Health care CEOs made $2.6 billion in 2018

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

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

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

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

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

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

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

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

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

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

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

 

 

 

Kaiser’s net income more than doubles to $3.2B in Q1

https://www.beckershospitalreview.com/finance/kaiser-s-net-income-more-than-doubles-to-3-2b-in-q1.html

Oakland, Calif.-based Kaiser Permanente reported higher revenue and net income for its nonprofit hospital and health plan units in the first quarter of 2019.

Kaiser saw operating revenue increase to $21.3 billion in the first quarter of 2019. That’s up 5.3 percent from operating revenue of $20.3 billion in the first quarter of last year.

The boost was partly attributable to the system’s health plan unit. Kaiser saw health plan membership increase year over year to 12.3 million.

“We are pleased that our membership increased by more than 150,000 members in the first quarter, as more people are choosing Kaiser Permanente for their care and coverage,” Kaiser Executive Vice President and CFO Kathy Lancaster said in a press release. “We normally see our largest membership growth in the first quarter due to the fall open enrollment cycle.”

After factoring in operating expenses, which increased 3 percent year over year, Kaiser reported operating income of $1.5 billion in the first quarter of 2019. That’s up from $1.1 billion in the first quarter of 2018.

“This year-over-year increase in Q1 operating income was significantly impacted by several accounting estimates that were favorable when compared to the same period last year,” Kaiser said.

Kaiser’s nonoperating income, generated largely by returns on investments, was $1.6 billion in the first quarter of this year, up from $334 million in the same period a year earlier.

Under an accounting change that took effect Jan. 1, Kaiser reported unrealized gains on certain equities as net nonoperating income, which added $896 million to the organization’s nonoperating income in the first quarter of this year.

Kaiser reported net income of $3.2 billion in the first quarter of 2019, more than double its net income of $1.4 billion in the first quarter of last year.

Ms. Lancaster said Kaiser’s strong first-quarter performance will allow for more strategic investments in facilities, people and technology. During the first quarter of 2019, Kaiser said it spent $834 million on technology and upgrading and opening new facilities.

 

 

When the cycle turns: Healthcare Subsectors Ranked by Vulnerability to Economic Downturn

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S&P: Hospitals vulnerable to recession as healthcare sector stays defensive

The healthcare sector remains defensive but has become increasingly vulnerable to an economic downturn because of deteriorating ratings, comparatively higher leverage and greater industry disruption, analysts at S&P Global Ratings said in a new report.

Healthcare companies’ issuer credit ratings are becoming more vulnerable to a cyclical downturn in comparison to prior recessions, according to the rating agency, which also said that proposals from the U.S. government are threatening the sector’s creditworthiness.

Credit quality has fallen considerably since the last recession in the healthcare sector — where products and services continue to show a largely inelastic demand — with 66% of healthcare companies carrying B ratings, according to the April 29 analysis.

Ratings estimates that about 20% of for-profit healthcare companies have investment-grade issuer credit ratings, in comparison to 54% in 2005. The rating agency believes this transition shows an increase in smaller and mainly private equity-owned healthcare issuers.

Hospitals among subsectors most vulnerable to economic slowdown

The subsectors most vulnerable to an economic downturn are hospitals, healthcare service providers and hospital staffing services, based on leverage metrics and relatively higher disruption in comparison to other subsectors, the rating agency added.

Ratings analysts said companies like Tenet Healthcare Corp., Prospect Medical Holdings Inc. and HCA Healthcare Inc. would be affected by a potential rise in uncompensated care — with patients opting for lower cost options — since insurance coverage tends to decline as unemployment rates increase during a recession. In addition, healthcare companies such as Acadia Healthcare Co. Inc. and WP CityMD Bidco LLC would be highly exposed to reimbursement rates based on Medicaid and Medicare plans.

The healthcare segment at highest risk in an economic downturn is temporary nurse staffing, which is highly sensitive to cyclicality, more so than part-time physician staffing and full-time employment.

Pharmacy benefit managers, often called the drug middlemen or PBMs, such as CVS Health Corp. and Aetna Health Holdings LLC, which are responsible for negotiating drug prices between drug companies and insurers are also at risk of exposure to a downturn.

