late 2013, three social advocacy groups concluded that the Clinic’s tax-exempt property in Cleveland was worth $1 billion, which meant the hospital was saving $35 million in annual property taxes alone. (The value of that property, and the forgone taxes, has only gone up since.) That money could go toward schools, roads and other city projects that desperately need funds, advocates say.

“It’s crazy to ask the everyday common person to invest in the city when you have these enormous nonprofits that aren’t,” saidScherhera Shearer, head of Common Good, one of the three advocacy groups, at the time.

But the clinic rebutted that report and has fiercely defended its tax-exempt status, successfully defeating regulators in 2014 after a decade-long battle when they attempted to strip property tax exemptions from a pair of satellite offices.

Cosgrove consistently argues that taxes would only worsen the financial pressures on hospitals like the Cleveland Clinic, and in his interview with POLITICO he pointed out that 23 percent of hospitals lost money last year. But that ignores that the Clinic isn’t one of them. Cosgrove’s hospital system cleared $514 million in profit last year and $2.7 billion the past four years, when accounting for investments and other sources of revenue.

And since the ACA coverage expansion took full effect, the Clinic’s been able to spend a lot less to cover uninsured patients; its annual charity care costs fell by $106 million from 2013 to 2015. But its annual community benefit spending only went up $41 million across the same two-year period, raising a $65 million question: Did the Clinic just pocket the difference in savings?

“I think we have more than fulfilled our duties,” Cosgrove said in response, pointing to the system’s total community benefit spending, which was $693 million in 2015. The majority of that spending, however, wasn’t free care or direct investments in community health; about $500 million, or more than 70 percent, represented either Medicaid underpayments — the gap between the Clinic’s official rate, which is usually higher than the rate insurers pay, and what Medicaid pays — or Clinic staffers’ own medical education.

Clinic leaders also argue that the hospital is a magnet that attracts talent and revenue to Ohio. The system calculated that its direct economic impact on Ohio in 2015 was $6.8 billion and its indirect economic impact was $5.8 billion.

“There are people like me who have moved to Cleveland to work for the Cleveland Clinic,” said Chief Financial Officer Steven Glass, who came to the system 15 years ago from Maryland-based MedStar.

“It’s not just how many people are employed at the Clinic,” Glass added. “When you’re drawing in world-renowned physicians, these are well-paying jobs in the community that then create [a] cascading effect.”

But community residents say those dollars are largely spent in other neighborhoods and they don’t see much trickle-down effect on their own; Glass himself lives in a suburb a half-hour away. “Other than fast-food chains, there’s nothing else around,” said Jones, the retired nurse.

Teenagers who live in the neighborhood and were interning at the Clinic said that’s where they want to work as adults; they were stumped about where they would work, if not at the Clinic. “Construction,” said one 14-year-old girl — gesturing to the hospital’s in-progress project across the street.

There’s also a perception problem, at best, with what the Clinic thinks it does for the community versus what it actually does. Several Clinic PR staffers suggested that Microsoft CEO Nadella’s interview with Cosgrove was an example of how the hospital opens itself up, with community members welcome to drop by. But the free tickets to the one-hour session had been pre-booked online well in advance, and the overflow room was packed by staffers wearing doctor’s coats and Cleveland Clinic badges. (Many neighborhood residents said they weren’t especially interested in the talk, and didn’t know who Nadella was.)

Several Clinic officials pointed to a weekly farmers market on campus as another service for the community, which lacks grocery stores. But the vendors at the market tell a different story, both in terms of their products — many of which are upscale conveniences like flowers or dog treats — and their clientele.

The customers at the market “are mostly doctors and nurses,” said one vendor operating a stand that sold wool and honey products. That account was confirmed by residents. “Too expensive,” said 76-year-old Betty Moise, who’s lived in the neighborhood for almost five decades.

How much more should be done?

One way the Clinic could make a difference, some activists say, is by working out what’s called a payment in lieu of taxes — essentially, keeping their valued tax-exempt status but making a partial contribution instead. Hospitals have struck deals to do so in Boston and other cities, but Cosgrove isn’t keen on the idea in Cleveland. “As soon as they start doing the same thing with the churches and the Salvation Army and the Red Cross and all the other tax-exempt organizations, we’d be happy to do our part,” he said.

The Clinic also could ramp up investments in out-of-hospital care and social supports, part of a movement toward what’s called population health — where fixing community problems like lead exposure and food deserts are viewed as equally important as treating heart attacks. There’s a financial incentive for doing it well: Hospitals that succeed at population health are being rewarded with higher payments from insurance companies and the federal government.

But Cosgrove hesitates on committing wholeheartedly to that idea, too. “That’s a good direction to go,” he allowed. “But how much can we do in population health?”

“We don’t get paid for this, we’re not trained to do this, and people are increasingly looking to us to deal with these sorts of situations,” Cosgrove added. “I say that society as a whole has to look at these circumstances and they can’t depend on just us.”

Job counselors say there’s one move the Clinic can easily make: Be more generous with its approach to neighborhood hiring. Deborah Copeland, who does workforce development and career coaching at Fairfax Renaissance Development Corp., says she’s seen community members get hired at the Clinic in entry-level jobs — and promptly fired because they didn’t fit in right away or had problems managing themselves in the workforce.

