Mercy Health and Bon Secours Announce Merger

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The Maryland and Ohio health systems announced Wednesday their intention to merge. The joint venture would be the nation’s fifth-largest Catholic health system.

Bon Secours Health System and Mercy Health announced their intention Wednesday to merge, potentially forming the fifth-largest Catholic health system in the country.

The proposed merger would join Mercy, the largest health system in Ohio, with Bon Secours, a Maryland-based Catholic health system with locations throughout the East Coast.

Related: Expect M&A Deluge To Continue Through 2018 And Beyond

If approved, the new system would operate 43 hospitals and more than 1,000 care sites across seven states, while generating close to $9 billion in annual operating revenues. Additionally, the new system would employ more than 2,100 physicians and advanced practice clinicians.

“Our decision to join forces with Bon Secours is rooted in our shared and very deep commitment to delivering compassionate, low-cost, high-quality health care to our communities,” said John M. Starcher Jr., president and CEO of Mercy Health, in a statement. “Working together, our strong faith-based heritage fuels our mutual focus to provide efficient and effective health care for each patient who comes through our doors.”

The proposed merger will need to gain approval from state and federal regulators as well as the Catholic Church, which oversees both systems. Leaders from Mercy and Bon Secours expect the deal to be completed by the end of the year.

“The mission, vision, values and geographic service areas of Bon Secours and Mercy Health are remarkably well-aligned and highly complementary,” said Richard J. Statuto, president and CEO of Bon Secours, in a statement. “This merger strengthens our shared commitment to improve population health, eliminate health disparities, build strength to address social determinants of health, and invest heavily in innovating our approaches to health care.”

Expert Advice For The Corporate Titans Taking On Health Care

Expert Advice For The Corporate Titans Taking On Health Care

An announcement Tuesday by three of the nation’s corporate titans — Amazon, Berkshire Hathaway and JPMorgan Chase & Co. — that they are joining forces to address the high costs of employee health care has stirred the health policy pot. It immediately sent shock waves through the health sector of the stock market and reinvigorated talk about health care technology, value and quality.

Though details regarding the undertaking are thin, the companies said in a release that their partnership’s intent is to improve employee satisfaction and hold down costs by bringing “their scale and complementary expertise to this long-term effort.”

They plan to create an independent company, “free from profit-making incentives and constraints,” to focus on “technology solutions.”

Berkshire Hathaway CEO Warren Buffett described health care costs as “a hungry tapeworm on the American economy,” and Amazon founder and CEO Jeff Bezos said the partnership was “open-eyed about the degree of difficulty” ahead. Jamie Dimon, chairman and CEO of JPMorgan, said the results could benefit the employees of these companies and possibly all Americans

But what does all of this mean and how can it be successful when so many other initiatives have fallen short? KHN asked a variety of health policy experts their thoughts on this venture, and what advice they would offer these CEOs as they go forward. Some of the advice has been edited for clarity and length.


Tom Miller, resident fellow, American Enterprise Institute (Courtesy of Tom Miller)

Tom Miller, resident fellow, American Enterprise Institute:

“It’s great that someone theoretically with resources would try to build a better mousetrap. But it’s been difficult to do, and part of it is regulatory and competitive barriers are well-constructed in the health care sphere, which tend to make it less receptive or subject to competitive pressures.

“I welcome any new capital trying to disrupt health care. … The incumbents are comfortable and could use disruption. If Amazon has an idea, and is willing to put some money behind it, that’s wonderful. What they are willing to do other than fly low-cost providers for home visits in drones — I don’t know. They’d probably have to miniaturize them, wouldn’t they?”


Stan Dorn, senior fellow, Families USA (Courtesy of Stan Dorn)

Stan Dorn, senior fellow, Families USA:

“Number one, look at prices. America doesn’t use more health care than European countries, but we pay a lot more and that’s because of prices more than anything else. Look at hospital prices and prescription drug prices. I would also say, look to eliminate middlemen operating in darkness. I’m thinking in particular of pharmacy benefit managers. Often, the supply chain is hidden and complex and every step along the way the middlemen are taking their share, and it winds up costing a huge amount of money.”


Bob Kocher, partner, Venrock (Courtesy of Bob Kocher)

Bob Kocher, partner, Venrock:

“It has been said that health care is complicated. One thing that is not complicated is that the way to save money is to focus on the sickest patients. And that’s the only thing that has proven to work in great primary care. I hope Amazon realizes this early and does not think that [its smart digital assistant] Alexa and apps are going to make us healthier and save any money.

“It would sure be nice if they invest in a ‘post-CPT-ICD-10-and-many-bills-per-visit’ world where we know prices, can easily know what is known about quality and experience, and have same-day service.”


Tracy Watts, senior partner, Mercer (Courtesy of Tracy Watts)

Tracy Watts, senior partner, Mercer:

“Everyone thinks millennials want to do everything on their phones. But that’s not necessarily the case.