The Trump administration wants to end the safe harbor protections, which permit PBMs to collect rebates, by Jan. 1, 2020, and move the U.S. to a fixed-fee discount model.

Ratings analysts believe healthcare companies with a portfolio of research and development, medical devices, pharmaceuticals and biologics manufacturing will be more insulated and can expect steady demand during a recession, which will help achieve astrong revenue base.

Companies like Pfizer Inc., Amgen Inc. and Teva Pharmaceutical Industries Ltd. may be at the receiving end of a slight shift in the sector, which will see customers increasingly preferring lower-cost generic and biosimilar alternatives. In addition, increased usage of high-deductible insurance plans will bolster switches to lower-cost options.

Life sciences companies like Danaher Corp., Thermo Fisher Scientific Inc. and PerkinElmer Inc. mostly see repeat sales of their products, and since there is an increase in the use of diagnostic tests, the life sciences subsector would be more resilient in an economic downturn.

Medical devices companies Baxter International Inc., Abbott Laboratories, Becton Dickinson and Co. and Hologic Inc. should expect consistent demand though there is some exposure to patient and hospital admission volumes.

However, Ratings analysts believe the medical devices subsector “does not have a large target on its back, in terms of cost control, versus the pharmaceutical industry.”

Given the mostly inelastic demand in the healthcare sector, McKesson Corp., Cardinal Health Inc., Owens & Minor Inc. and other such companies in the drugs and medical products’ distribution segment will be largely insulated from the economic downturn, Ratings analysts added.

 

 

 

 

Hospitals Stand to Lose Billions Under ‘Medicare for All’

For a patient’s knee replacement, Medicare will pay a hospital $17,000. The same hospital can get more than twice as much, or about $37,000, for the same surgery on a patient with private insurance.

Or take another example: One hospital would get about $4,200 from Medicare for removing someone’s gallbladder. The same hospital would get $7,400 from commercial insurers.

The yawning gap between payments to hospitals by Medicare and by private health insurers for the same medical services may prove the biggest obstacle for advocates of “Medicare for all,” a government-run system.

If Medicare for all abolished private insurance and reduced rates to Medicare levels — at least 40 percent lower, by one estimate — there would most likely be significant changes throughout the health care industry, which makes up 18 percent of the nation’s economy and is one of the nation’s largest employers.

Some hospitals, especially struggling rural centers, would close virtually overnight, according to policy experts.

Others, they say, would try to offset the steep cuts by laying off hundreds of thousands of workers and abandoning lower-paying services like mental health.

he prospect of such violent upheaval for existing institutions has begun to stiffen opposition to Medicare for all proposals and to rattle health care stocks. Some officials caution that hospitals providing care should not be penalized in an overhaul.

Dr. Adam Gaffney, the president of Physicians for a National Health Program, warned advocates of a single-payer system like Medicare for all not to seize this opportunity to extract huge savings from hospitals. “The line here can’t be and shouldn’t be soak the hospitals,” he said.

“You don’t need insurance companies for Medicare for all,” Dr. Gaffney added. “You need hospitals.”

Soaring hospital bills and disparities in care, though, have stoked consumer outrage and helped to fuel populist support for proposals that would upend the current system. Many people with insurance cannot afford a knee replacement or care for their diabetes because their insurance has high deductibles.

Proponents of overhauling the nation’s health care argue that hospitals are charging too much and could lower their prices without sacrificing the quality of their care. High drug prices, surprise hospital bills and other financial burdens from the overwhelming cost of health care have caught the attention (and drawn the ire) of many in Congress, with a variety of proposals under consideration this year.

But those in favor of the most far-reaching changes, including Senator Bernie Sanders, who unveiled his latest Medicare for all plan as part of his presidential campaign, have remained largely silent on the question of how the nation’s 5,300 hospitals would be paid for patient care. If they are paid more than Medicare rates, the final price tag for the program could balloon from the already stratospheric estimate of upward of $30 trillion over a decade. Senator Sanders has not said what he thinks his plan will cost, and some proponents of Medicare for all say these plans would cost less than the current system.

The nation’s major health insurers are sounding the alarms, and pointing to the potential impact on hospitals and doctors. David Wichmann, the chief executive of UnitedHealth Group, the giant insurer, told investors that these proposals would “destabilize the nation’s health system and limit the ability of clinicians to practice medicine at their best.”