“They call all of their employees caregivers. And I like that,” Copeland said. “But all caregivers are not caregivers every day,” she added, saying it’s important to realize that “people come with a lot of baggage sometimes and need to be developed.”

Copeland says her team has helped a few dozen community members get jobs at the Clinic over the past few years — a step in the right direction. But given the generations of built-in poverty and the neighborhood’s deep disparities, experts say it’s like hoping a sand wall will hold back the tide.

“How do you [intentionally] break down the barriers, after they … built them up?” muses Piiparinen, the Cleveland State University researcher. “The two easiest ways to do it are have your employees live in the neighborhood, and have your tenured residents work in the anchor institutions themselves,” he offered — not easy to do when the neighborhood is so poor and the Clinic wants to hire highly skilled doctors, researchers and managers.

Piiparinen and others acknowledge that while the Clinic is investing off campus, it will take more investment and commitment — much more — to really reverse a decades-long trend. But the Clinic’s eyes are elsewhere. Its most visible projects and leaders’ excitement center on a new on-campus building that’s designed by Norman Foster — “the world’s leading architect,” as various staff members enthused — and its planned hospital in London, overlooking Buckingham Palace.

And more expansion in Cleveland is inevitable. In the hospital’s master planning room, tucked behind an unmarked door just steps from the main lobby, the footprints of the Mayo Clinic in Rochester, Minnesota, and Johns Hopkins in Baltimore are laid over maps of the Clinic, which dwarfs them. Those maps are a reminder, said a Clinic spokesman, that “our national rivals, Mayo Clinic [and Hopkins] … they don’t own the buildings around them, they have no place to grow but up.” In contrast, “we own much of the neighborhood around us and can really grow.”

There’s certainly plenty of opportunity, between the property the Clinic already owns and the empty patches that increasingly dot the neighborhood as it slowly dies. And that’s what folks like Moise, who moved to Cleveland in 1968 and sat with friends on a sidewalk, half-expect to see happen.

“I sat and watched them cut that field yesterday. The city cut it. It looks so pretty,” she said, gesturing to the vacant lot across the street, covered in grass. “But I often wondered … I might be dead and gone … I often wonder, what would they build there?”

What does “profit” mean for U.S. hospitals?

http://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2015.1193?journalCode=hlthaff

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The issue: More than half of U.S. hospitals lose money, at least on patient care. But some hospitals are very profitable, with the top 10 earning more than $163 million, the authors report. Crunching the data points to some important factors in whether hospitals make or lose money, including whether they are part of a large hospital group, enjoy market or regional dominance, and have a higher proportion of patients covered by private insurance.

The takeaway: A hospital’s status as a nonprofit or for-profit has virtually no significance when it come to the question of making money—but other factors, like local market power, make a big difference.

To identify the characteristics of the most profitable US hospitals, we examined the profitability of acute care hospitals in fiscal year 2013, measured as net income from patient care services per adjusted discharge. Based on Medicare Cost Reports and Final Rule Data, the median hospital lost $82 for each such discharge. Forty-five percent of hospitals were profitable, with 2.5 percent earning more than $2,475 per adjusted discharge. The ten most profitable hospitals, seven of which were nonprofit, each earned more than $163 million in total profits from patient care services. Hospitals with for-profit status, higher markups, system affiliation, or regional power, as well as those located in states with price regulation, tended to be more profitable than other hospitals. Hospitals that treated a higher proportion of Medicare patients, had higher expenditures per adjusted discharge, were located in counties with a high proportion of uninsured patients, or were located in states with a dominant insurer or greater health maintenance organization (HMO) penetration had lower profitability than hospitals that did not have these characteristics. These findings can inform policy reforms, while providing a baseline against which to measure the impact of any subsequent reforms.

GRAPHIC: The era of big hospitals

https://www.politico.com/agenda/story/2017/11/08/trends-in-us-hospitals-000576

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Once primarily rooted in communities and run as charities, hospitals have morphed into huge businesses… and they are getting bigger. Fueled in part by an increase in revenues under the Affordable Care Act, hospitals have been expanding and merging, in some cases becoming chains of more than 100 hospitals.

And it doesn’t seem to matter if the hospitals are officially not-for-profit or for-profit… the distinction seems increasingly irrelevant. In fact, it appears that in terms of patient care, nonprofit chains are among the most profitable hospital systems in the country. Instead of paying shareholders, the nonprofits can simply plow their profits back into the hospitals in the form of new equipment, buildings or spend it on personnel… fueling even more expansion.

A hospital without patients

https://www.politico.com/agenda/story/2017/11/08/virtual-hospital-mercy-st-louis-000573

Nurse Veronica Jones speaks with patient Richard Alfermann, who suffers from Chronic Obstructive Pulmonary Disease, during a video call on Thursday, Nov. 2, 2017, at the Mercy Virtual Care Center in Chesterfield, Mo. Jones says that she and other nurses who work with homebound patients like Alfermann feel like they have “50 grandparents.”

 

Located off a superhighway exit in suburban St. Louis, nestled among locust, elm and sweetgum trees, the Mercy Virtual Care Center has a lot in common with other hospitals. It has nurses and doctors and a cafeteria, and the staff spend their days looking after the very sick―checking their vital signs, recording notes, responding to orders and alarms, doing examinations and chatting with them.