“[There was a recent] survey about this — specifically, millennials are the most interested in new health care offerings, but it wasn’t as much high-tech as it is convenience they are interested in — same-day appointments with a family doctor, guaranteed appointments with specialists, home visits, a wider array of services available at retail clinics. That was kind of an ‘aha’ — this kind of convenience and high-touch experience is what they’re looking for. And when you think of ‘health care of the future,’ that’s not what comes to mind.”


John Rother, president and CEO, National Coalition on Health Care (Courtesy of John Rother)

John Rother, president and CEO, National Coalition on Health Care:

“Health care is complex and expensive, so the aim should always be simplicity and affordability. Three keys to success: manage chronic conditions recognizing the life context of the patient, emphasize primary care-based medical homes and aggressively negotiate prescription drug costs.”


Suzanne Delbanco, executive director, Catalyst for Payment Reform (Courtesy of Suzanne Delbanco)

Suzanne Delbanco, executive director, Catalyst for Payment Reform:

“The biggest driver of health care costs is prices. Those are being driven up by health care providers who have consolidated and will continue to consolidate and amass more market power.

“It sounds like they [the companies] are limiting the use of health plans, but if they’re going to get into that business, they’re going to come up with the same challenges health plans face. What would be really innovative would be to build some provider systems from the ground up where they can truly get a handle on the actual costs and eliminate the market power that drives the prices up, and they can have control over their prices.”


Brian Marcotte, president and CEO, National Business Group on Health (Courtesy of Brian Marcotte)

Brian Marcotte, president and CEO, National Business Group on Health:

“They recognize this is [a] long-term play to get involved in this. I’d have to say, this industry is ripe for disruption.

“I think we know technology will continue to play an increasing role in how consumers access and receive health care. We’ve also learned most consumers do not touch the health care delivery system with enough frequency to ever be a sophisticated consumer. What’s intriguing about this partnership is Amazon for many consumers has become part of their day-to-day world, part of their routine. It’s intriguing to consider the possibilities of integrating health care into consumer routine.

“And I think that therein lies the opportunity. Employers offer a lot of resources to their employees to help them maximize their experience, and their No. 1 challenge is engagement.”


Joseph Antos, health economist, American Enterprise Institute (Courtesy of Joseph Antos)

Joseph Antos, health economist, American Enterprise Institute:

“My first suggestion is to look at what other employers have done (some unsuccessfully) and consider how to adapt those ideas for the three companies and more broadly. Change incentives for providers. Change incentives for consumers. Work on ways to reduce the effects of market consolidation. The bottom line: Don’t keep doing what we are doing now. I don’t see that these three companies have enough presence in health markets to pull this off anytime soon, but perhaps this should be viewed as the private-sector version of the Affordable Care Act’s Innovation Center— except, this time, there may be some new ideas to test.”


Ceci Connolly, president and CEO, Alliance of Community Health Plans (Courtesy of Ceci Connolly)

Ceci Connolly, president and CEO, Alliance of Community Health Plans:

“We know that 5 percent of any population consumes 50 percent of the health care dollar. I would encourage this group to focus on how to better serve those individuals who need help managing multiple chronic conditions.”


David Lansky, CEO, Pacific Business Group on Health (Courtesy of David Lansky)

David Lansky, CEO, Pacific Business Group on Health:

“The incumbent providers of services to our members are not doing as much as we need done for affordability and quality. So, we are pleased to see them go down this path. We don’t know what piece of the puzzle they will tackle.

“We know well-intended efforts over the years haven’t added up to material impact on cost and quality. I would suspect they are looking at doing something broader, more disruptive than initiatives we have tried before.

“I think across the board they have the opportunity to set high standards for the health system in whatever platform they use. These companies have a history of raising the bar. Potentially, it could be a help to all of us.”

13 healthcare M&A deals that made headlines in 2017

https://www.fiercehealthcare.com/finance/healthcare-mergers-and-acquisitions-hospitals-payers-year-review?mkt_tok=eyJpIjoiTnpreE9HSTFPVFJqWldZMSIsInQiOiJNM0NTa1ZBZW1kU001bkx4SEcwNmtSeEFVNG9oZnpUbEF2UVpMY1lDUWNZYm8zZTFuejJNUGpPOTJuYVlXTlZwWHdXU1hrRm50Z1NFbHJGRjdUMld6U1JoYWo0enNaUlEzNldab2tcL3hxV3NPaTBlK2xKbmVSQmgwMTE2NFZpYzgifQ%3D%3D&mrkid=959610

handshake

Analysts rightly predicted that 2016 would be a big year for healthcare industry mergers, but 2017 is on pace to top it, with a number of blockbuster mergers between big-name health systems headlining the year in M&A.

Kaufman Hall reported that 87 hospital mergers had been recorded through the third quarter of 2017, compared to 102 overall in 2016. By that point, eight transactions had included hospitals with $1 billion or more in revenue, twice as many big-ticket mergers as in all 2016.

“These transactions are driven primarily by strategic imperative and less so by financial drivers,” said Anu Singh, managing director of Kaufman Hall.

