In Appalachia, Two Hospital Giants Seek State-Sanctioned Monopoly

In Appalachia, Two Hospital Giants Seek State-Sanctioned Monopoly

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Looking out a fourth-floor window of his hospital system’s headquarters, Alan Levine can see the Appalachian Mountains that have defined this hardscrabble region for generations.

What gets the CEO’s attention, though, is neither the steep hills in the distance nor one of his Mountain States Health Alliance hospitals across the parking lot. Rather, it’s a nearby shopping center where his main rival ­— Wellmont Health System, which owns seven area hospitals — runs an urgent care and outpatient cancer center. Mountain States offers the same services just up the road.

“Money is being wasted,” Levine said, noting that duplication of medical services is common throughout northeastern Tennessee and southwestern Virginia where Mountain States and Wellmont have been in a health care “arms race” for years, each trying to outduel the other for the doctors and services that will bring in business.

The companies now want to merge, which would create a monopoly on hospital care in a 13-county region that studieshave placed among the nation’s least healthy places. The merger’s savings would pay for a range of public health services that they can’t afford now, the companies project. And they are trying to pull it off without Washington regulators’ approval, breaking with hospitals’ usual path to consolidation.

In a typical case, a plan that eliminates so much competition in a market would almost certainly provoke a court battle with the Federal Trade Commission, which enforces antitrust laws and challenges anti-competitive behavior in the health industry.

To avert such a fight, the hospitals are using an obscure legal maneuver available in Tennessee and Virginia and some other states.

Generally known as a Certificate of Public Agreement (COPA), the process works like this: If regulators in Virginia and Tennessee agree that the merger is in the public interest, Wellmont and Mountain States would operate as one company under a state-supervised agreement governing key parts of their operations, including setting prices. The states’ approval would prevent the FTC from challenging the merger under federal antitrust law.

Their decisions could come as soon as this month.

In exchange for approval, Mountain States and Wellmont promise to use money saved from the merger to offer mental health and addiction treatment services and attack public health concerns, such as obesity and smoking — areas previously neglected by the systems that don’t increase hospital admissions and bring in big revenue, hospital officials said

“The question that needs to be asked is whether tight state oversight of a monopoly is better than failed competition,” said Robert Berenson, a health policy expert at the Urban Institute.

Little-Used And Rarely Challenged Mechanism

The federal antitrust exemption made possible under a COPA dates to a Supreme Court ruling in the 1940s used only about a dozen times to allow hospital mergers. One was an hour away from here, in Asheville, N.C.

There’s little scholarly research on COPAs’ results.

Last summer, the FTC dropped its challenge to a merger of two West Virginia hospitals after the state adopted a COPA law and permitted the deal.

In recent years, hospital mergers and acquisitions have created behemoth health systems that have used their status to demand high payments from insurers and patients. Studies by health economists have repeatedly found that consolidation means higher prices.

But the same calculus may not apply here and in other regions where a preponderance of patients are poor or uninsured, officials from both Mountain States and Wellmont say.

While President Donald Trump and Republicans in Congress stress the value of free-market principles in health care, both hospitals argue that in their part of Appalachia the market has led to unnecessary spending, driven up health costs and forced them to focus on services that produce the highest profits rather than meet the community’s most pressing health needs. In this deeply conservative region where death rates from cancer and heart disease are among the nation’s highest, the hospitals say only a state-sanctioned monopoly can help them control rising prices and improve their population’s health.

Without their proposed merger, Levine said, both hospital systems would likely have to sell to an out-of-market chain. That would likely eliminate local control of the facilities and could lead to massive layoffs and the closure of hospitals and services, he said. Together, the two hospital systems employ about 17,000 people.

The FTC, which is urging the states to reject the hospitals’ plan, contends the hospitals could form an alliance or take other steps short of a merger to accomplish the benefits they say one will bring. The agency says the hospitals’ market probably would be no worse off if one chain merged with a company outside the area.