There’s one thing Mercy Virtual doesn’t have: beds.

Instead, doctors and nurses sit at carrels in front of monitors that include camera-eye views of the patients and their rooms, graphs of their blood chemicals and images of their lungs and limbs, and lists of problems that computer programs tell them to look out for. The nurses wear scrubs, but the scrubs are very, very clean. The patients are elsewhere.

Mercy Virtual is arguably the world’s most advanced example of something gaining momentum in the health care world: A virtual hospital, where specialists remotely care for patients at a distance. It’s the product of converging trends in health care, including hospital consolidation, advances in remote-monitoring technology and changes in the way medicine is paid for. The result is a strange mix of hospital and office: Instead of bright fluorescent lighting, beeping alarms and the smell of chlorine, Mercy Virtual Care has striped soft rugs, muted conversation and a fountain that spills out one drop a minute. The mess and the noise are on screens, visible in the hospital rooms the staffers peer into by video—in intensive care units far away, where patients are struggling for their lives, or in the bedrooms of homebound patients, whose often-tenuous existence they track with wireless devices.

The virtual care center started as an office in Mercy’s flagship St. Louis hospital in 2006, but got its own building and separate existence two years ago. It is built on many of the new ideas gaining traction in U.S. health care, such as using virtual communication to keep chronically ill patients at home as much as possible, and avoiding expensive hospitalizations that expose patients to more stress, infections and other dangers.

But perhaps the most important factor driving Mercy Virtual isn’t technology or new thinking but new payment systems. In the near future, the hospital’s administrators believe, instead of earning fees for each treatment administered, insurers and the government will pay Mercy Virtual to keep patients well. A visit to the hushed carrels and blinking monitors is a glimpse into a future in which hospital systems are paid more when their patients are healthy, not sick.

Even now, Mercy Virtual is in the black, because of existing Medicare payment reforms that have already converted some of the agency’s payments into lump sums for treating specific illnesses. Mercy can get its patients out of the hospital much faster than average, so it pockets the money it doesn’t need for longer stays, says Mercy Virtual President Randy Moore.

The hospital is well placed, he adds, for the full transition to a payment system based on efficiency and preserving wellness. “Our idea is to deliver better patient care and outcomes at lower cost, so we can say to an insurer, ‘You expect to spend $100 million on this population this year. We can do it for $98 million with fewer hospitalizations, fewer deaths and everyone’s happy,’” says Moore. “It’s a very strong future business model.”

One weird thing about thinking this way is that it radically reimagines traditional notions of medical care—not just how it’s delivered, but when. Most hospitals wait for a sick person to walk through the doors or come into the ER. Mercy Virtual reaches out to patients before they’re even aware of symptoms. It uses technology to sense changes in hospitalized patients so subtle that bedside nurses often haven’t picked up on them. When the computer notes irregularities, nurses can turn a series of knobs that allow them to “camera in” on the patient; they can get close enough to check the label on an IV bag, or to observe a patient struggling for breath or whose skin is turning gray.

There are those who say that even an intensive care unit could, in principle, be brought to a patient’s home. But for now, the future looks like this: Hospitals will keep doing things like deliveries, appendectomies and sewing up the victims of shootings and car wrecks. They’ll also have to care for people with diseases like diabetes, heart failure and cancer when they take bad turns. But in the future, the mission of the hospital will be to keep patients from coming through their doors in the first place.

Racing the Symptoms

On a recent Monday morning, nurse Veronica Jones touched a button on a screen in front of her to make a video call with Richard Alfermann, a retired 75-year-old banker living on a wooded acre outside Washington, Missouri, 50 miles west of the center. A lifelong smoker until 10 years ago, Alfermann suffers from chronic obstructive pulmonary disease, or COPD. He has trouble breathing and even slight exertion can floor him. The most minor illness, in the past, was enough to force him into the hospital.

Seated on a couch in his home, Alfermann happily greets Jones, with whom he has spoken through video at least twice a week since entering the virtual care program in August 2016. The previous year, he was hospitalized three times. Since then, Alfermann has managed to stay in his home.

One paradox of care at home is this: Monitoring patients from afar with regularity can create more intimacy between patient and his caregivers than a sporadic, once-every-three-months visit in person. Jones and the other nurses on the virtual ward say they feel like “we have 50 grandparents now,” she says. In addition to the touchless warmth, regular interactions enable more individualized care. For example, many COPD patients have such high pulse rates on a good day that an unsuspecting doctor might immediately send them to an ICU. A tele-doctor in regular contact, however, can distinguish a true crisis from a baseline reading that might seem alarming but is normal for that patient.

In Alfermann’s case, if he shows signs of failing health, his physician―Carter Fenton, an emergency medicine doctor with 450 patients under his care—can call in home health care nurses, who can examine Alfermann more closely, take X-rays and EKGs and blood samples if necessary. In a sense, Mercy has given Alfermann his own hospital, a home hospital.

And that’s the main purpose of the “engagement at home” program—to keep very sick patients out of the hospital, where their care runs up enormous bills and is laced with dangers to the patient, ranging from nasty bacterial infections to misplaced drug orders to the disorientation of constant alarms, tests and injections. “A telemedicine visit is never going to be as good as having a doctor and his or her team at your bedside,” says Moore. “But 99 percent of the time we can’t make that happen. With virtual we can at least see any patient just like that―rather than tomorrow or next week. And that can be a life or death thing.”