M&A activity wasn’t restricted to hospitals and health systems, as a number of deals in the payer sphere could also significantly impact the industry.

However, though the industry’s merger mania continued throughout 2017, a number of major deals were abandoned or put on hold, as the Federal Trade Commission continued to keep a close eye on merger activity.

Here’s a recap of some of the biggest healthcare industry mergers that were announced last year:

Aetna and Humana

These two payer giants announced merger plans in 2015 but abandoned the deal in February after a judge blocked it on antitrust grounds.

The Department of Justice and several states sued to block the merger in the summer of 2016, and a judge ruled that merger would unlawfully weaken competition in the Medicare Advantage market.

Anthem and Cigna

If Aetna and Humana parted ways on what one might consider good terms, the same was not true for Anthem and Cigna. This insurance megamerger was also blocked by a federal judge on antitrust grounds, but what followed was a protracted legal dispute between Anthem and Cigna over ending the deal. Anthem finally agreed to end the deal in May after a judge ruled Cigna was free to walk away.

NorthShore University HealthSystem and Advocate Health Care

A potential deal between NorthShore and Advocate was first announced in 2014, but a federal judge blocked it in early March. The two Illinois systems then agreed to abandon the merger in response.

PinnacleHealth and UPMC

PinnacleHealth revealed in March that it would merge with UPMC, the largest integrated health system in Pennsylvania, and would acquire four new hospitals in an effort to expand its reach in the central part of the state. Pinnacle previously pursued a merger with Penn State Hershey.

Partners HealthCare and Care New England Health System

Care New England had been aligned with Partners since 2009, but Partners announced in April that it would acquire the system, which is the second largest in Rhode Island.

Steward Health Care System and IASIS Healthcare LLC

Steward’s purchase of IASIS, which was finalized in October after being announced in May, established the system as the largest private hospital operator in the U.S. With the purchase, Steward now operates 36 hospitals across 10 states and is projected to have revenue in excess of $8 billion in 2018.

Ascension and Presence Health

Ascension, the largest Catholic health system in the U.S., announced plans to purchase Illinois’ largest Catholic system, Presence Health.

If the deal is finalized, Presence will operate under Ascension’s AMITA Health venture.

UNC Health Care and Carolinas HealthCare System

A final deal between UNC and Carolinas would create one of the largest nonprofit health systems in the U.S. The two providers said the alignment would increase rural access to healthcare, allow each to negotiate better with payers and potentially save millions of dollars in healthcare costs.

Centene and Fidelis Care

Centene spent much of 2017 expanding its reach in the Affordable Care Act’s marketplaces, but it announced in September that it would acquire New York-based Fidelis Care for $3.75 billion. Centene said purchasing the 1.6 million-member insurer would benefit shareholders and allow it to continue to reach underserved areas.

CVS and Aetna

Though Aetna’s merger with Humana failed earlier in 2017, it was snapped up later in the year by pharmacy giant CVS in a deal worth $69 billion.

The purchase had been rumored since October and could impact hospitals or health systems that operate urgent clinics, as gaining Aetna’s 22 million members would be a significant boon to CVS’ MinuteClinics.

Dignity Health and Catholic Health Initiatives

These two massive Catholic systems signed a deal to create a new nonprofit system, the name of which has yet to be announced. The merger would unite 139 hospitals and 700 care sites across 28 states under the same umbrella. Dignity and CHI had a combined $28.4 billion in revenue in 2017.

Providence St. Joseph Health and Ascension

A deal between these two systems has not officially been announced, but sources told The Wall Street Journal that Providence and Ascension were deep in merger talks. If these two systems were to align, it would create the largest hospital operator in the U.S., with 191 hospitals across 27 states and a combined annual revenue of $44.8 billion.

Humana and Kindred Healthcare

Following its failed merger with Aetna, Humana seemed a ripe target for acquisition by another insurer. Instead, it was revealed in mid-December that it, alongside two private equity firms, would purchase Kindred in a deal worth $4.1 billion. The Kindred deal won’t kill talk that Humana could be acquired, however.

 

From premiums to politics: 5 predictions for the health insurance industry in 2018

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Businessman uses a crystal ball

After the demise of two major insurer mergers and multiple Affordable Care Act repeal attempts, few could argue that 2017 wasn’t an eventful year for the health insurance industry.

But 2018 is shaping up to be just as interesting—complete with more political wrangling, M&A intrigue and evidence that, despite all this uncertainty, insurers are pushing ahead and embracing innovation.

Read on for our predictions about what’s in store for the industry in the coming months.

1. The CVS-Aetna deal will have a domino effect in the healthcare industry

While the lines between payer, provider and pharmacy benefits manager have been blurring for a while now, CVS’ $69 billion deal to purchase Aetna is undoubtedly a game-changer.

The move was likely motivated by a desire to compete with UnitedHealth’s thriving Optum subsidiary, which has its own PBM and an increasing presence in care delivery. So it stands to reason that other major insurers will try to strike deals of their own that mimic that scale and level of diversification.