Feds Wary Of Promises

The hospitals are making big promises to sell their deal. They say no hospitals would close for at least five years, although some could be converted to specialized health facilities to treat problems such as mental health or drug addiction. After the merger, all qualified doctors would have staff privileges at all hospitals to treat patients. No insurer would pay lower rates than others. The new hospital system would spend at least $160 million over 10 years to improve public health, expand medical research and support graduate medical education for work in rural areas.

The FTC maintains the hospitals’ pledges are unreliable and dismissed them as having “significant shortcomings, gaps and ambiguities” in an analysis filed with state regulators in January.

Levine said the plan is the best deal for the community given the factors that handicap the hospitals. Those include declining populations and Medicare reimbursement rates that are lower here than other parts of the country because of lower average wages. Another concern is the cost of caring for uninsured people — neither Virginia nor Tennessee expanded Medicaid under the health law, which would have lowered uninsured rates.

“Competition is and should be the first choice, but in an area where competition becomes irrational and there are limited choices, there has to be a Plan B. If not this, then what?” he said.

Blue Cross and Blue Shield of Tennessee, the state’s largest health insurer, is not opposing the hospitals’ combination, a spokesman said. But its counterpart in Virginia, Anthem, hasn’t been persuaded.

“Anthem does not believe that there are any commitments that will protect Southwest Virginia and Northeast Tennessee health care consumers from the negative impact of a state-sanctioned monopoly,” the company said in a statement.

Wanted: Better Job Prospects

The proposed COPA has strong support among large employers in the region, including Eastman, a Kingsport, Tenn., chemical company with $9 billion in annual revenue that employs more than 7,000 people locally. “We get local governance, input and control … and that’s a lot better situation for us,” said David Golden, a senior vice president at Eastman.

Still, walking around Johnson City — the region’s largest city with almost 67,000 people — it’s easy to feel an unease among small employers and residents about a merger. Many worry about possible job cuts.

“Eliminating duplication of services means eliminating people,” said Dick Nelson, 60, who runs a coffee and art shop downtown and has lived here for 27 years. “I don’t care how much health care costs because my insurance will pay it,” he said.

In Kingsport, where Wellmont and Mountain States each has a hospital, Thorp is leery about a merger, too. “It’s an economic move, not an enhancement of medical care,” said Thorp, who runs a newsstand downtown. “We pride ourselves here for having good education and health care. They say there won’t be any services or jobs cut, but if that’s the case then what’s the point of the merger?”

Levine said no place better supports the case for a hospital merger than Wise County in southwestern Virginia, a scenic area with about 40,000 people whose three hospitals all operate below half their capacity. Mountain States and Wellmont each own a hospital in Norton, the county seat with 4,000 residents. Despite few patients, the hospitals still bear hard-to-cut costs for buildings, equipment and adequate staffing levels, Levine said.

On a recent weekday morning, Lonesome Pine Hospital, a Wellmont facility in Big Stone Gap, Va., looked nearly deserted. No volunteers or staffers were visible inside its main entrance and fewer than a fifth of its 70 acute-care beds were being used.

A five-minute drive away, Mountain States’ Norton Community Hospital’s 129 beds are about a quarter filled. Its maternity unit delivers fewer than five babies a week. The hospital offers hyperbaric oxygen therapy — a treatment that pays well under Medicare’s reimbursement rates — to help diabetics heal their wounds. But it has no endocrinologists to help diabetics manage their disease to avoid such complications. Despite a high rate of heart disease in the community, there’s no cardiologist on staff.

Whether a state-sanctioned merger will resolve the incongruities — here or in other poor regions — depends on how firmly regulators hold the hospitals to their pre-merger commitments. If the merger plan gets rejected, Mountain States and Wellmont will resume arch-competitive business practices that do not always put community interests first, said Bart Hove, Wellmont’s CEO.

“It’s about competing for the dollar in any way you can and extracting a dollar from your competition,” Hove said. “You do what you can to drive patients to your hospital.”