One major aspect of the hospital of the future, it seems, is “less hospital, more future,” says Robin Cook, a former ophthalmologist and the best-selling author of medical thrillers that feature things like roboticized hospitals and killer apps that actually kill their patients. People will continue to go to hospitals—or, increasingly, outpatient surgical centers―to get operations, but their stays will be shorter. “It’s going to be progressively more procedure-oriented, with a lot less parking people to monitor them,” says Cook.

As Alfermann, his nose fitted with a cannula bringing him 100 percent oxygen, pops up on the monitor in front of her, Jones is examining his vital signs, which include blood pressure, pulse, temperature and blood oxygen readings that feed wirelessly into the system from devices that Alfermann attaches to himself at home.

Most medical interventions take place when a patient presents himself at a doctor’s office or an emergency room. Because “frequent flyers” hate going to the hospital—often a traumatic place for the old and infirm–they’re often in denial about any symptoms they may have, which, ironically, raises the risk that things will get to a critical point if no medical staff are watching.

“A lot of times they’ll say, ‘I feel fine,’ but I can see on the monitor that they are struggling to breathe,” says Fenton. “I remind them that this is how things got started the last time they were hospitalized. There’s a trust factor at first. Sometimes it takes a trip to the ER to vindicate us.”

Today, the concern is Alfermann’s pulse. It’s been above 100 beats per minute twice the last three mornings, from its usual level around 85. Pulse is “a big clue that he may not know what’s happening but something may be about to happen,” Fenton says. He and Jones worry that with cooler weather and drier air, Alfermann might be developing a cold that could exacerbate his COPD.

“Any shortness of breath or changes in your cough?” Jones asks. “Any fever or chills?”

“I don’t think so,” responds Alfermann, a fan of bowling, fishing, and the St. Louis Cardinals. “Yeah. Nothing better, nothing worse. Same old shit.”

“If anything changes with that you know you got to call me right way.”

Jones and Fenton monitor Alfermann carefully over the next several days to make sure there’s no incipient problem. But by Wednesday his pulse is back to normal. Until the next time. “I don’t feel super, but I’m OK,” he tells Fenton. “I haven’t felt good in so long I don’t know what good is.”

Reassured for the moment, Fenton knows there’s always an escape valve. “We always tell the patients, if you feel like you’re getting worse, you need to just go to the hospital,” he said.

Virtual ICU
On the other end of the second floor at Mercy Virtual Care, which is a maze of desks and computer screens, nurses and doctors have their fingers deep in the business of colleagues at hospitals across the country, from North Carolina to Oklahoma. They run a series of programs —TeleICU, TeleStroke, TeleSepsis and TeleHospitalist — all aimed at keeping hospitalized patients from growing sicker and at getting them home faster.

In part, the virtual ICU is dealing with a problem that technology created. All the beeping monitors in the patient’s hospital room crank out massive amounts of information, presented in too cumbersome a way for nurses and doctors on site—at least in typically understaffed hospitals―to deal with quickly. So Mercy Virtual provides nurses and doctors who can focus on monitoring and digesting these data streams, looking for signs of trouble. That way the nurses and doctors on site can pay more attention to the patients and less to the machines.

Electronic health records, which most hospitals started using over the past decade, “inundated us with data,” says Chris Veremakis, who runs Mercy’s TeleICU program. “The EHR has become a thing of its own, and you find people spending so much time in front of the EHR instead of spending time with the patient.”

A layer of backstopping colleagues, watching the data roll in in real time, can improve the quality of treatment by making sure good care standards are being met and catching signs that a patient is going downhill, Veremakis says: “We let the nurses on the floor do their regular work and not be pulled in a million different directions.”

One of the intense professionals doing this is Tris Wegener, who was an ICU nurse for 22 years before a snowmobiling accident wrecked her arm and led her to virtual nursing. Now she spends most of her days at Mercy seated in front of a bank of computer screens. She’s waiting for the appearance of a little red flower icon, which means that a computer program, after taking in data from the monitors in the patient’s room, is warning of a danger of sepsis, an immune response to a bacterial bloodstream infection that is the No. 1 hospital killer.

Sepsis can be hard to spot, manifesting itself in irregular symptoms. It’s on the increase among chronically ill patients who are living longer than before―about 1.5 million people get sepsis in the U.S. every year, and 1 in 6 die. When one of the red sepsis flowers pops up, Wegener makes a series of inquiries to rule out false positives. If the patient meets all the criteria—typically very low blood pressure, high fever, infection and high levels of lactic acid—she calls the nurse or doctor on duty. The hospital might be in High Point, North Carolina, Joplin, Missouri, or a dozen other places.

“I get the data as soon as it enters the system,” she says. “The nurse on duty might have three other patients. Is she aware of the problem? Sometimes, sometimes not. She might have another patient who’s coding in the emergency room. They don’t have time to check out this patient whose X-ray looks clear, but we know that tomorrow, if this isn’t taken care of, he’s going to code with pneumonia.”

It’s not unusual for the entire staff of a small ICU to rush into a patient’s room when a patient crashes. When that happens and Mercy is watching, its remote nurses can keep an eye on the other patients while those at the scene take care of the most critical case.