Already, Humana has made a bid to purchase part of hospice- and home-health giant Kindred Healthcare. There’s also been speculation that it is preparing to be acquired—possibly by Cigna, or in a deal that would mimic CVS-Aetna, Walmart or Walgreens.

Other insurers may also seek to build PBM capabilities, following in the footsteps of UnitedHealth, a combined CVS-Aetna and Anthem, which announced in October that it would team up with CVS to create an in-house PBM called IngenioRx.

It’s certainly possible, however, that CVS’ purchase of Aetna will not pass regulatory muster. While it would require less divestment than the ill-fated Anthem-Cigna and Aetna-Humana deals, the DOJ’s decision to block another vertical deal—between AT&T and Time Warner—doesn’t bode well for its chances.

2. Republicans and Democrats will be forced to work together on ACA fixes

With one less Republican senator—thanks to Alabama’s election of Democrat Doug Jones—the GOP likely won’t have the votes to pass a repeal bill without bipartisan support. Senate Majority Leader Mitch McConnell acknowledged as much before Congress’ holiday recess, though he clarified the next day that he would be happy to pass an ACA repeal bill if there are enough votes for it.

McConnell also owes Sen. Susan Collins, R-Maine, as he had promised her he’d pass her reinsurance bill and a bill that would fund cost-sharing reduction payments this year. While Collins held up her end of the bargain—voting for the GOP tax bill—the ACA fixes didn’t make it into the stopgap spending bill Congress passed on Dec. 21.

Democrats, meanwhile, will also be motivated to reach across the aisle. The repeal of the individual mandate will likely put the ACA on more unstable footing, lending more urgency than ever to the task of shoring up the exchanges.

Both parties will also likely face pressure from the healthcare industry’s biggest lobbying groups to get some sort of ACA fix passed. The push to do so, however, will be complicated by the full slate of legislative priorities Congress is facing in the new year, including reauthorizing funding for the Children’s Health Insurance Program.

3. There will be more premium hikes and insurer exits in the individual market

The individual mandate is now gone, and arguments about its effectiveness aside, that was one of the mechanisms that encouraged healthy people to buy insurance and stay covered. Even if the effect on coverage levels is minimal, the move is probably going to be enough to push risk-averse insurers to raise rates and even exit more rating areas in 2019.

There is also little indication that large insurers that have exited will come back anytime soon. After all, why invest resources in an unstable market when there are far more steady and lucrative markets like Medicare Advantage?

Adding to the policy uncertainty for the remaining insurers, there is no guarantee that Congress will authorize short-term funding for cost-sharing reduction payments. Many insurers raised their 2018 rates to account for the possibility of them disappearing—which turned out to be a wise move—so it stands to reason they’d have to do the same for 2019.

Perhaps the best harbinger of what’s to come came from a study conducted in November, which noted that the actions insurers and state regulators took to fill in “bare counties” on the ACA exchanges are “temporary and unsustainable without long-term federal action.” And with Republicans in charge, federal action to patch up the exchanges is unlikely.

4. Federal agencies will start to carry out Trump’s executive order—and states will push back

Although it was overshadowed by all the repeal-and-replace drama, Trump’s healthcare-focused executive order has huge implications for the industry. Put simply, it paves the way for expanded use of association health plans, short-term health plans and employer-based health reimbursement arrangements.

In 2018, we’re likely to see the relevant agencies start issuing rules to implement the order, which could dramatically change the individual market as we know it—and not for the better. Such rulemaking would also set the stage for a power struggle between the federal government and left-leaning states.

In fact, a coalition of healthcare organizations have urged state insurance commissioners to take steps to override any rules resulting from the executive order. For example, states could restore the three-month limit on short-term health plans if agencies unwind that Obama-era rule on the federal level.

Since only certain states are likely to heed these suggestions, the upshot of Trump’s executive order will be to create a patchwork of individual market rules across the country. If that sounds strangely like what the individual insurance markets were like before the ACA, well, that’s precisely the point.

5. Payers’ move to value-based payment models will continue, with or without the feds leading the way

On the one hand, the Trump administration clearly wants to scale back the federal government’s role in pushing payers and providers away from fee-for-service payment models. The surest sign was CMS’ announcement late last year that it would endmandatory bundled payment models for hip fractures and cardiac care.

Some have worried that moving away from those mandatory programs would be a setback for the move to value-based payments, given that the feds play a powerful role in galvanizing the industry to change. In addition, the administration wants to take the Center for Medicare and Medicaid Innovation in a “new direction”—one that CMS Administrator Seema Verma said would “move away from the assumption that Washington can engineer a more efficient healthcare system from afar.”

But even if the federal government will take a lighter touch in the move from volume to value, it’s not likely that the private sector will take that as a cue to reverse course. On the payer side, especially, too many industry-leading companies have invested heavily in alternative payment models to turn back now. And they have compelling business reasons to keep investing in those models, given their potential to lower costs and improve care quality.

