Editor’s Note: As federal regulators continue to amass a new litigation force against hospital mergers they should be cognizant of the enormous impact they have on increasing local employment. They should also recognize that a signature study which argues that the resultant mergers increase costs is inaccurate as reported in a study conducted by the Center for Regulatory Effectiveness (CRE).
To the extent there are “costs” associated with mergers through justifiable price increases necessitated by decreasing federal payments and an increase in the number of uninsured visiting the hospitals, how do the regulators address these “regional” costs relative to the “regional” benefits which result from increased employment?
CRE looks forward to receiving the comments of the Department of Justice and the FTC on its study. The Center for Regulatory Effectiveness is a Washington, DC based regulatory watchdog.
Hospital mergers growing amid healthcare overhaul, competition
Written by Russ Zimmer CentralOhio.com
Some of the most defining moments of life — a surgery, the birth of a child, the passing of a parent — occur everyday in community hospitals around the state. But the fate of these hospitals and decisions on what services they provide are more and more being decided in a board room in another city.
Marion General Hospital was one of the earliest acquisitions of OhioHealth, a massive Columbus-based hospital network. That move has proved to be “absolutely the best answer” for Marion General, according to former Marion General board member Brad Ridge.
A city-owned and operated hospital up until 1983, Marion General joined OhioHealth in 1986, making it the second community hospital to join the now multi-billion-dollar group after it formed two years earlier. Since 1994, the number of beds at Marion General has grown by 39 percent.
The hospital consolidation movement is back elsewhere in Ohio after a lull in transactions at the turn of the century.
One in eight hospitals in the state have joined or are in the process of joining another hospital system since 2010, when the Patient Protection and Affordable Care Act, known as “Obamacare” to many, was adopted, a Marion Star analysis has found. When those pending deals are finalized, only 50 independent “community” hospitals will remain in the state, down from 86 just 10 years ago.
Consolidation not only affects how health care is delivered in the community, but it’s potentially an economic development concern as well. In every county that has one, the hospital is considered a “major employer” by the Ohio Development Services Agency.
One large employer can shift the financial footing of an entire city. According to figures from the city of Coshocton, income taxes collected from the 500 employees of the Coshocton County Memorial Hospital represented the difference between the city finishing with a $230,000 surplus in 2012 and it having to cut or reduce services to break even.
Nearly 1,000 people work at Marion General and another 960 work at OhioHealth’s Marion Medical Campus and at the Smith Clinic, which OhioHealth acquired last year.
“That was done because local hospitals needed more horsepower,” said Ridge, who is president of Holbrook & Manter CPAs, of the 1986 merger with OhioHealth. “(Our hospital staff) needed to be affiliated with folks who were experts. It provides a sophistication to a local community to be involved with a bigger group. … That sophistication does lead to better services for our community. I think we have more sophisticated services right here in Marion so people don’t have to drive to Columbus for everything.”
“I think we benefit from that relationship, no question,” said Ridge, who as chairman of the Marion General board also served on the OhioHealth board in the 1990s.
Last year’s purchase of the Smith Clinic, as well as the outstanding shares in the Marion Area Physicians practice (which employed more than half the full-time medical staff at Marion General), means a significant share of the health care providers in Marion are OhioHealth employees.
Mike Bernstein, chief strategy officer for OhioHealth, said that shouldn’t alarm anyone concerned about a lack of competition.
“They’re now in a better position to recruit physicians and retain them over the long haul and have the stability to be in the community for a long time,” he said.
More hospital boards are following Marion’s path and relenting ultimate authority over staffing and service strategies at their hospitals because they don’t like their odds of surviving alone in a changing health care landscape.
Non-metro hospitals still face all their historical problems — such as persuading enough doctors to leave the big city — but with thinner margins. Reductions in Medicare and Medicaid reimbursements, new impending regulatory obligations and the steady march forward of expensive medical technology make it progressively more difficult to keep pace with their competitors.
Hospitals of all sizes say they will be hobbled unless Medicaid expansion is extended to provide some cushion against cuts elsewhere in the Medicaid program.
“You know the song, ‘The Future’s So Bright, I Gotta Wear Shades’?” said Alwyn Cassil, spokeswoman for the Washington-based Center for Studying Health System Change. “(For smaller hospitals), I would say not so much.
“There is no question that there is a lot of advantages to being bigger in the hospital business and being part of a larger system, all the way from your negotiating clout with (insurance companies) to get better rates to getting better deals on supplies.”
For many hospitals, assimilating into a larger system is the most direct way to get access to those resources.
But this comes with a price: the loss of local control. The board of the community hospital has to weigh the value of its own influence on health care services in its community versus the undeniable positives that come from these mergers, such as the ability to raise investment capital cheaply and easily, membership to a vast network of specialist physicians and those revenue and expense advantages that Cassil mentioned.