Hospitals could lose as much as $151 billion in annual revenues, a 16 percent decline, under Medicare for all, according to Dr. Kevin Schulman, a professor of medicine at Stanford University and one of the authors of a recent article in JAMA looking at the possible effects on hospitals.

“There’s a hospital in every congressional district,” he said. Passing a Medicare for all proposal in which hospitals are paid Medicare rates “is going to be a really hard proposition.”

Richard Anderson, the chief executive of St. Luke’s University Health Network, called the proposals “naïve.” Hospitals depend on insurers’ higher payments to deliver top-quality care because government programs pay so little, he said.

“I have no time for all the politicians who use the health care system as a crash-test dummy for their election goals,” Mr. Anderson said.

The American Hospital Association, an industry trade group, is starting to lobby against the Medicare for all proposals. Unlike the doctors’ groups, hospitals are not divided. “There is total unanimity,” said Tom Nickels, an executive vice president for the association.

“We agree with their intent to expand coverage to more people,” he said. “We don’t think this is the way to do it. It would have a devastating effect on hospitals and on the system over all.”

Rural hospitals, which have been closing around the country as patient numbers dwindle, would be hit hard, he said, because they lack the financial cushion of larger systems.

Big hospital systems haggle constantly with Medicare over what they are paid, and often battle the government over charges of overbilling. On average, the government program pays hospitals about 87 cents for every dollar of their costs, compared with private insurers that pay $1.45.

Some hospitals make money on Medicare, but most rely on higher private payments to cover their overall costs.

Medicare, which accounts for about 40 percent of hospital costs compared with 33 percent for private insurers, is the biggest source of hospital reimbursements. The majority of hospitals are nonprofit or government-owned.

The profit margins on Medicare are “razor thin,” said Laura Kaiser, the chief executive of SSM Health, a Catholic health system. In some markets, her hospitals lose money providing care under the program.

She says the industry is working to bring costs down. “We’re all uber-responsible and very fixated on managing our costs and not being wasteful,” Ms. Kaiser said.

Over the years, as hospitals have merged, many have raised the prices they charge to private insurers.

“If you’re in a consolidated market, you are a monopolist and are setting the price,” said Mark Miller, a former executive director for the group that advises Congress on Medicare payments. He describes the prices paid by private insurers as “completely unjustified and out of control.”

Many hospitals have invested heavily in amenities like single rooms for patients and sophisticated medical equipment to attract privately insured patients. They are also major employers.

“You would have to have a very different cost structure to survive,” said Melinda Buntin, the chairwoman for health policy at the Vanderbilt University School of Medicine. “Everyone being on Medicare would have a large impact on their bottom line.”

People who have Medicare, mainly those over 65 years old, can enjoy those private rooms or better care because the hospitals believed it was worth making the investments to attract private patients, said Craig Garthwaite, a health economist at the Kellogg School of Management at Northwestern University. If all hospitals were paid the same Medicare rate, the industry “should really collapse down to a similar set of hospitals,” he said.

Whether hospitals would be able to adapt to sharply lower payments is unclear.

“It would force health care systems to go on a very serious diet,” said Stuart Altman, a health policy professor at Brandeis University. “I have no idea what would happen. Nor does anyone else.”

But proponents should not expect to save as much money as they hope if they cut hospital payments. Some hospitals could replace their missing revenue by charging more for the same care or by ordering more billable tests and procedures, said Dr. Stephen Klasko, the chief executive of Jefferson Health. “You’d be amazed,’ he said.

While both the Medicare-for-all bill introduced by Representative Pramila Jayapal, Democrat of Washington, and the Sanders bill call for a government-run insurance program, the Jayapal proposal would replace existing Medicare payments with a whole new system of regional budgets.

“We need to change not just who pays the bill but how we pay the bill,” said Dr. Gaffney, who advised Ms. Jayapal on her proposal.

Hospitals would be able to achieve substantial savings by scaling back administrative costs, the byproduct of a system that deals with multiple insurance carriers, Dr. Gaffney said. Under the Jayapal bill, hospitals would no longer be paid above their costs, and the money for new equipment and other investments would come from a separate pool of money.

