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5 key takeaways from hospitals’ Q2 results

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https://www.healthcaredive.com/news/5-key-takeaways-from-hospitals-q2-results/530072/

Earnings results were mixed for hospital operators in the second quarter, with debt-laden health systems slagging and high-performing counterparts pulling ahead.

The first half of the fiscal year was a relative success for the American healthcare industry that, as a whole, was headed toward making more money in the second quarter than any quarter over the last 12 months.

For the biggest publicly-traded hospitals, however, the results were mixed as tenuous volume numbers and political uncertainty were countered by soaring care and service prices, high acuity and an influx of older, more lucrative patients, all coalescing into generally positive bottom lines.

Regarding year-over-year revenue for the second quarter, HCA and Universal Health Services each reported healthy increases in the hundreds of millions while Community Health Systems, LifePoint Healthand Tenet all saw minimal declines.

Though most big hospital chains beat Wall Street expectations with their earnings report this season, providers shouldn’t expect a smooth path ahead as they continue to juggle regulatory uncertainty, political and other pressures.

After the silver tsunami crests and payers are less reliant on government programs, and after attempts to impose site neutrality and 340B changes play themselves out, hospitals may face even more stringent margin pressures.

If providers are unable to modernize their cost structures, it’s going to be tough for them to stay afloat. To help break it down, Healthcare Dive outlined five key takeaways for hospital operators in the second quarter and the first half of 2018.

1. Surprisingly, admissions didn’t plummet.

Admissions, which have been downward-trending in recent quarters (especially for rural providers), made a surprising rebound in Q2, compared to the clear downward slope many predicted.

“Adjusted admission was stronger across the board,” Brian Tanquilut,senior vice president of healthcare services equity research at Jefferies, told Healthcare Dive. He attributed the uptick to a combination of acuity levels picking up and one-time benefits, such as Medicare Part B’s redistribution of $1.6 billion between both 340B and non-340B hospitals from the 2018 Outpatient Prospective Payment System final rule.

​Investors don’t think enough about the fact that increases in revenue for adjusted admissions are partly driven by non-recurring items, Tanquilut continued. But “credit where credit is due”” he said. “There is acuity improvement that’s happening,” especially in situations like HCA’s.

The largest provider system in the U.S. saw same-facility equivalent admissions increase 2.8% compared to Q2 2017, and 4.5% for same-store admissions for H1 year over year.

HCA has focused on investing money to expand its facilities and service line, and that strategy is now paying off in inpatient figures.

On the flip side, there’s also simply more demand due to the fact that “people have been delaying a lot of procedures over the last couple of years” — something that’s clear in soft service volume in the recent past, according to Tanquilut.

UHS was in lockstep with HCA, also reporting swelling admissions. Its adjusted admissions increased 1.9% compared to Q2 2017, and for H1, 2% for same-store year over year.

The 19-year-old chain LifePoint saw a mixed bag of admissions, reporting a small increase of 0.5% compared to the same quarter last year, but a small decrease in H1 overall of 0.9% for same-store admissions year over year.

Finally, the beleaguered CHS and Tenet reported lowered admissions across the board, a 2.1% and 2.3% decrease in admissions overall compared to Q2 2017, respectively. The companies’ H1 figures were similarly dour when it came to admissions: a 2.2% same-store decrease for CHS year over year and a 1% decrease for Tenet.

Both companies have been culling unprofitable hospitals after a series of bungled acquisitions in the past few years.

The slight upswing is a rare bit of sunshine given that inpatient admissions have been steadily decreasing since 2009, according to a Journal of Hospital Medicine study from last year. But it’s doubtful that this implies any steady uphill movement in a sector recently characterized by inpatient exodus.

More likely? This is a small upwards blip in an otherwise flatlining metric.

2. Volume trends diverged between systems.

Declining service volume continued to be a sweeping challenge for the industry in the quarter. While all hospitals are trying to offset volume slumps by investing in outpatient assets, technology and capacity, second quarter earnings showed some are faring better than others.

“I feel like there’s a shakeout,” Ana Gupte, an analyst with Leerink, told Healthcare Dive. “We’re seeing winners and losers.”

HCA continues to reap the rewards of its extensive facility investments. While ER visits have decreased for the hospital system year over year, those drops have been offset by higher acuity rates and growth in both inpatient and outpatient procedures. As HCA continues to invest in existing facilities and acquire new ones, analysts expect the hospital system to fare well as the industry adapts to volume challenges.

“HCA put up a pretty good number on organic, same-store volume growth. While you look at Tenet, and you look at Community, they did not put up great numbers in terms of same-store volumes,” Tanquilut said. “And I would attribute that, again, to the fact that HCA has invested a lot of money in their buildings over the last few years.”

CHS has been able to offset lower volumes somewhat in the first half of the year by keeping labor and staffing costs low, but the hospital operator’s future growth, according to Jefferies, “hinge[s] largely on seeing a stabilization in organic volume trends, which has eluded the company for eight consecutive quarters.”