Working on a single shift not long ago, Wegener and two other virtual nurses had to sort through 136 sepsis alerts from hospitals around the country. Each one takes as long as 40 minutes to resolve. “It keeps your mind going,” she said.

“The job isn’t physically demanding but mentally, oh gosh,” says Lindsey Langley, whose expertise is in diagnosing and ordering treatment for stroke—a condition in which speedy diagnosis and treatment can be the difference between a minor tic and death, or a grave, lifelong disability. “You go home every day exhausted. You are tapped out.”

Most of Mercy’s telehealth and remote monitoring covers patients and hospitals inside the small Catholic hospital system, which has facilities in Missouri, Arkansas, Oklahoma and Kansas. But it also partnered with hospital systems at the University of North Carolina and Penn State. Part of the attraction is the backup Mercy provides to hospitals that serve uninsured or low income patients and can’t afford to staff up to levels that might be desirable.

“Mercy runs 24/7 in the background collecting analytics on our patient population,” said Dale Williams, chief medical officer at 351-bed High Point Regional hospital in North Carolina, which is part of the UNC system. As they gather vital signs, EKG data and so on, the Mercy staff can alert brick-and-mortar staff to any significant changes. If there isn’t a nurse or doctor in the room, they intervene.

Of course, a nurse in St. Louis can’t fill an IV fluid bag in North Carolina, but she can use a camera in the room to see that an IV bag is almost empty—then call and instruct a nurse on the floor to refill it. The telemedicine cameras are powerful enough to detect a patient’s skin color; microphones can pick up coughs and gasps and groans.

Making that order from far-off St. Louis can be a delicate matter until the virtual nurses and doctors establish good working relationships with their partners in the flesh-and-blood world. Unsurprisingly, when Mercy starts its virtual relationships with these hospitals, the professionals on site often aren’t exactly enthused to be getting instructions from afar.

“People just think that they can put the technology in place and get amazing results,” said Moore, who estimated that Mercy had spent $300 million to create the virtual care center. But acculturation is key to the process. At most ICUs and other hospital services, physicians and nurses already think they are operating at top capability. It takes work to convince them that their services would be better with help from outside.

“We’ll spend time with them and say, ‘This isn’t Big Brother looking over your shoulders: We’re partners,’” he said. “But doctors don’t necessarily want other doctors writing their orders, and if they won’t accept it, it doesn’t work. If a nurse ignores our team because she’s too busy and not used to TeleICU, nothing happens.”

Sometimes the cultural shifts required may be a bit too much to work. Tampa General Hospital piloted a TeleICU relationship with Mercy Virtual for six months, but ended the agreement Nov. 15. The hospital gave no explanation for the decision.

Longer term partners, however, seem to have converted to the concept. “A decade ago I would have said, ‘I don’t know that that can work,’” said Williams, who has been working with Mercy Virtual for about two years. “I’ve been convinced. It would be ideal to have a doctor in each unit 24/7, but even then they can’t be looking at the analytics the way these people do. They have critical care-trained nurses and doctors looking at this stuff all the time. They can camera in and count the pores on someone’s nose.”

Williams’ hospital has two critical care doctors who take care of the 28-bed intensive care unit from 7 a.m. to 6 p.m. each day, with “Mercy running in the background,” he said. After 6 p.m., nurses on the ward continue to do their thing, but Mercy is in charge.

“This allows our guys to go home on backup call,” he said. If needed, the doctor can always drive back to the hospital, but most nights Mercy’s intensivists take care of problems. “This allows us the best of both worlds. We have constant analytics and if something is changing that’s not seen by nursing staff, they’re right there monitoring it in St. Louis.”

The relationship has improved outcomes at High Point, Williams said. Doctors who used to get burned out and quit after a year or two tend to leave less often. And the hospital’s care has improved year after year—fewer hospital infections, fewer patient days on ventilators, fewer readmissions and better patient survival, he said.

For now, Mercy and its partners have one foot in the old payment system and the other in the new world, where best outcomes and money align. But there are still administrators at Mercy hospitals who see fewer admissions and days in the hospital and “aren’t particularly happy about it,” Veremakis said. “There is an awkwardness in this time. But enough people with vision recognize this is the right way to go.”

Mercy Virtual’s ICU nurses, most of whom had years of experience before coming here, are sometimes a bit nostalgic for the bedside, with its immediacy and adrenaline. “You’re used to being in charge. Here you’re part of a team,” said Wegener. “If you think something is not being done you have to be polite.

“And there’s no way I can put a price on being able to put my hand on a patient and say, ‘My name is Tris.’”

The case against hospital beds

https://www.politico.com/agenda/story/2017/11/08/the-case-against-hospital-beds-000575

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Two summers ago, I opened The New York Times Magazine and saw a startling centerfold ad that seemed to foretell the future: a sweeping panoramic image of people relaxing and strolling in Central Park, overlaid with large block text that read, “IF OUR BEDS ARE FILLED, IT MEANS WE’VE FAILED.” You could hardly have guessed it was a hospital ad. The logo for the Mount Sinai Health System was stamped in the upper corner, almost like an afterthought.