 

10 things for healthcare executives to note as they head into 2018

https://www.beckershospitalreview.com/hospital-management-administration/2017-the-year-that-was-10-things-for-healthcare-executives-to-note-as-they-head-into-2018.html

Disruption got real. Hospital-insurer negotiations heated up. Activist shareholders shook up legacy hospital operators. Healthcare and the government failed to effectively communicate. These and six other trends that shaped the year in healthcare — and the lessons executives can take from them into 2018.

1. Disruption got real. After years of speculation about who or what would become the “Uber of healthcare,” the tectonic plates of the industry shifted substantially in the past year — and there’s reason to believe this will only continue in 2018. A number of mergers illustrate the blurring line between healthcare and other industries, such as retail and insurance. Consider the combinations of CVS and Aetna or Optum and DaVita and Surgical Care Affiliates. As for what’s to come, Apple and Amazon have both shown interest in expanding their healthcare footprint. In fact, just last month, we reported Amazon was in talks to move into the EHR space.

Executive’s takeaway: Executives grew skeptical of the term ‘disruptor’ when it was used as generously as it was circa 2011-2016. But now disruption is actually unfolding at a rapid clip, and executives are paying close attention to who/what poses the greatest threat to their business models.

2. Hospital-insurer negotiations heated up. Previously, a health system and a commercial insurer occasionally hit a snag in the contract negotiation process, resulting in a dispute palpable enough to consumers that it warranted headlines. These impasses generally lasted a matter of weeks before outside pressure drove the parties to compromise. The nature of these conflicts has since changed. This past year brought regular coverage of strained provider-payer talks. In fact, we now do a weekly compilation of payer-provider disputes and resolutions to stay abreast of these conflicts as they occur and subside. In 2017, we saw lawmakers intervene in payer-provider disputes, a health system executive’s meant-to-be-private email about an insurance company go public, and a children’s hospital go out of network with a commercial insurer — affecting 10,000 kids.

Executive’s takeaway: Health system executives are growing increasingly vocal with their thoughts about commercial insurers. In the past, executives took great lengths to observe discretion in these relationships. Now the gloves are off — or at least one is. We’re sure we haven’t seen the worst of a payer-provider dispute yet, but the number we see on a weekly basis, and their tone, indicates that disputes are both more frequent and more serious than in years past.

3. Investments in value-based care, once a somewhat safe bet, became debatable. In a final rule issued in November, CMS officially canceled the hip fracture and cardiac bundled payment programs and rolled back some mandatory requirements in the Comprehensive Care for Joint Replacement Model. This will continue to have a ripple effect on payers, providers and health system strategy. For hospitals and health systems that made significant investments to support excellence under the program, this news is difficult to take — especially since no investment is made lightly amid thin margins. Although CMS says it is still committed to value-based care as a concept, the mandatory nature of the bundles program acted as a pedal-to-the-metal force that made hospitals act. Since commercial payers follow Medicare, the fate of the program will likely influence the adoption of bundles among private insurers, too. 

Executive’s takeaway: Most all executives tell us they want to be on the leading edge, not bleeding edge, of value-based care. Without a “do it or lose it” approach to bundles, the industry lost a major impetus toward value-based care, in which many health systems and physicians would take the plunge together. Providers have never had a clearly paved path for their “journey toward value-based care.” At best, it was a dirt trail. Now it could be compared to a dirt trail covered in snow. This leaves executives questioning the value of their current and future investments in value-based care.

4. Big systems want bigger. Just when you thought you had a handle on what a “big” health system looked like in the United States, a few major players rewrote (or are attemping to rewrite) the playbook. After more than a year of talks, Catholic Health Initiatives and Dignity Health signed a definitive agreement in December to create a 139-hospital, $28.4 billion health system. Soon after came reports of St. Louis-based Ascension and Renton, Wash.-based Providence St. Joseph discussing a merger, which would result in a 191-hospital, $44.8 billion operation. Although both of these deals trail Oakland, Calif.-based Kaiser Permanente and its nearly $65 billion in revenue, they illustrate how the composition of nonprofit American health systems is continuing to change from local and regional entities to corporate national networks. For example, if Ascension and Providence combine, they will outsize the largest for-profit health system today — Nashville, Tenn.-based HCA Healthcare — which includes 177 hospitals in 20 states and Britain.

Executive’s takeaway: Executives may want to reevaluate the oft-spoken phrase “all healthcare is local” in light of 2017’s M&A activity. Hospitals will continue to serve as economic engines in their respective communities, but the organization of health systems is moving in a direction where they are viewed as ubiquitous brands as opposed to regional hubs for health. For example, San Francisco-based Dignity and Englewood, Colo.-based CHI are basing the corporate headquarters for their new enterprise in Chicago. Ascension and Providence would have footprints in 27 states if they merge.