CHS’ margins will most likely continue to be challenged by persistent same-store volume pressure.

Tenet is noteworthy, as the system has struggled with lower patient volumes in the Great Lakes region, specifically in Detroit, despite heavy investment in that market. CEO Ron Rittenmeyer said on the company’s Q2 earnings call that the Dallas-based system has begun diluting certain service lines in Detroit as a result.

Gupte said that while hospitals had “some pricing and acuity-related upsides that offset volumes as a whole for the space,” those upsides weren’t as strong as they were in the first quarter and seem to be tapering off.

Tanquilut said that while the uplift in volume is often attributed to the boosted rate of insured Americans with the Affordable Care Act, the bigger driver of that hike would have been rising employment rates.

While employment rates are peaking, the rate of insured Americans is beginning to slip. But Tanquilut’s bigger concern regarding volume is the silver tsunami and Medicare payments. “Obviously, seniors use more healthcare, they get more sickly and chronic illnesses, but the problem that I think people aren’t talking enough about is that Medicare pays for services at anywhere from 25-50% of commercial insurance,” he said. “So, while you are getting the volume uplift from people getting sickly because they’re getting older, it’s coming in at a rate that is much lower than commercial. So it’s not necessarily a win in that case.”

Adding to the pressure on hospital volumes are payers’ vertical integration strategies, such as buying up physician groups and non-acute care providers, according to a recent report from Moody’s. Providers vertically integrated with payers could be able to offer preventive, outpatient and post-acute care at lower cost than standard acute care hospitals. 

“These strategies would place insurers in direct competition with hospitals, which offer the same services and are also seeking to align with physician groups,” Moody’s observed.

While the race to establish new service lines and invest in outpatient settings continues, so does large hospital systems’ efforts to pare down debt by shedding underperforming facilities.

3. Debt drove divestitures and re-proportioning across the provider landscape.

According to a report from Fitch Ratings, 20 healthcare companies including CHS, HCA, Tenet and UHS, had an aggregate $178 billion of outstanding debt in June of this year. To slough off heaping debt loads, large systems like CHS and Tenet are resorting to divestitures.  

“They’ve been pruning their hospital portfolio to focus on the better markets, the larger markets at scale to create a demand,” Gupte said. “[Divestitures] create some balance sheet flexibility to de-lever, which they need to do, and create cash flow for investments in ambulatory, sites of service and service lines.”

LifePoint, which reported a net loss of $5.3 million in Q1 2018, also began to sell off hospitals, including three divestitures in Louisiana during the second quarter.

Quorum, another system bogged down by debt, began selling off hospitals in 2016. The company has pulled $84.8 million in net proceeds from its divestitures to date and used the majority of those proceeds — $74.9 million — to pay down its debt, with another $165 million to $215 million in assets ready to sell off by the end of the year.

CHS and Tenet in particular spearheaded the trend of gobbling up hospitals to achieve high growth just a few years ago. CHS’ acquisition of struggling Florida system Health Management Associates for $7.5 billion in 2014 was a high-profile failure. Hospitals that jumped on the bandwagon are now paying the price, forced to spend the next few years selling off facilities to pay down debt.

CHS embarked on its selling frenzy in 2017 to make up for its 2014 buying blunder. The Franklin, Tennessee-based hospital operator has sold off seven hospitals so far this year with plans to sell five more, in addition to the 30 it divested in 2017. CHS hired financial advisors in March to restructure its long-term debt, totaling $13.8 billion at the end of last year, and is beginning to see some of that effort pay off. At the end of the second quarter, CHS shaved its debt down to $13.6 billion.

Although Tenet didn’t close on any hospital divestitures in the second quarter, the company is having trouble with the sale of subsidiary software company Conifer Health Solutions. Conifer revenues decreased 3.5% to $386 million in the second quarter, down from $400 million in the second quarter of 2017.

Tenet attributed the slide to its previous divestitures and divestitures made by Conifer customers. Interestingly, CEO Rittenmeyer signaled to investors on the company’s second quarter earnings call that it may be considering retaining Conifer, a move that helped drive Tenet’s shares down 15% after the earnings release.

The industry has since learned from past mistakes. Instead of buying up struggling hospitals to achieve growth, health systems are analyzing hospitals to make sure they’re a strategic cultural fit. Tanquilut said that these divested hospitals present an opportunity to local players looking to increase their bargaining power with managed care.

“I think some of the nonprofit hospitals are seeing this as an opportunity to acquire some assets that are attractively priced, in a way, that would help them increase their leverage or negotiating power with payers,” Tanquilut said.

CHS’ leverage, according to Fitch, is estimated to flatten between this year and 2021 as long as it continues to apply its proceeds to paying down debt. HCA is expected to refinance its due debt and Tenet’s leverage is expected to slightly decline over the next year as it pursues a joint venture over debt reduction.

In short, expect the selling spree to continue for debt-laden hospital operators and strategic acquisitions to carry on for their top-performing rivals as the race to consolidate presses on.