But the Sanders bill, which is supported by some Democratic presidential candidates including Senators Kirsten Gillibrand of New York, Cory Booker of New Jersey, Elizabeth Warren of Massachusetts and Kamala Harris of California, does not envision a whole new payment system but an expansion of the existing Medicare program. Payments would largely be based on what Medicare currently pays hospitals.

Some Democrats have also proposed more incremental plans. Some would expand Medicare to cover people over the age of 50, while others wouldn’t do away with private health insurers, including those that now offer Medicare plans.

Even under Medicare for all, lawmakers could decide to pay hospitals a new government rate that equals what they are being paid now from both private and public insurers, said Dr. David Blumenthal, a former Obama official and the president of the Commonwealth Fund.

“It would greatly reduce the opposition,” he said. “The general rule is the more you leave things alone, the easier it is.”

 

 

 

8 hospitals closed so far this year — here’s why

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From reimbursement landscape challenges to dwindling patient volumes, many factors lead hospitals to close.

Here are the factors that led eight hospitals to close so far this year:

1. Belmont Community Hospital, a 99-bed hospital in Bellaire, Ohio, closed April 5. Hospital officials cited a decline in patient volume as the reason for the closure. “Utilization of BCH has continued to decline despite efforts to offer varying services at the facility,” the hospital said in a press release. “The decline has place[d] a financial strain on the BCH that cannot be sustained in the long term.”

2. Kentuckiana Medical Center in Clarksville, Ind., closed April 5. The hospital, which opened in 2009, faced financial losses for years and previously filed for Chapter 11 bankruptcy, according to the Louisville Courier Journal.

3. Horton (Kan.) Community Hospital closed March 12. The 25-bed critical access hospital, owned by Kansas City, Mo.-based EmpowerHMS, shut down after struggling to pay utilities and missing payroll for several weeks. The hospital entered Chapter 11 bankruptcy on March 14.

4. Georgiana (Ala.) Medical Center closed March 8. Ivy Creek Healthcare in Georgiana, which owns the hospital, cited growing costs and cuts to reimbursement as the reasons for the closure.

5. Cumberland River Hospital in Celina, Tenn., closed March 1. In January, officials announcedthat the hospital was shutting down due to financial challenges. They said Cumberland River Hospital had experienced significant losses in recent years due to declining reimbursements and lower patient volumes.

6. Harrisburg, Pa.-based UPMC Pinnacle closed its hospital in Lancaster, Pa., on Feb. 28. The health system announced plans in December to close UPMC Pinnacle Lancaster and transition inpatient services to another one of its hospitals located about 7 miles away. In a Feb. 15 news release, UPMC Pinnacle President and CEO Philip Guarneschelli said consolidating inpatient services on one campus would make care more convenient for patients.

7. Oswego (Kan.) Community Hospital and its two affiliated clinics closed Feb. 14. A statement from the board announcing the closure said the hospital, owned by Kansas City, Mo.-based EmpowerHMS, wasn’t bringing in enough revenue to cover payroll and other expenses. After the abrupt closure, the hospital entered Chapter 11 bankruptcy on March 17.

8. Washington County Hospital in Plymouth, N.C., closed Feb. 14 after missing payroll on Feb. 8. The critical access hospital is now working its way through the Chapter 7 bankruptcy process. The hospital is one of several facilities owned by Kansas City, Mo.-based EmpowerHMS that has entered bankruptcy or closed in recent months. The Washington County Board of Commissioners is working with state and federal agencies to investigate the hospital’s financial and operational issues and working to restore medical services as the hospital, according to a Feb. 19 public service announcement on Washington County’s website.

 

 

Illinois hospital moves to suspend services, gives employees 60-day notice of closing

https://www.beckershospitalreview.com/finance/illinois-hospital-moves-to-suspend-services-gives-employees-60-day-notice-of-closing.html

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Citing a staff shortage, Los Angeles-based Pipeline Health announced plans April 9 to suspend services at Westlake Hospital in Melrose Park, Ill. That plan was put on hold after a Cook County Circuit Court judge held that the abrupt closure could have “irreparable harm” to the community, according to the Chicago Sun Times.