Around the same time, I was beginning a project funded by the Robert Wood Johnson Foundation to examine whether hospitals and health care facilities are well designed for their modern purposes—to produce more health, rather than just deliver more health care. And it became clear that one of the most important challenges for hospitals to address will be a simple one: the association of hospitals with beds.

When the health care industry talks about hospitals, it tends to use the language of facility planners—one in which “patients” and “beds” are equivalent. This is the legacy of a very different era in medicine. Modern hospitals are historically rooted in the sanatoria and asylums of the mid-19th century, originally conceived to isolate patients with conditions such as tuberculosis and lunacy from the community, not to protect their rights. The move from open wards to closed rooms was perhaps the first major reform in hospital design—motivated by a need for isolation as our understanding of communicable diseases and infection control became more sophisticated.

Today, hospitals are struggling with the next reform—how to move on from an era when bedrest was the default medical therapy. When President Dwight Eisenhower had a heart attack in 1955—before we had beta blockers, angiograms and stents—his White House physician recommended prolonged bedrest. Today, bedrest is still the default treatment for stomach bugs and colds, certain types of musculoskeletal injuries and pregnancy conditions. And indeed, convalescing in bed has value for some conditions. But increasingly, we’re learning that even relatively short bed confinement can be unhelpful for many patients—and prolonged bedrest can be dangerous at worst. Getting up and walking, even after hip surgery, has been shown to improve circulation, prevent blood clots and promote wound healing.

However, this isn’t how hospitals are built. Currently, very few hospital spaces are designed with the assumption that most of our patients need to walk to be healthier. The patient in a gown staggering down a cluttered hospital hallway, IV pole in hand, is as comically out of place in real life as it is on TV. A patient canwalk, but it’s awkward. Patients are frequently required to dodge bustling clinicians, carts and stretchers along the way.

To fix the immediate challenge of letting patients walk in a building built around beds, some hospitals have begun investing in walking tracks or trails, as well as indoor and outdoor nonclinical-appearing “healing gardens.”

But our changing understanding of how people get healthier raises bigger design questions for hospitals—as well as the broader question of when hospitals are even the right place to get healthier. In my own specialty, obstetrics, there’s evidence that the current design of labor and delivery units may be associated with avoidable, and frankly harmful, C-sections. With colleagues at Boston’s Ariadne Labs and the MASS Design Group, we compared childbirth facilities across the country and found that there are no standards for how many labor rooms or operating rooms a hospital needs to have based on the number of babies it delivers. As a result, the capacity of hospitals to care for patients varied widely. Hospitals that had relatively more operating rooms and relatively fewer labor rooms tended to do more surgery.

Part of the reason may be that many of these units are retrofitted from spaces that were not originally intended to support normal labor. Indeed, for pregnant women, walking regularly throughout labor, particularly during the early phases, is thought to promote progress toward delivery.

Some corners of the health care world are already starting to embrace new, less bed-focused models of care. Ambulatory surgical centers have latched on to a strong business model for the growing number of operations for which several days in bed are neither required nor recommended. A venture-capital based birthing center franchise is currently aiming to do the same—birthing families are often admitted and discharged on the same day, and beds are in the corner of the room (for resting and breastfeeding after the baby is born), rather than in the center; the idea is to encourage the mom to use movement as much as possible to support her labor by literally sidelining the bed. Health systems are increasingly investing in other types of spaces where bedrest is not the default, including skilled nursing and rehabilitation facilities, as well as home visiting nurses and health coaches to help high-need patients with acute and chronic conditions stay out of the hospital.

It’s not just keeping patients in bed that could use a rethink—it’s keeping them all closed off. In 2017, both community and hospital-acquired infections are still a clinical concern, but the dominant threats to human health—heart disease and cancer, for instance—no longer require isolation. In fact, with the exception of a few acute instances in our lives, most of us benefit from the opposite. Former Surgeon General Vivek Murthy has recently characterized loneliness as the most common “pathology” he encountered in medical practice—insidious but present on an epidemic scale. Future hospitals may find opportunity to intentionally forge connections. A community hospital in Massachusetts recently created an early labor lounge for patients who did not yet need a labor and delivery room, but could not return home. Rather than curtaining her off, the lounge was set up to let mothers socialize with their families and with one another in a relaxing and comfortable setting. Anecdotally, the lounge seemed to be most effective at preventing premature hospital admission when it was full.

They may also get a boost from new payment models, in which health systems have an incentive to take on the challenge of population health management. Rather than getting paid by the procedure, which creates an incentive to put more patients in more beds and offer larger amounts of care, they’re opting for models in which they get paid for producing larger amounts of health—which requires considering where patients really get healthier, whether that’s at the hospital or in homes or in community settings. The future demands this shift, as year after year, the costs of care continue to rapidly outstrip the benefits.

Michael Murphy, a visionary architect who has pushed his field to consider ways that hospitals can better promote human health, claims that design is never neutral. He says design either hurts or it heals. The more we know about healing, the more it appears that health care spaces will need a different approach—one that sometimes looks more like a park than a long fluorescent hallway full of beds.