4. Consolidation continued in Q2.

The industry continued its safety-in-numbers ethos well into the second quarter — the 15th quarter in a row with more than 200 M&A healthcare deals, according to a PricewaterhouseCoopers report. The value of healthcare deals for the first half of 2018 alone crested to $315.74 billion, compared with $154.87 billion in H1 2017.

A recent analysis from The Commonwealth Fund determined that providers are consolidating faster than payers, creating exponentially concentrated markets that have been shrinking for more than a year now due to M&A. Deloitte models estimate that, following current consolidation trends, only 50% of current health systems will remain in the next decade.

Yet consolidation is a logical response to an ever-more tumultuous industry beset by waves of shifting policy, customers furious about high prices and pressure to improve outcomes. It’s rational thinking — after all, when seas are stormy, a cruise ship gets rocked less than a canoe.

In Q2, LifePoint announced it is being acquired by private-equity firm Apollo for $5.6 billion. The deal is expected to finalize in the next couple of months, after which Apollo plans to merge the system with Brentwood, Tennessee-based RCCH Healthcare Partners. The new provider will operate 84 hospitals in largely rural areas across 20 states.

The announcement last month prompted Fitch to downgrade their ratings watch status to negative, given Fitch’s assumption that it will be a leveraging transaction. But “the combined entity,” Fitch said, “may be better positioned to weather industry operating headwinds relative to their stand-alone profiles.”

Recent nonprofit mergers include the proposed marriage of Sanford Health and Good Samaritan Society in South Dakota. Another is proposed between Catholic health systems Bon Secours and Mercy Health, which will coalesce 43 hospitals across seven states if approved.

Consolidation is consistently touted by hospital systems as way to deliver faster, less expensive care, but market concentration worries many. Opponents say all the consolidation curtails choice and raises prices for consumers and, from a physician standpoint, makes it more difficult to have a standalone independent practice.

Still, it looks like the high-profile M&A trend will continue into H2 2018 as pending healthcare megadeals continue to pan out, such as Cigna-Express Scripts and CVS-Aetna.

5. Moving into Q3, H2 2018, hospitals must adapt.

Frankly, it’s not looking good for hospitals that aren’t willing to change with the times.

Given the rising use of high-deductible health plans that manifest increased out-of-pocket costs for patients and that medical cost increases have outpaced wage growth, providers can no longer rely on a traditional fee-for-service model to grow (or even maintain) their bottom line.

Yet with Q3, analysts told Healthcare Dive, the industry is up against some easy comparisons due to the slew of hurricanes tanking their numbers in Q3 2017 — a juxtaposition that should result in decent same-store numbers.

However, factoring out the weather impact, impactful increases are unlikely.

Although acuity is pushing per capita demand higher, the consumer’s wallet continues to be squeezed, and it’s probable they’ll continue to be judicious about how they use healthcare in coming quarters.

Additionally, since the U.S. population is holding essentially stable, hospital systems cannot continue to rely on the current bubble of older, higher-acuity patients that’s swelling their admissions and volume figures.

“It’s hard to see where the incremental volume will come from, the volume uplift” moving forward, Tanquilut said. “We need to deal with the fact that a lot of these hospitals will face the problem of slowing organic volume growth, other than those who can spend money to drive market share.”

Faced with the proverbial writing on the wall, one viable stopgap for providers is building outpatient capabilities. The move is increasingly popular — especially among giant hospital systems such as Nashville-based HCA. More than 60% of HCA’s profits now come from outpatient and ambulatory volume, a fact Tanquilut termed “a big deal.”

“Here is the world’s largest hospital system,” he said, and “they don’t generate the bulk of their profits from the hospital.” Therefore the big hospital hub may be a thing of the past, along with an anachronistic reliance on inpatient services.

 

 

Health Insurance Startups Bet It’s Time for a Nineties Revival

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https://www.bloomberg.com/news/features/2018-07-24/health-insurance-startups-bet-it-s-time-for-a-nineties-revival

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As high health costs squeeze employers, managed care is making a comeback.

Nineties throwbacks have swept through music, television and fashion. Some startups want to bring a bit of that vintage feel to your workplace health insurance plan.

Health maintenance organizations drove down costs but were painted as villains in that decade for limiting patient choice, rationing care and leaving consumers to grapple with high bills for out-of-network services. But some features of the plans are regaining currency. Companies reviving the model say that new technology and better customer service will help avoid the mistakes of the past.

Rising health-care costs and dissatisfaction with high-deductible plans that ask workers to shoulder more of the burden are pushing employers to consider new ways of controlling spending—and to rethink the trade-offs they’re willing to make to save money.

Medical costs have increased roughly 6 percent a year for the past half-decade, according to PwC’s Health Research Institute, outpacing U.S. economic growth and eroding workers’ wage gains. Some employers, such as Amazon.com Inc., Berkshire Hathaway Inc. and JPMorgan Chase & Co.—wary of asking workers to pay even more—are trying to rebuild their health programs.