In late January, Pipeline acquired Westlake Hospital and two other facilities from Dallas-based Tenet Healthcare. A few weeks after the transaction closed, Pipeline revealed plans to shut down 230-bed Westlake Hospital, citing declining inpatient stays and losses of nearly $2 million a month.

Pipeline said staffing rates have significantly declined in the weeks since it filed the application to close Westlake Hospital.

“Our utmost priority is safety and quality of patient care,” Pipeline Health CEO Jim Edwards said in an April 9 press release. “With declining staffing rates and more attrition expected, a temporary suspension of services is necessary to assure safe and sufficient operations. This action is being taken after considering all alternatives and with the best interest of our patients in mind.”

In addition to announcing the suspension of services, Pipeline also said it gave hospital employees a 60-day notice of closure, which is required by state and federal law.

Pipeline’s plan to immediately suspend services at the hospital was put on hold yesterday evening, when Judge Eve Reilly granted the village of Melrose Park a temporary restraining order to prevent the hospital from closing. The restraining order prevents Pipeline from closing the hospital, cutting services or laying off workers until after the state Health Facilities and Services Review Board considers the application to shut down the hospital on April 30, according to the Chicago Tribune.

The board could postpone the application due a pending lawsuit against Pipeline over the closure, according to the Chicago Tribune.

The village of Melrose Park sued Pipeline in March, alleging Pipeline acquired Westlake Hospital under false pretenses. The lawsuit alleges Pipeline and its owners kept their plans to shut down the hospital secret until after the transaction with Tenet closed to avoid opposition from village leaders and community members.

Pipeline recently filed a motion to dismiss the lawsuit, arguing its application for change of ownership made no promise to keep Westlake Hospital open and that the hospital’s financial troubles were not fully evident at the time the change of ownership was prepared.

“The complete impact of Westlake’s 2018 devastating net operating loss was not known until the year’s end and had not fully occurred in September 2018 when Pipeline submitted its application for change of ownership or even when that application was granted,” Pipeline said in a press release.

Pipeline said Westlake Hospital ended 2018 with a net operating loss of $14 million, and those losses are projected to worsen over time.

 

9 hospitals with strong finances

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Here are nine hospitals and health systems with strong operational metrics and solid financial positions, according to recent reports from Moody’s Investors Service and Fitch Ratings.

1. South Bend, Ind.-based Beacon Health System has an “AA-” rating and stable outlook with Fitch. The health system has a strong financial profile, and is the acute care leader in its market, according to Fitch.

2. Los Angeles-based Cedars Sinai Medical Center has an “AA-” rating and stable outlook with Fitch. The hospital has a solid market presence in a competitive service area and strong profitability and liquidity, according to Fitch.

3. St. Cloud, Minn.-based CentraCare Health has an “AA-” rating and stable outlook with Fitch. The health system has a strong operating risk profile and a leading market position over a broad service area, according to Fitch.

4. Wauwatosa, Wis.-based Children’s Hospital and Health System has an “Aa3” rating and stable outlook with Moody’s. The health system has a strong financial profile and is the dominant provider of tertiary and quaternary pediatric services in southeastern Wisconsin, according to Moody’s.

5. Children’s Hospital of Philadelphia has an “Aa2” rating and stable outlook with Moody’s. The hospital has a strong market position and exceptional financial resources to support high capital needs, according to Moody’s.

6. Concord (N.H.) Hospital has an “AA-” rating and stable outlook with Fitch. The hospital has a strong financial profile and a leading market share position, according to Fitch.

7. Portland-based Oregon Health and Sciences University has an “Aa3” rating and stable outlook with Moody’s. The health system has solid operating performance, strong clinical offerings and includes the only academic medical center in Oregon, according to Moody’s.

8. Clermont, Fla.-based South Lake Hospital has an “AA-” rating and stable outlook with Fitch. The hospital’s operating performance has improved in recent years due to its partnership with Orlando (Fla.) Health, according to Fitch.

9. Iowa City-based University of Iowa Hospitals & Clinics has an “Aa2” rating and stable outlook with Moody’s. The system’s strong brand and position as the only academic medical center in Iowa will continue to translate into strong market share and high patient demand, according to Moody’s.