5. Many health systems that were new players in the health plan business got out of it. Provider-sponsored health plans always carried a great amount of risk. Of the 37 health plans launched by hospitals and health systems since 2010, only four were found profitable in 2015, according to research published this past year by the Robert Wood Johnson Foundation. As major health insurers reduced their individual coverage options and rolled back from the public exchanges this year, we also saw several health systems decide to scale back or shut down their health plans. New Hyde Park, N.Y.-based Northwell Health shared plans in August to wind down its health insurance business, CareConnect, over the next year. Dayton, Ohio-based Premier Health is selling its health plan to Evolent Health, a Washington, D.C.-based value-based care platform. Louisville, Ky.-based Baptist Health plans to shut down its health plan operation in 2018. Late last year, Dallas-based Tenet Healthcare revealed plans to scale back its insurance business in 2017 after officials attributed lukewarm earnings to its health plan business.

Executive’s takeaway: When even the big five health insurers — so well-equipped with analytic tools, data, infrastructure, utilization management experience and risk analysis talent — have a difficult time accounting for risk, it is not surprising many green health systems made their move for the door this past year. This is not an opportune time for health systems with little experience managing risk to build or buy a health plan. 

6. Activist shareholders shook up legacy hospital operators. Board room issues within the major for-profit hospital operators are typically opaque, but 2017 brought a rash of investor-prompted activity that resulted in ousted CEOs, overhauled boards of directors, poison pills and new governance rules. Tenet Healthcare underwent significant change in 2017 under intense pressure from its largest shareholder, Glenview Capital Management. When two Tenet board members, both employed by Glenview, resigned over what they described as “irreconcilable differences,” they made it known that Glenview would possibly “evaluate other avenues” to be a constructive owner of Tenet on or after Sept. 1. By Aug. 31, Tenet announced it would replace CEO Trevor Fetter, “refresh” the composition of its board of directors and implement a short-term shareholder rights plan. Mr. Fetter resigned in October, before a successor was named, after 14 years with the system. In August, an investor in Franklin, Tenn.-based Community Health Systems called for the resignationof CEO Wayne Smith, who has led the 127-hospital system since 1997, over what the investor described as missteps in strategy resulting in financial trouble for the system. At this time, Mr. Smith still holds his job, but CHS may be bracing for more investor activity. Chinese billionaire Tianqiao Chen has gradually been ramping up his stock in the hospital operator since 2016. At time of publication, he holds nearly 23 percent of CHS stock. Finally, directors of HCA Healthcare made a change in late 2017 to allow established investors to participate in the board seat nomination process, a move made in response to an activist investor.

Executive’s takeaway: The fact that two of the largest U.S. for-profit hospital operators faced calls for CEO resignations in 2017 is part of a sweeping trend across industries in which activist investors start campaigns for change by targeting top management. Between January and May 2017, activist shareholders were responsible for ousting CEOs at three high-profile S&P 500 companies — American International Group, CSX and Arconic, according to The Wall Street Journal. Investors were attempting to oust six other CEOs in the same time frame. It’s worth noting that CEOs feel the heat at the launch of campaigns versus as a last resort. The WSJ characterized this trend as “a new level of aggressiveness for a group already known for its bold actions.” 

7. As the average health system C-suite grew, a few systems reduced administrative roles. While the number of practicing physicians in the U.S. grew 150 percent between 1975 and 2010, the number of healthcare administrators increased 3,200 percent in the same period. Yet in 2017, we saw a few major health systems go against the grain and not only lay off administrators, but eliminate their roles completely. In June, Houston-based MD Anderson Cancer Center eliminated executive vice president roles and gave senior vice presidents more focused areas of responsibility. Valley Medical Center, part of Seattle-based UW Medicine, got rid of the COO position in May, and Charleston, S.C.-based Roper St. Francis did the same in August. In December, San Diego-based Scripps Health shared plans to eliminate the CEO position in its four hospitals in favor of a regional CEO model. 

Executive’s takeaway: This past year contained several isolated incidents in which executive or administrative jobs were not immune from the financial pressures mounting on hospitals and health systems. There is reason to believe “right-sizing” (or at least reducing) administrative staffing at health systems will continue throughout 2018. Chris Van Gorder, president and CEO of Scripps Health, recently shared that layoffs at the system will likely include administrative and leadership roles while the system continues to hire caregivers. His reasoning, an excerpt of which follows, is applicable to many health systems today: “Healthcare is changing rapidly with huge growth in ambulatory care and reduced utilization of inpatient hospitals — and given the elimination of the individual mandate under the Affordable Care Act, the uninsured will once again be growing nationally. … We’ve got to shift our organizational structures around to be able to deal with the new world of healthcare delivery, find ways of lowering our costs significantly. If we don’t, we will not be able to compete.”

8. Healthcare and the government failed to effectively communicate. In 2017, the opportunities for the Trump administration, Congress and healthcare leaders to convene about healthcare legislation and policy came and went. CEOs from the five largest nonprofit health systems in the country took pen to paper, urging President Donald Trump and Congress to meet with them and exchange ideas. In the end, the closest thing we saw to healthcare reform in 2017 were bills — the American Health Care Act, Better Care Reconciliation Act of 2017 (or Skinny Repeal package), the Graham-Cassidy healthcare bill — that received significant opposition from major healthcare stakeholders, which are not historically liberal. Yet even an avalanche of nays from the American Medical Association, American Hospital Association, Federation of American Hospitals, American Psychiatric Association, Association of American Medical Colleges and several other groups did not sway Congress. All but three Republican Senators voted to pass the Skinny Repeal package, illustrating how the bipartisan nature of our political process is overriding expertise and informed lawmaking. 