Barry Rose, superintendent of the Cumberland School District in northern Wisconsin, went shopping recently for a new health plan for the district’s 290 employees and family members after its annual coverage costs threatened to top $2 million.

“How do we provide quality, affordable and usable health care for employees,” said Rose. “I can’t keep taking money out of their paychecks to spend on health insurance.”

The company he picked, called Bind, is part of a new generation of health plans putting a tech-savvy spin on cost controls pioneered by HMOs.

Bind, started in 2016, ditches deductibles in favor of fixed copays that consumers can look up on a mobile app or online before heading to the doctor. Another upstart, Centivo, founded in 2017, uses rewards and penalties to nudge workers to get most of their care and referrals for specialists from primary-care doctors.

Health Costs Climb

The rising cost of health care is pushing companies to take action.

For many years, employers offered health plans that paid the bills when workers went to see just about any doctor, imposing few limits on care. The companies themselves usually paid much or all of the premiums.

Confronted with rising costs in the 1990s, many employers switched to HMOs or other forms of what became known as managed care. The switch worked, helping hold health costs down for much of the decade.

Soon, however, consumer and physician opposition grew amid horror stories of mothers pushed out of the hospital soon after childbirth, or patients denied cancer treatments. States and the federal government passed laws to protect consumers, and, in 1997, then-President Bill Clinton appointed a panel to create a health consumers’ Bill of Rights.

“The causes of the backlash are much deeper than the specific irritations or grievances we hear about,” Alain Enthoven, the Stanford health economist who helped pioneer the idea of managed care, said in a 1999 lecture. “They are first, that the large insured employed American middle class rejects the very idea of limits on health care because they don’t see themselves as paying for the cost.”

Workers would soon bear the cost, though. By the end of the decade, employers had moved away from these limited health plans. In their wake, costs skyrocketed, giving rise to a new cost-containment tool: high deductibles.

Centivo co-founder Ashok Subramanian spent the past decade trying to figure out how to offer better health insurance at work. His first startup, Liazon, helped workers pick from a big menu of coverage options. He sold it for some $215 million to Towers Watson in 2013, but he said it didn’t fix the bigger problem: Workers had lots of options, but none of them were very good.

“Yes, we were increasing choice, yes we were enabling personalization, but the choices themselves were not that good,” Subramanian said in an interview. “The choices themselves were predicated on a system in which the fundamental incentives in health care are broken.”

Tony Miller, Bind’s founder, helped give rise to health plans with high out-of-pocket costs. He sold a company called Definity Health that combined health plans with savings accounts to UnitedHealth Group Inc. for $300 million in 2004. He now says high-deductible plans failed to deliver on their promises.

“There’s a fever pitch of frustration at employers,” he said. “They’re tired of using the same levers that they’ve been using for the past 20 years.”

UnitedHealth, the biggest U.S. health insurer, helped create Bind with Miller’s venture capital firm and is an investor in the company, which has raised a total of $82 million. Bind is also using UnitedHealth’s network of doctors and hospitals as well as some of its technology.

Centivo has raised $34 million from investors including Bain Capital Ventures.

Centivo and Bind both promise to reduce costs for patients and employers while making it easier to find doctors and check coverage. They say they’ll reduce costs by making sure patients get the care they need, keeping them healthy and avoiding emergencies or unnecessary treatment.

Covered?

The proportion of Americans under 65 in health plans with high deductibles continues to increase.

In most cases, workers who follow the rules of Centivo’s plans won’t face a deductible. When signing up, employees pick a primary-care doctor, who’s responsible for managing their care and making decisions on whether they need to see a specialist. Care provided or directed by that primary physician is free, as is some treatment for chronic diseases such as diabetes, depending on how employers choose to set up the coverage.

The goal is to ensure workers get the care they need, while avoiding low-value treatments. Those who go to an emergency department in cases that aren’t true emergencies, for example, could face high costs.

“The big question is: Is the market ready for it?” said Mike Turpin, who advises employers on their health benefits as an executive vice president at USI Insurance Services. “The American consumer just has it built into their head that access equals quality.”

Bind bundles its coverage so consumers don’t get billed for lots of charges for services that are part of the same treatment. In Rose’s district, the copay for an emergency room visit is $250, while the cost of a hospital stay is capped at $1,000. Office visits are $35; preventive care is free.

Bind also offers what it calls on-demand insurance. Coverage for planned procedures such as knee surgery, tonsil removal or bariatric surgery must be purchased before the operation. That gives Bind a chance to push customers toward a menu of lower-cost alternatives or cheaper providers.

A patient who looks up knee arthroscopy, for instance, would also be offered physical therapy. The patient’s cost for the surgery ranges from $800 at an outpatient center to more than $6,000, in an example used by Miller. Surgeries in hospitals are typically more costly. Bind also charges more for providers who tend to be less efficient or have worse outcomes.

The ability to view costs upfront is part of what appealed to Rose, the Wisconsin superintendent. “Each of my employees knows exactly what they’re paying for, and they have choice in it,” he said.