Adventist Health closes Washington hospital

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Roseville, Calif.-based Adventist Health on Monday closed Walla Walla (Wash.) General Hospital along with its affiliated home health division and medical group.

The closure comes after Adventist called off plans in June to transfer ownership of Walla Walla General to Renton, Wash.-based Providence Health & Services. Under the deal, Providence agreed to assume ownership and operation of the Walla Walla campus and disburse $14 million over 24 years into a special fund for community health that Adventist would direct.

However, Adventist said late last month the proposed transaction encountered “unexpected regulatory challenges” that could possibly block the deal. The system discontinued negotiations with Providence and announced it would close the Walla Walla campus.

Adventist said Walla Walla General has faced financial troubles for the past decade. The system invested $68 million into Walla Walla General in recent years, but that wasn’t enough to save the hospital.

“We respect the legacy of this hospital, its place in the heart of our community, and the investments we have all made to sustain it for more than a century,” Adventist said. “Unfortunately, the current volatile healthcare environment, legislative challenges, and consistent low inpatient census have created an unsustainable future for Walla Walla General Hospital.”

Adventist said many of the Walla Walla General Hospital physicians will remain local and will inform patients of their future plans.

Walla Walla General Hospital was founded in 1899 and has more than 400 employees, including a medical staff of more than 175 clinicians.

Amid tension with CHS, 3 more executives and advisory board member quit Lutheran Health Network

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Three top executives of Fort Wayne, Ind.-Lutheran Health Network and a member of the system’s advisory board have resigned due to actions by LHN’s parent company, Franklin, Tenn.-based Community Health Systems.

LHN Medical Staff President James Cameron, MD, Lutheran Hospital President-elect Matt Carr, MD, and Lutheran Hospital Medical Staff Vice President Marlene Bultemeyer, MD, announced their resignations in a letter sent Friday to the system’s acting CEO Mike Poore, according to the News-Sentinel.

“Although we had the most sincere intentions of guiding the medical staff in the years to come, the events of the past days and weeks have shown that this process will take more than we could individually or collectively accomplish without compromising the quality of care we now provide our patients,” they wrote.

Tom Kelley, a member of the advisory boards for LHN and Lutheran Hospital also resigned Friday, according to The Journal Gazette. He resigned one day after Chuck Surack stepped down from the advisory boards.

The new resignations come after CHS rejected a buyout offer from a group of LHN physicians in May. After saying no to the deal, CHS fired Lutheran Health Network CEO Brian Bauer and CMO Geoff Randolph, MD. Lutheran Hospital CMO Matthew Sutter, MD, resigned in June and Steven Orlow, MD, the system’s CMIO, resigned earlier this month.

Lahey, Beth Israel and others ink merger agreement to create 13-hospital system

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Five Massachusetts hospitals and health systems have signed a definitive agreement to merge.

The agreement was signed by two Boston-based organizations — Beth Israel Deaconess Medical Center and New England Baptist Hospital — as well as Burlington, Mass.-based Lahey Health, Mount Auburn Hospital in Cambridge, Mass., and Anna Jaques Hospital in Newburyport, Mass.

Under the agreement, the hospitals will operate under a parent organization but retain their names, licenses and independent boards.

The deal, which requires regulatory approval, would create the second largest health system in Massachusetts, according to the Boston Business Journal.

This is the first time Beth Israel and Lahey have signed a definitive agreement, but it marks the fourth time they’ve tried to merge.

In addition to the 13 hospitals, the new system would include 800 primary care physicians and more than 3,500 specialists.


Dirty, Dingy Hospitals: Doctors Blame Debt-Fueled Takeovers

There are two groups Community Health Systems Inc. can’t push too far: the doctors at its hospitals, and the debtholders it owes billions of dollars. Right now, the creditors are winning, and the doctors aren’t happy.