Executive’s takeaway: A bipartisan approach is the most effective way when attempting to redesign a $3 trillion industry that influences life-or-death decisions. These efforts also require input from a variety of seasoned healthcare experts who can challenge ideas, anticipate repercussions and identify blind spots. This holds true no matter which party holds control of the White House, Congress or both. Although healthcare stakeholders and government officials did not productively connect in 2017, health system leaders must persist in their attempts to influence public policy and exercise greater creativity in their advocacy efforts. Strategies that worked in the past can no longer be counted on in 2018 and beyond. 

9. Fed up, nurses walked off the job. While nurses’ strikes are not a novel event, there is a reason many demanded wider attention and transcended local business news to become national headlines. The most noteworthy strike of the year took place July 12, when approximately 1,200 nurses at Boston-based Tufts Medical Center began a 24-hour strike — the first nursing strike Boston saw in 31 years. Roughly 120 miles from Boston, approximately 800 nurses at Berkshire Medical Center in Pittsfield, Mass., participated in a one-day strike in October. Across the country in California, nurses organized rallies and protests at more than 20 Kaiser Permanente sites to protest what they called inadequate staffing levels. In September, nurses and other hospital personnel unionized with SEIU walked off their jobs at Riverside University Health System – Medical Center in Moreno Valley, Calif., for three days. The county footed the $1.5 million bill for temporary replacement nurses for those 72 hours. Speaking of a bill, Minneapolis-based Allina Health tallied the costs of two 2016 strikes — one lasting six weeks — called by the Minnesota Nurses Association. The system put the figure in the ballpark of $149 million, which anchored Allina’s operating loss of $30 million for fiscal year 2016. 

Executive’s takeaway:  Although it is tempting to reduce labor strikes to events fueled by local market forces and politics, hospital and health system executives should pause and consider that striking nurses’ arguments — that they are expected to work demanding jobs with too few staff, resulting in unsafe conditions, high stress and burnout — is a description that applies to many, if not most, U.S. hospitals. Gender dynamics may also yield greater influence on administrator-nurse affairs in the coming year. As the nation comes to terms with troubling events that went unaddressed after women’s claims and voices were not met with the attention they deserved, health system executive teams are wise to change the approach taken in years past and pay closer attention to the female-dominated field of nursing. As one representative with the MNA told The Nation“[Management is] a male institution thinking they can snub 1,200 women and pretend their opinions about healthcare don’t count.”

10. The year healthcare became very, extremely, incredibly difficult. Was any component of healthcare ever easy? Those who have spent years in the industry would say no. Yet 2017 was the year in which officials and lawmakers reminded the American public that healthcare is complicated. While true, this narrative functioned as a sound bite to normalize Congressional dysfunction. 

Executive’s takeaway: What’s concerning here is whether this throwaway statement will make its way from Capitol Hill to hospital board rooms, executive offices, clinician lounges and medical school lecture halls and, over time, nurture a climate that fosters and condones inaction. It is unproductive to constantly point out the complicated nature of healthcare and/or bask in this acknowledgement. To do so is not the behavior of an effective leader. It goes without saying that healthcare is complicated. Healthcare is also necessary, expensive, life-saving, honorable, slow, inaccessible, urgent, flawed, and never going away. What are you doing to make it better? 

The Pennsylvania health care battle

https://www.axios.com/the-pennsylvania-health-care-battle-2519142732.html

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Highmark Health, a powerful Blue Cross Blue Shield insurer that also owns a hospital network in Pennsylvania, and academic system Penn State Health signed an agreement last week to build a health care network in central Pennsylvania.

The deal sounds like a merger, but it’s not. It also adds another layer to the turf war between Highmark and UPMC — the two have feuded for years, and UPMC recently embarked on a hospital buying spree. I spoke with executives from Highmark and Penn State to explain what their deal is and why it matters.

The details: Highmark and Penn State Health are investing $1 billion to build out a network of doctors and health care facilities, but the organizations aren’t disclosing how much each side is contributing. Penn State Health CEO Craig Hillemeier said the deal is a strategic partnership, not a merger of assets. Here’s a condensed version of the conversation:

You all are talking a lot about “value-based care.” But what will you do specifically to fulfill the promise that this deal will lower health care costs for people in your region?

Highmark CEO David Holmberg: “This is about making sure that we design insurance products so that when a member has to make a decision, they have access to care near where they live. (Penn State’s academic medical center) is also more affordable and more effective than many of the other academic systems.”

So how much did UPMC play into this? UPMC has bought a lot of hospitals this year, and I have to imagine that name came up multiple times in discussions.