Rose said the switch to Bind will save his district several hundred thousand dollars, depending on how much health care his workers need over the next year.

Lawton R. Burns, director of the Wharton Center for Health Management and Economics at the University of Pennsylvania, recently authored a paper with his colleague Mark Pauly arguing that it’s probably impossible to simultaneously improve quality, lower costs and achieve better health outcomes. The ideas now being pushed forward, he writes, are similar to ideas tested in the 1990s.

“It’s deja vu all over again,” he said. “It’s not clear to me, this is just me talking, that people have learned the lessons of the 1990s.”

 

Five Worrisome Trends in Healthcare

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https://www.medpagetoday.com/publichealthpolicy/healthpolicy/72001?xid=fb_o_

healthcare; insurance; drugs; drug companies; Government-run Insurance Program Sure to Backfire | iHaveNet.com

A reckoning is coming, outgoing BlueCross executive says.

A reckoning is coming to American healthcare, said Chester Burrell, outgoing CEO of the CareFirst BlueCross BlueShield health plan, here at the annual meeting of the National Hispanic Medical Association.

Burrell, speaking on Friday, told the audience there are five things physicians should worry about, “because they worry me”:

1. The effects of the recently passed tax bill. “If the full effect of this tax cut is experienced, then the federal debt will go above 100% of GDP [gross domestic product] and will become the highest it’s been since World War II,” said Burrell. That may be OK while the economy is strong, “but we’ve got a huge problem if it ever turns and goes back into recession mode,” he said. “This will stimulate higher interest rates, and higher interest rates will crowd out funding in the federal government for initiatives that are needed,” including those in healthcare.

Burrell noted that 74 million people are currently covered by Medicaid, 60 million by Medicare, and 10 million by the Children’s Health Insurance Program (CHIP), while another 10 million people are getting federally subsidized health insurance through the Affordable Care Act’s (ACA’s) insurance exchanges. “What happens when interest’s demand on federal revenue starts to crowd out future investment in these government programs that provide healthcare for tens of millions of Americans?”

2. The increasing obesity problem. “Thirty percent of the U.S. population is obese; 70% of the total population are either obese or overweight,” said Burrell. “There is an epidemic of diabetes, heart disease, and coronary artery disease coming from those demographics, and Baby Boomers will see these things in full flower in the next 10 years as they move fully into Medicare.”

3. The “congealing” of the U.S. healthcare system. This is occurring in two ways, Burrell said. First, “you’ll see large integrated delivery systems [being] built around academic medical centers — very good quality care [but] 50%-100% more expensive than the community average.”

To see how this affects patients, take a family of four — a 40-year-old dad, 33-year-old mom, and two teenage kids — who are buying a health insurance policy from CareFirst via the ACA exchange, with no subsidy. “The cost for their premium and deductibles, copays, and coinsurance [would be] $33,000,” he said. But if all of the care were provided by academic medical centers? “$60,000,” he said. “What these big systems are doing is consolidating community hospitals and independent physician groups, and creating oligopolies.”

Another way the system is “congealing” is the emergence of specialty practices that are backed by private equity companies, said Burrell. “The largest urology group in our area was bought by a private equity firm. How do they make money? They increase fees. There is not an issue on quality but there is a profound issue on costs.”

4. The undermining of the private healthcare market. “Just recently, we have gotten rid of the individual mandate, and the [cost-sharing reduction] subsidies that were [expected to be] in the omnibus bill … were taken out of the bill,” he said. And state governments are now developing alternatives to the ACA such as short-term duration insurance policies — originally designed to last only 3 months but now being pushed up to a year, with the possibility of renewal — that don’t have to adhere to ACA coverage requirements, said Burrell.

5. The lackluster performance of new payment models. “Despite the innovation fostering under [Center for Medicare & Medicaid Innovation] programs — the whole idea was to create a series of initiatives that might show the wave of the future — ACOs [accountable care organizations] and the like don’t show the promise intended for them, and there is no new model one could say is demonstrably more successful,” he said.

“So beware — there’s a reckoning coming,” Burrell said. “Maybe change occurs only when there is a rip-roaring crisis; we’re coming to it.” Part of the issue is cost: “As carbon dioxide is to global warming, cost is to healthcare. We deal with it every day … We face a future where cutbacks in funding could dramatically affect accessibility of care.”

“Does that mean we move to move single-payer, some major repositioning?” he said. “I don’t know, but in 35 years in this field, I’ve never experienced a time quite like this … Be vigilant, be involved, be committed to serving these populations.”

Will Getting Bigger Make Hospitals Get Better?

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https://tincture.io/will-getting-bigger-make-hospitals-get-better-d3c565223670

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This month, two hospital mega-mergers were announced between Ascension and Providence, two of the nation’s largest hospital groups; and, between CHI and Dignity Health.

In terms of size, the CHI and Dignity combination would create a larger company than McDonald’s or Macy’s in terms of projected $28 bn of revenue. (Use the chart of America’s top systems to do the math).