In Fort Wayne, Indiana, the rancor about Community’s neglect of a local health system has gotten so bad that a group of doctors tried to get rid of corporate ownership and buy the company out. And 1,500 miles away on the island of Key West, Florida, doctors say patients are being overcharged so that Community, sometimes called CHS, can rake in cash.

The two locations are among Community’s most lucrative, and their conflicts are part of the flip side of an industrywide acquisition binge over the last decade. For-profit hospital chains like Community borrowed billions to snap up rivals, facing massive debt reimbursements just as the benefits of the Affordable Care Act, known as Obamacare, began to wane.

“I understand that they have billions in debt and may need to take money from this chain to service it,” said William Pond, an anesthesiologist at one of the Fort Wayne hospitals and president of the county health department’s executive board. “But it’s very disappointing to see the course that CHS is taking and the devastating effect they’re having on our community.”

Once the biggest U.S. for-profit hospital chain, Community is selling off other, poorly performing facilities to pay off $2 billion of its $15 billion in debt. Yet even as the company skimps on spending and patient satisfaction lags at key facilities like Fort Wayne, its bonds are rising in value — an indication that debtholders are betting that the chain will make a financial turnaround.

The company’s $3 billion of 6.875 percent bonds due February 2022 have gained almost 30 percent this year and were changing hands at 89 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt still trades at yields about 8 percentage points more than government debt.

If the chain can’t subdue the unrest at its most profitable locations, it’s not clear how successful the turnaround will be. Indiana and Key West represent just nine of Community’s about 150 hospitals, yet they contribute an estimated 16 percent of the company’s adjusted earnings before interest, taxes, depreciation and amortization, according to Mizuho Securities analyst Sheryl Skolnick.

South Carolina merger will create largest health system in state

Dive Brief:

  • Two South Carolina health systems, Palmetto Health and Greenville Health System, on Thursday announced a new nonprofit company that will combine the two systems into one 13-hospital company with 1.2 million patients and $3.9 billion in annual net revenue.
  • In the announcement, the two health systems said the merger will “have the potential to invest up to an additional $1 billion over the next five years in programs, technology, facilities and team members.”
  • Nearly half of South Carolinians will live within 15 minutes of the new health company’s physician practices, hospitals and healthcare facilities.

Dive Insight:

The merger will result in South Carolina’s largest provider of charity and uncompensated care that will also account for one-third of the state’s Medicaid services. Palmetto Health Chief Executive Officer Charles D. Beaman Jr. said both organizations “are committed to ensuring our community members receive the healthcare they need, regardless of their ability to pay.”

It will also create South Carolina’s largest private employer with more than 28,000 employees and 2,800 physicians.

Palmetto’s facilities include the 649-bed Palmetto Health Richland, 413-bed Palmetto Health Baptist and 301-bed Palmetto Health Tuomey. Greenville’s system includes the 710-bed Greenville Memorial Hospital. The two health services already partner on a joint venture with 109-bed Baptist Easley Hospital.

The two organizations will continue providing separate services during the due diligence, third-party approval and integration planning stages.

Hospital M&A activity remains hot with this latest news. Recent M&A actions have involved health systems shedding hospitals to reduce debt, such as Quorum Health selling two hospitals to UPMC Susquehanna, consolidating services, such as Mayo Clinic’s plans to consolidate two hospitals, or expanding footprints like HCA looking to buy more hospitals.

The volume of healthcare M&A was up in the first quarter of this year and there is no sign of the trend slowing. The American Hospitals Association found in a recent analysis that most mergers in the past several years led to cost savings and quality improvement.

This South Carolina merger is all about scale and expanding footprint. “This new health company will have the scale, scope and resources required to address the serious health issues of the people it serves,” the two companies said in the announcement.

Thad Kresho, U.S. Health Services Deals Leader at PricewaterhouseCooper’s told Healthcare Dive earlier this year hospitals are seeking mergers “in response to the continued call for improved quality, patient engagement and new reimbursement models.”