Penn State Health CFO Steve Massini: “We’ve had a strategy for a number of years to build out this community-based network and support the academic center. We felt that having an insurance partner like Highmark was a very valuable piece of that strategy … what others do is not what we tend to get hung up on.”

Holmberg: “We’re in this for the long term. We’re not going to worry about what the other guys do.”

Will you create health plans that, for example, have cheaper premiums but limited networks where people can only go to Penn State doctors and hospitals?

Highmark President Deborah Rice-Johnson: “We have those in the market today. It’s not new to the industry. We’ll still have broad-network products … but we have absolutely seen premiums and care costs moderate very differently (in limited-network plans) than the broad-network products.”

Can you guarantee that premiums for those types of narrow plans won’t rise faster than the rate of inflation?

Rice-Johnson: “We have done that, yes.” But employers need to sign multiyear agreements with Highmark to get those capped rates.

 

Still no deal as UNC Health Care and Carolinas HealthCare continue secret talks

http://www.newsobserver.com/news/business/article191010834.html

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A UNC special committee missed its first deadline to review whether a proposed partnership between UNC Health Care System and Carolinas HealthCare would be good for the residents of North Carolina.

The UNC system’s Board of Governors formed the special committee in November to review the mega-deal that would transform the state’s health care landscape and raise questions about the future operations of UNC Health Care System and UNC’s School of Medicine, which are owned by the state. The special committee had planned to meet as often as necessary to complete its review by Wednesday and previously conducted several meetings in closed session.

As of Wednesday, however, Chapel Hill-based UNC and Charlotte-based Carolinas had not submitted a proposed business agreement for the special committee to review. The sensitive negotiations are being conducted in utmost secrecy.

“We hope we can finalize deal terms by the end of the first quarter of 2018,” UNC Health Care spokesman Phil Bridges said by email. “This is a complicated deal, and we are taking our time to get things right for both entities.

“We understand, however, that the Board of Governors’ special committee has adjusted its deadline to complete the review by the end of January,” he said. “We are not behind schedule.”

The hospital partnership, proposed in August, would create one of the largest health care systems and academic research centers in the country, with more than 50 hospitals and 90,000 employees. The two organizations say that legally it would not be a merger because they would not transfer assets out of the state’s control.

The joint operating company would be overseen by an independent board of directors whose members would be nominated by Carolinas HealthCare and by UNC Health Care. Bill Roper, CEO of UNC Health Care, would be the executive chairman of the new independent board; Gene Woods, CEO of Carolinas HealthCare, would be CEO of the new joint operating company.

UNC spokesman Joshua Ellis was unable to provide answers on Wednesday about the status of the negotiations.

This month, the special committee hired Texas health care attorney Jerry Bell Jr. to help vet the proposed joint operating company. Bell represents hospitals, academic medical centers, medical schools and other health care networks on a wide variety of matters, including mergers and acquisitions, business transactions, as well as federal and state regulatory issues.

It’s unclear what authority UNC’s Board of Governors has to review, or potentially to block, the formation of the proposed joint operating committee if it were to conclude that the proposed arrangement would harm the UNC Health Care System and UNC’s medical school. Roper has said the decision on whether to combine with Carolinas rests with UNC Health Care System’s board of directors, of which he is a member.

But the formation of the special committee by UNC’s Board of Governors suggests they expect to play some role. Under state law, the UNC Health Care System reports to the Board of Governors, which appoints the system’s CEO and half of the 24 members of its board of directors. But the UNC Board of Governors would not have direct control of the independent board that would oversee the UNC-Carolinas joint operating company.

The special committee’s members come from UNC’s Board of Governors: auto parts magnate O. Temple Sloan III; health care attorney Carolyn Coward; Leo Daughtry, a Smithfield lawyer and former longtime state lawmaker; Doyle Parrish, founder of Summit Hospitality Group, a hotel management business in Raleigh; Randall Ramsey, founder and president of Jarrett Bay Boatworks in Beaufort; and corporate lawyer W. Louis Bissette Jr.

Because the details of the proposal are not known, the partnership has evoked only general concerns over higher health care prices. Such worries are typical when hospitals consolidate because giant hospital networks have more leverage in negotiating higher reimbursement rates from health insurance companies. The insurers pass on those higher costs to their customers.

North Carolina’s attorney general Josh Stein has said he is examining whether the proposed deal would harm health care competition in the state, but state lawmakers have largely been silent on the issue.

After the deal was announced at the end of August, Republican state Sen. Jeff Tarte expressed concerns that the partnership was the prelude to a full merger that would one day leave UNC Health Care owned by the larger Carolinas HealthCare. But earlier this month, Tarte, a retired health care business consultant from Cornelius, said the issue is not a topic of discussion among lawmakers, unless “it’s very high up and only a few people” are involved.

When asked if the legislature will review the deal, N.C. Senate President Pro Tem Phil Berger’s press secretary, Amy Auth, emailed: “We’d prefer not to put the cart before the horse.”