For context, other hospital stories this week discuss layoffs at Virtua Health System in southern New Jersey. And this week, the New Jersey Hospital Association annual report called the hospital industry the “$23.4 billion economic bedrock” of the state.

Add a third important item to paint the state-of-the-U.S. hospital-industry picture: Moody’s negative ratings outlook for non-profit hospital finances for 2018.

So will getting bigger through merger and consolidation make the hospital business better?

In the wake of the CVS-Aetna plan to join together, the rationale to go big seems rational. Scale matters when it comes to contracting with health insurance plans at the front-end of pricing and financial planning for the CFO’s office, and to managing population health by controlling more of provider elements of care from several lenses: influencing physician care; crafting inpatient hospital care; doing smarter, cheaper supply purchasing; and leaning out overhead budgets for things like marketing and general management.

But the Wall Street Journal warned today the “serious condition” of U.S. hospitals, despite these big system mergers.

Health Populi’s Hot Points: In the past two years, I’ve had the amazing opportunity of speaking about new consumers and patients growing into healthcare payors with leadership from hospitals in over 20 states, some more rural, some more urban, and all in some level of financial crisis mode.

After describing the state of this consumer in health and healthcare, and how she/he got here, I have challenged hospital leadership to think more like marketers with a fierce lens on consumer experience and values. That equal proportions of U.S. consumers trust large retail and digital companies to help them manage their health is a jarring statistic to these hospital executives. The tie-up between CVS and Aetna marries the retail health/healthcare segments and responds to this consumer trust issue.

But then, I remind them that nurses, pharmacists, and doctors are the three most-trusted professions in America.

These three professional clinicians are the human capital that comprise the heart of a hospital in a community.

Hospitals should be mindful that trust is necessary for patient/health engagement. And the trust is with hospitals if the organization chooses to leverage that goodwill for a value-exchange. Hospitals are economic engines in their local communities — often, the largest employer in town. “Everyone” in most communities knows someone who works in a hospital.

And hospital employees spend money in communities, bolstering local employment and tax bases.

Partnering with patients means empathizing with them as both clinical subjects and consumers. For the latter, refer to the sage column from JAMA which recommends that Value-Based Healthcare Means Valuing What Matters to Patients. This means thinking about the value-chain of the patient journey, from keeping people well in their communities through to managing sticker-shock in the financial office. The financial toxicity of healthcare is one risk factor threatening the hospital-patient relationship with the patient-as-payor.

As Mufasa told Simba in The Lion King, “You are more than what you have become. Remember who you are.”

 

 

Why payers are flocking to the Medicare Advantage market

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https://www.healthcaredive.com/news/why-payers-are-flocking-to-the-medicare-advantage-market/510589/

Medicare Advantage (MA) and the Affordable Care Act (ACA) exchanges are both federal programs, but they couldn’t be more different in payers’ eyes. Insurance companies are entering or expanding their footprints in the MA market, while simultaneously pulling back or out of the ACA exchanges. They’ve found success in MA. Not so much in the ACA exchanges.

Payers see MA as a stable market. That’s evident in the fact that MA premiums are expected to decrease by 6% next year. Insurance companies like stability. Insurers increase premiums by double digits when there isn’t stability, which is the case with the ACA exchanges.

A large part of the ACA exchanges’ problems is linked to actions and inaction in Washington, D.C. President Donald Trump’s administration stopped paying cost-sharing reduction payments to insurers, cut the exchanges’ open enrollment in half, reduced the exchanges’ advertising budget by 90%, offered proposed rules and executive orders that hurt the ACA and threatened not to enforce the individual mandate that requires almost all Americans to have health insurance.

Congress, meanwhile, has tried and failed to repeal the ACA this year. All of this created an unstable exchanges market, which resulted in payers leaving the exchanges or jacking up premiums by 20% or more for 2018.

Meanwhile, the MA market is a picture of stability and payer success.

  • There is a steady stream of new people eligible for Medicare daily, and many choose MA.
  • People usually don’t switch back from MA plans after leaving traditional Medicare.
  • Payers can easily convert members from traditional Medicare to MA via marketing campaigns.
  • The MA demographics are usually people who once had an employer-based plan, so they know insurance and how healthcare works. That also means they usually don’t have pent-up healthcare needs.
  • The CMS pays MA plans upfront for covering people with high healthcare costs and payers have enjoyed stable MA payments from the CMS.

So, MA members are easier to get and keep, they usually have fewer health needs and payers like the MA payment structure better than the exchanges, which get compensated at the end of the year. All of that equals a stable market for payers.

One-third of Medicare beneficiaries are enrolled in an MA plan this year compared to 25% just six years ago. Enrollment grew by 8% between 2016 and 2017 and the CMS recently announced that MA membership will grow by 9% to 20.4 million members in 2018.

Gretchen Jacobson, associate director with the Kaiser Family Foundation’s (KFF) Program on Medicare Policy, told Healthcare Dive that more than half of those in Medicare will have MA plans in many counties next year.