“When you add all that up you begin to realize that the institution has to do all those things to remain viable but doesn’t have the wherewithal. They might decide to align with a larger partner that has those deep pockets, that access to capital,” said Kevin Murphy, chief financial officer for the Chillicothe-based Adena Health System.“There’s a calculus that organization has to go through, the value of that access versus surrendering the local-control influence. You have to find that balance. That’s a very personal decision of that organization.”
It’s a personal decision that has economic implications aside from the hospital.
“We use local contractors. … We buy supplies locally,” said Licking Memorial Health Systems CEO Rob Montagnese, who runs the hospital in Newark. “That stuff goes away when you get with a corporate.”
Ridge said this was part of what joining a larger system entails, as they having existing purchasing contracts with regional suppliers and rely on regional contractors.
“The local contracts, the deals with local businesses, those are things that are lost in a consolidation like this,” he said.
Hospitals that join a network become dependent on the board that oversees the larger system to set their budget and to make the ultimate calls on key decisions, including what lines of service the hospital will offer. Do they keep a maternity ward or continue to offer inpatient psychiatric services when it would make more financial sense to direct those customers to the system’s bigger hospitals in Toledo or Columbus?
“If a small, community hospital is financially struggling and they merge with a system, what do you think the system is going to do?” said Todd Almendinger, CEO of the 25-bed Magruder Hospital in Port Clinton. “It’s going to look at what’s unprofitable and duplicative and they’re going to shut that down and send patients to their own (existing) hospitals.”
For example, there are no more planned baby deliveries at Fostoria Community Hospital in northwest Ohio, which was folded into the ProMedica hospital network in 2000.
That philosophy can damage a hospital’s reputation, independent hospital leaders say, and can fail those who need convenient access to health care the most.
“The farther away management is from the community it’s serving, the danger is that management won’t be sensitive to the needs of that community, particularly vulnerable populations — low income, older adults, people with multiple, chronic conditions, those people who can’t travel to another location for a needed service,” said Cathy Levine, executive director of the Universal Health Care Action Network of Ohio, a consumer group that advocates for access to quality health care.
Leaders of the state’s biggest hospital networks say a community hospital choosing to fly their banner is accepting that they can serve their patients more effectively by not going it alone.
“This is not us out there seeking these relationships. … Most of the conversations we’re having are at the request of these community hospitals,” said Bernstein, who leads OhioHealth system growth and development.
OhioHealth generated nearly $2.4 billion in revenue in 2012 from services provided across its network of hospitals, affiliated doctors, urgent care centers, a home care service, according to a bond offering from March. It has eight hospitals it owns outright and 10 other hospitals it either manages or has contracts with that feed patients into its system. OhioHealth opened two hospitals in affluent Columbus suburbs in 2008 and 2009 and will soon take over MedCentral Health System hospitals in Mansfield and Shelby.
In 2005, Almendinger was the chief financial officer at Grady Memorial Hospital. That community hospital in Delaware was worried it was entering a no-win situation, he said, where it would be run ragged financially through competition by the system it ended up aligning with.
“The board at that time was concerned about the potential competition pressures that OhioHealth might exert at the hospital. Their concern at the community board was that Delaware continue to have a hospital in the community,” he said. “To be competed out of business wouldn’t be good for the community.”
Those communities new to the fold shouldn’t fear a gutting of their health care hub, if for no other reason than that would not serve the network well.
“People think we’re taking over hospitals to shut them down,” said ProMedica CEO Randy Oostra. “It’s completely the opposite. We want to strengthen those hospitals.”
Grady Memorial in Delaware had 69 beds in 2005. Today, there are 152 registered beds at the hospital.
A board member from each community hospital that is folded into ProMedica is given a seat on the 27-county nonprofit’s executive board. Each hospital’s own board, however, becomes advisory in nature.
Based in Toledo, ProMedica expected to collect about $1.4 billion for patient services provided last year at its eight hospitals, two of which are in southeastern Michigan. It’s in the process of absorbing Fremont Memorial Hospital and is fighting the federal government because it at least temporarily blocked a merger with St. Luke’s in Toledo that the Federal Trade Commission deemed “anti-competitive.”
“They don’t have as much control. That’s absolutely true — they don’t,” Oostra said, “but they have more influence on a larger scale. It’s just different.”
Every hospital executive and health care expert The Marion Star spoke with said some level of collaboration between independent hospitals and big systems should be welcomed.
Not every “partnership” or “affiliation” is a complete takeover and not every takeover involves a billion-dollar, big-city system. ProMedica and the Cleveland Clinic, the second largest employer in the state, recently agreed to formally work together, without any change in ownership.
Galion Community Hospital absorbed the bankrupt Bucyrus Community Hospital in 2011. Employees of Zanesville’s Genesis HealthCare System are now running the day-to-day management duties of the nearby Coshocton County Memorial Hospital, at the behest of the Coshocton board.
“You’re going to see more and more creative ways for community hospitals to work together and I think this one falls into that category,” said Genesis CEO Matt Perry. “Coshocton is not part of the Akron or Columbus region, it’s part of this region right here. When we are able to work together, a rising tide lifts all boats.”