 

A nation of McHospitals?

https://www.politico.com/agenda/story/2017/11/08/hospital-chains-dominate-health-care-000574

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For years, the nation’s hospital chains worked to get bigger, bigger, bigger. In the 1980s and 1990s, for-profit companies like HCA and Tenet emerged as juggernauts, snapping up local hospitals and opening clinics in one town after another. Their ambitious not-for-profit cousins, the big academic medical centers like Harvard-affiliated Partners Healthcare, scooped up smaller rivals in response. Just four years ago, the Tennessee-based Community Health Systems spent $7.6 billion to buy a competitor and become the nation’s largest for-profit hospital company, with more than 200 hospitals in 29 states.

Today, in any town or city, in any region of the country, you’ll almost certainly see the same scenario: Only a handful of hospitals, sometimes owned and operated by a company thousands of miles away.

As the pace and scale of consolidation picked up, the outcome long appeared inevitable: an American future in which a handful of hospital chains dominate American health care, with brands like Tenet and Catholic Health Initiatives and the Mayo Clinic competing for patients the way Panera and Chipotle and the Olive Garden compete for diners.

But something happened on the way to becoming a nation of McHospitals. That ambitious growth, driven by dreams of dominating a transformed health care landscape and recently fueled by Obamacare revenues, hit a wall.

In the past year, two of the nation’s three largest for-profit hospital systems, Tenet and Community Health Systems, began selling off dozens of their hospitals while entertaining bids to break up their entire companies. Prominent not-for-profit chains like Partners Healthcare are reporting nine-digit losses. Even Mayo Clinic is pulling back from some rural locations in the Midwest.

In part, the shift is just a typical business cycle working its way through the health care industry. “There are these testosterone-driven waves of deal making” in health care, said Jeff Goldsmith, a hospital consultant. “And then there are waves of post-coital regret that follow.”

But in part, the change is driven by policy decisions being made in Washington — how health care is paid for, and who has access to it. And as that shift unfolds, it’s raising questions that will shape American health care for a generation: What will the future of hospital ownership look like? What should it look like?

Even at the height of merger mania, no one could quite agree on whether the McHospital trend was a good thing or not. Some people — mostly in the hospital industry — argued that consolidation was long overdue, and that large companies’ deeper pockets and economies of scale would keep costs down and improve the quality of care for patients. Obamacare gave hospitals financial incentives to manage entire populations, rather than just get paid patient-by-patient — an effort that required building big data sets and buying up other services too, like physician practices.

But others were concerned about the growing concentration of ownership of the nation’s hospitals by a shrinking number of companies. It put local hospitals’ decades-long relationship with their communities at risk, as important local institutions started reporting to shareholders or distant nonprofit boards. These worriers foresaw a future in which just a handful of chains competed to carve out the most lucrative segments of health care, like cardiac procedures and orthopedic surgery, and offered substandard care for everyone else. And despite the chains’ promises, years of reports have shown that when hospitals combine, their prices tend to go up.

Providers’ growing market power has “been the leading reason for the [rise] in health care spending” for decades, Bob Berenson, a former Carter and Clinton administration official said in 2015. (“And in conventional political circles,” he added, “it’s still being overlooked.”)

But the changes underway are starting to transform the nature of the hospital itself — and could open the door to a landscape even more different than we imagine.

Radical shifts

The direction of the American hospital has shifted radically over time. Initially, hospitals were charity wards where the poor went to die. But as cities grew, and health care became more expensive and capital-intensive, hospitals became destinations for wealthier patients: Top hospitals were the ones that could afford the latest medical technologies and perform the most complex surgeries. The creation of Medicare in 1967 fueled new revenue and attracted more competitors, leading to the birth of major chains.

Today, about two-thirds of the nation’s 5,000 hospitals are parts of chains, up from about half of hospitals just 15 years ago, and the share of for-profit hospitals has steadily climbed — more than one in five hospitals are now owned by investors, rather than run as a not-for-profit or by the government. Established hospitals are grappling with how to balance institutional advantages like high-end facilities and expensive technologies with the need to stay nimble and adapt to health care’s changes. It’s a hard balance to strike, and after a few boom years, the industry is experiencing its worst financial performance since the great recession.

It’s always been expensive to own and operate a hospital. Preparing for possible emergencies requires round-the-clock staffing and immense sunk costs. Most major hospitals also try to offer dozens of different business lines, from cardiac surgery to behavioral health care — but that’s only gotten harder as niche competitors chip away at the most lucrative high-end services. It also got pricier thanks to the latest merger mania, as hospital chains collectively took on billions of dollars in debt to buy up their competitors and acquire other services, like physician offices.

An industry that had already consolidated in the 1980s and 1990s — seeking new efficiencies and to get bigger when negotiating with insurance companies — received new incentives under Obamacare, as millions of newly insured patients entered the market and hospital chains raced to capture the new customers. But the Affordable Care Act also accelerated changes to health care payments in ways that made hospitals seem a little outmoded.

Medicare, other federal programs and insurance companies are increasingly shifting away from fee-for-service reimbursement — in which doctors and hospitals are rewarded for the number of procedures they perform — toward “alternative payment models” with more incentives for follow-up care and improved long-term outcomes. That’s encouraged hospitals to make new investments, like buying up nursing homes and hiring more workers to deliver home-based and long-term care. Some hospital leaders are actively talking about trying not to fill their beds, which would’ve sounded like heresy in the industry just a decade ago.