That growth isn’t expected to slow — especially with Republicans controlling both houses of Congress and the White House, according to Steve Wiggins, founder and chairman of Remedy Partners.

“With Republican control of the federal government, it is conceivable that Medicare Advantage will become a centerpiece of CMS’ strategy to control spending growth,” Wiggins told Healthcare Dive.

What more MA members and payers mean for hospitals and providers

With more MA members expected next year, the continual shift to MA will have mixed benefits for providers. Jacobson said it’s not entirely clear how more MA members will affect hospitals and providers. “One of our studies recently showed that the provider networks for Medicare Advantage plans greatly varies and these networks will become even more important as enrollment in Medicare Advantage plans grows,” she said.

Fred Bentley, vice president at Avalere Health, told Healthcare Dive that MA’s growth will present a whole new set of challenges for hospitals and health systems.

Bentley listed two issues:

  • Narrow networks
  • Tighter utilization management compared to Medicare’s fee-for-service model

A recent KFF report found that 35% of MA enrollees were in narrow-network plans in 2015. Payers have increasingly turned to narrow networks to control costs and improve quality of care. To take part in the narrower networks, physicians usually have to agree to payer demands concerning cost and quality.

“Differences across plans, including provider networks, pose challenges for Medicare beneficiaries in choosing among plans and in seeking care, and raise questions for policymakers about the potential for wide variations in the healthcare experience of Medicare Advantage enrollees across the country,” KFF said.

Another issue for hospitals and providers is that more payers involved in capitated plans like MA will result in more pressure on providers and hospitals to focus on the cost of care, Michael Abrams, partner at Numerof & Associates, told Healthcare Dive.

“With Republican control of the federal government, it is conceivable that Medicare Advantage will become a centerpiece of CMS’ strategy to control spending growth.”

There’s also the issue of having too few MA payers in some regions. Aneesh Krishna, partner in McKinsey & Company’s Silicon Valley office, told Healthcare Dive the concentration of MA plans in certain markets is a worry for providers. “This concern would be magnified in markets where there is a similarly high concentration in commercial segments from the same payers, and where overall MA penetration is high,” he said.

There’s also a potential payment issue. MA generally reimburses at a slightly higher level than traditional Medicare, but utilization is managed more tightly. Krishna said providers willing and capable of sharing medical cost savings are “likely to see more benefit from the shift to Medicare Advantage plans.” However, MA networks are often narrow, which means providers will need to weigh the relative price/volume trade-offs of accepting MA.

More MA growth in the coming years

MA will have more payers and members than ever next year and the two largest payers, UnitedHealth and Humana, are expected to increase their footprint. Despite new payers showing interest in the market, Jacobson expects the market break down will look similar in 2018. She said small payers entering the market will offset the plans exiting MA next year.

The Congressional Budget Office (CBO) and HHS both project MA enrollment will continue to grow over the next decade. The CBO estimated that about 41% of Medicare beneficiaries will have an MA plan in 2027. UnitedHealth even predicted half of Medicare beneficiaries will eventually have an MA plan.

MA’s popularity with payers is easy to understand — 10,000 people turn 65 every day. The CBO expects 80 million Americans will be eligible for Medicare by 2035.

There’s also an opportunity in the MA market to sign up members quickly. Rachel Sokol, practice manager of research at Advisory Board, told Healthcare Dive that utilizing a strong marketing engine allows payers to grow MA membership. This is quite different from the employer-based market, which relies on payers working with companies.

Potential MA barriers

The MA market is largely positive for payers, but it does face challenges, including:

  • A small number of payers dominate the market
  • The CMS expects improved efficiency and savings
  • There is increased federal oversight, especially concerning possible overpayments to MA insurers

CMS is all in supporting MA plans and its marketspace. The agency last week proposed a rule with an aim toward improving quality and affordability in contract year 2019. According to the agency, the number of plans available to individuals will increase from about 2,700 to more than 3,100.

The agency is proposing to expand the definition of quality improvement activity to include fraud reduction activities, changing the medical loss ratio (MLR) requirements for Medicare Advantage plans. This change should excite payers because they can add the administrative service to the MLR ratio they are required to spend on healthcare, which is at least 85%. CMS states it believes the service will help combat fraud.

For now, the MA market is consolidated around only a handful of payers. UnitedHealth and Humana have more than 40% of the market. UnitedHealth has one-quarter on its own. KFF said UnitedHealth, Humana and Blue Cross Blue Shield affiliates make up 57% of MA enrollment and the top eight MA payers constitute three-quarters of the market.

Also, CMS is imposing improved efficiency in the traditional Medicare program. This could ultimately affect MA. Accountable care organizations (ACO) and bundled payments will “put downward pressure on the benchmarks used to set payment rates for Medicare Advantage plans,” Wiggins said.

This pressure will result in MA payers needing to either cut costs or trim benefits. “The former is difficult, except through narrow networks, and the latter will diminish the attractiveness of Medicare Advantage plans,” he said.

Then there’s the 800-pound gorilla in the market — potential overpayments. The Department of Justice (DOJ) has joined whistleblower lawsuits against UnitedHealth Group concerning MA overpayments. The lawsuits allege that UnitedHealth changed diagnosis codes to make patients seem sicker, which resulted in higher reimbursements to the insurer. A federal judge threw out one of the lawsuits in October.

The DOJ is investigating other MA payers for the same reason, and Congress is also interested. Sen. Charles Grassley (R-Iowa), chairman of the Senate Judiciary Committee, sent a letter to CMS Administrator Seema Verma in April questioning what CMS is doing to “implement safeguards to reduce score fraud, waste and abuse.” Grassley said there was about $70 billion in improper Medicare Advantage payments between 2008 and 2013 because of “risk score gaming.”

It’s understandable that investigators and Congress have grown interested in MA payers. The federal government paid $160 billion to MA payers in 2014. The CMS estimated about 9.5% of those payments were improper.

The combination of billions being paid to insurers, the potential for fraud and growing membership numbers make MA ripe for oversight. The stability of the market, particularly compared to other options for payers, however, will mean growth continues.

 

GRAPHIC: The era of big hospitals

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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 nation of McHospitals?

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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.

 

29% of US health system payments tied to alternative models

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https://www.beckershospitalreview.com/finance/29-of-us-health-system-payments-tied-to-alternative-models.html

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The percentage of U.S. health system payments linked to alternative payment models grew to 29 percent in 2016, up from 23 percent a year prior, according to a Health Care Payment Learning & Action Network report.

For the analysis, LAN calculated the amount of health plan in- and out-of-network spending that went through APMs. Analysts examined data from 78 health plans, three fee-for-service Medicaid managed care states and fee-for-service Medicare.

Here are three key findings from the report.

1. Forty-three percent of systems’ payments flowed through fee-for-service or legacy payment models in 2016. This is compared to 62 percent in the year prior.

2. Payments through pay-for-performance or care coordination fees reflected 28 percent of payments last year, up from 15 percent in 2015.

3. APM spending totaled about $354.5 billion nationally in 2016.

Uncertainty. Opportunity. It’ll all be there for healthcare in 2017, PwC says

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http://www.healthcaredive.com/news/uncertainty-opportunity-itll-all-be-there-for-healthcare-in-2017-pwc-sa/432384/

You reap what you sow. The idea is the push behind countless movie plots and rock songs but it’s also a central theme to PricewaterhouseCooper’s (PwC) Health Research Institute’s (HRI) new report on healthcare trends to watch out for in 2017. The seeds for next year were planted in 2007, according to the new report.

There will be certain uncertainty over the fate of the Affordable Care Act next year. However, many of the trends that should be on top-of-mind for hospital administrators next year will relate to value-based care, Trine Tsouderos, PwC’s Health Research Institute director, told Healthcare Dive. “If you think about the political changes as the waves on the surface of the ocean, there’s a very strong current underneath that is the shift to value-based care,” she said. “We do not see that changing. We see the shift continuing industry-wide despite any changes in Washington, DC.”

For example, only 90 or so retail clinics were in operation and about one in 10 consumers have been to one in 2016. Today, more than 3,000 such clinics have been propped up across the U.S. with one in three consumers having visited one. This drift highlights the continued move to more convenience in healthcare access as well as price transparency for patients.

Sticking with the nautical theme, Tsouderos likened the healthcare industry to a battleship in explaining why ideas from 10 years ago are now coming to fruition. It takes a long time to change the course of such a large and complex ship. “You can’t turn [the industry] on a dime,” she said.

What emerging trends administrators should know for 2017

https://www.pwc.com/us/en/health-industries/top-health-industry-issues.html

 

6 thoughts on the state of healthcare from Scripps’ Chris Van Gorder

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http://www.beckershospitalreview.com/hospital-management-administration/6-thoughts-on-the-state-of-healthcare-from-scripps-chris-van-gorder.html

Self-DiscoverySelf-Discovery

Faced with ever-changing rules and regulations, hospital and health system CEOs must constantly keep a pulse on the healthcare industry and be ready to alter their organizational strategy any day of the week. Chris Van Gorder, president and CEO of San Diego-based Scripps Health, talked to Becker’s Hospital Review about some of the biggest challenges and successes that are currently top of mind.

Mr. Van Gorder has led Scripps, a $2.9 billion integrated health system, since 2000. He is a fellow of the American College of Healthcare Executives and served as the 2010 chairman of the association.

His exposure to healthcare began as a hospital patient when he was critically injured while responding to a family dispute. After a long recovery, Mr. Van Gorder started a new career in hospital security, eventually rising through the ranks of healthcare management. Today, in addition to serving as Scripps’ president and CEO, he is a reserve assistant sheriff to the San Diego County Sheriff’s Department, in charge of the Law Enforcement and Search and Rescue Reserves. He also is a licensed emergency medical technician (EMT) and an instructor for the American Red Cross.

Here, Mr. Van Gorder took the time to answer our six questions.