Charlie Martin, a legendary health care investor who founded two hospital companies, said the old model is doomed as new technologies allow care to be delivered outside of the hospital — leaving behind large, costly facilities that are better suited to 1990 than 2020.

“Half the business that’s in there is going to go away,” Martin said. “This is going to be a beatdown like we’ve never seen before.”

Martin said he’s now investing in services like post-acute care and home health, which are more agile and positioned to take advantage of the changes in payment. In this emerging world, a low-cost aide who can keep an elderly patient out of the hospital may end up being more profitable for Martin than paying a team of doctors when that patient breaks a hip and needs days of hospital care.

“The hospitals of today are too expensive to be health care facilities” in the long run, Martin said. “I can’t carry the carcass around.” (He added that consolidation’s benefits are overrated. “There are other ways to get scale now, like purchasing groups” that allow hospitals to get bulk discounts despite not having a common owner, Martin argued. “A lot of the advantages that came through the multihospital systems are now available for anybody.”)

Too big to fail?

So, are big hospitals — and big hospital chains — destined to go the way of Sears, an institution decimated by smaller and nimbler competitors? Not necessarily. There’s still a viable path — and often a need — for big hospitals themselves, typically the largest employers in their cities and towns. While fee-for-service payment is slowly getting phased down, it isn’t going away overnight, if ever. A decade after policymakers began pushing hospitals to adopt alternative payment models, those models still represent less than 30 percent of payments to the average health care provider. Fee-for-service remains the most common way of getting paid.

And local hospitals have an advantage that many businesses don’t: They’re often so important to their towns and cities that lawmakers and other local leaders don’t want to let them fail, even if their margins suffer. And in markets where there isn’t much competition, hospitals continue to charge huge rates that have very little connection to quality of care. Yale researcher Zack Cooper and colleagues have found that hospitals with effective monopolies have prices more than 15 percent higher than hospitals in markets with four or more competitors.

What that all means: The hospitals that Martin and others see as lumbering dinosaurs don’t all need to evolve to virtual campuses just yet. No one’s forcing them to. The old model of going to a hospital for surgery and other intensive services will persist for years or decades, barring major technological leaps ahead, and it may stay lucrative for the most prominent, dominant facilities. There’s no easy, obvious disruptor that wants to start building hospitals and compete for these services, at least for these now.

So then the question is: Who’s going to own them? Many experts think the near future, at least, will belong to regional health systems. They’re able to take advantage of local monopolies that allow them to raise prices, while not being burdened by the debt and expenses that can go along with aggressive acquisitions of national chains. And from North Carolina to California, many of these local chains continue to thrive and edge out national competitors with better financial performance. Indiana University Health System last month announced it’s expanding into Fort Wayne, the state’s second-largest city, even as Community Health Systems – a national chain that operates a hospital network in the city – has seen local profits fall and anger rise, as doctors and employers claim the chain has neglected its facilities and should sell hospitals that have become dirty and dingy. (Community’s president told doctors in 2016 that the chain would pull out of Fort Wayne, Bloomberg reported, although the company rejected a subsequent buyout offer and now says it’s committed to staying.)

What’s good for these regional chains may not be good for patients or the insurance system that pays for their care, though, as lower levels of competition mean higher prices. Martin Gaynor, an economist at Carnegie Mellon and former FTC official who studies consolidation, points to UPMC’s decision this month to spend $2 billion to build three new specialty hospitals in the Pittsburgh area, further cementing its control of the local market — even if experts question whether large, specialty facilities are needed at all. “Don’t forget that residents of Western Pennsylvania are the ones who will mostly pay for this,” Gaynor tweeted after the announcement.

“There’s a near-stranglehold on these markets by dominant health systems,” said Gaynor, noting that many regions get carved up between two or three major chains. “Some means need to be developed to free that up.”

It’s not clear how that would happen or who wants to do it. The Trump administration has gestured toward unlocking those markets, with a few lines in a recent executive orderpromising to limit “excessive consolidation.” The Federal Trade Commission under the Obama administration also jumped in to aggressively block hospital mergers, too. But taking on the hospital industry has been viewed as a political nonstarter for years. And hospitals don’t have much reason to loosen their own monopolies, at least in the short run.

There’s an intriguing possibility that some consultants are wrestling with: What if a company like Walmart or Apple decides to go for the health care market — and really go for it, as executives from each company have hinted in the past — and set up outpatient centers in their stores around the country. Hospitals would suddenly face new pressures from a well-capitalized competitor that already gets a lot of foot traffic, like Walmart, or has been ruthlessly committed to growth, like Apple. Patients frustrated with the traditional medical system might start opting for these retail alternatives, disrupting the entire chain of how Americans get care.

A dramatic move like that would shake up how health care is delivered. It would also flip the paradigm. Rather than hospitals desperately trying to expand and establish themselves as a national brand, an existing national brand — not a health care brand, but a big consumer brand — could suddenly have a health care presence in many major markets.

But a move like that remains some distance off. Walmart’s effort to quickly scale up small retail health clinics has stalled. Apple has publicly flirted with investing in a health care facility for so long, it raises the question of why the company hasn’t.

And that points to the most likely outcome for hospitals in the next 30 years. Boring as it may be, many of them aren’t going anywhere. No one else is competing for the expensive, high-end services that only hospitals can offer. They’re still too big to fail — just so long as they don’t get any bigger.