Effort to influence Wellmont’s merger strategy spreading

“Hole in the wall gang” continues press for Wellmont-Mountain States merger talks

By Jeff Keeling

An Aug. 13 email from the Kingsport Chamber of Commerce titled “A Message from Our Mayor: Community Forum Concerning the Future of Local Hospitals” marked the beginning of a high-profile effort to influence Wellmont’s merger strategy. Since that day, and particularly following an Aug. 18 community forum in Kingsport, the campaign to “keep control of area hospital systems local” has taken on a life of its own.

It coincides with – and for all intents and purposes seeks to influence – Wellmont Health Systems’ “strategic options” process. Wellmont, a not-for-profit system whose flagship hospitals are Kingsport’s Holston Valley and Bristol Regional Medical Center, has whittled a list of prospective “strategic alignment” candidates to three (related story on page 14). Its leadership hopes to make a decision about a merger by the end of 2014. While the unnamed “regional system” left in the hunt is strongly rumored to be Mountain States Health Alliance, the recent effort’s main spokesman, longtime area banker Bill Greene said of Wellmont, “I’m satisfied they’re not going in that direction.”

To that end, Greene and what he calls a “hole-in-the-wall gang” comprised of some regional heavyweights in both the private and public sectors, have mounted their campaign. One of Greene’s primary criticisms involves what he says has been a lack of transparency in Wellmont’s strategic process, which the six-hospital, 6,500-employee not-for-profit system commenced in January. (Mountain States has 8,600 employees and 14 hospitals.)

But more transparency is far from Greene and Co.’s end game, which was largely laid out at the Aug. 18 forum. Coverage of that event from our sister publication is at jcnewsandneighbor.com/hospitalforum. That gathering, in front of an overflow crowd at the Kingsport Higher Education Center, included presentations from Greene, ETSU President Brian Noland, Kingsport Mayor Dennis Phillips, Dr. Jerry Miller and attorney Bruce Shine. The gist of their request is that:

Wellmont and Mountain State’s’ boards work together, with adequate transparency and in conjunction with East Tennessee State University, to study the potential advantages and feasibility of a merger of the two systems, with a resultant system that at some level formally includes ETSU’s health sciences division. To alleviate anti-trust concerns from the merger of two local systems and the creation, arguably, of a monopoly, they propose application for a “Certificate of Public Advantage,” a designation allowed by Tennessee law.

In a follow-up interview (see jcnewsandneighbor.com/forumfollowup)Greene said he’s convinced that if Wellmont’s leadership – who he first approached about the idea in mid-July – were to engage in such discussions, and if they led to the preferred arrangement, the outcome for the region’s health care climate and overall economy would be far preferable to Wellmont’s merging with an outside system. Greene’s thesis is built on several main premises:

• A local merger would allow the Wellmont-Mountain States combination to reduce duplication of services and manage declining revenues and declining admissions at a local level. Alternatively, he says, an outside buyer of Wellmont could easily continue what he calls an “arms race,” putting continued pressure on Mountain States to make business decisions that don’t necessarily benefit the community long-term. “We’ve got three hospitals that Mountain States owns going toward Wytheville, Va. on (Interstate) 81,” Greene says. “If you have a tertiary care patient you have to transfer from one of the hospitals you own, why do you drive by (Bristol Regional Medical Center)? Wouldn’t you rather we decide how to create efficiency locally?”
• The resulting efficiencies would free up financial resources, some of which could be plowed into a strategic effort to maintain and strengthen ETSU’s colleges of medicine, pharmacy, nursing and public health – and to focus sharply on leveraging those schools’ capacity to attract more funded research into the metro area. “It should be a three-legged stool,” Greene says. “Then you can enlarge the medical school, you can have more residency slots, you can have higher specialty training and we can get millions more in research.”

The effort has continued and broadened somewhat since. The week of Sept. 1, the Washington County Commission, Johnson City Commission and Kingsport Board of Mayor and Aldermen all approved similar resolutions “in support of maintaining local control of healthcare systems.” In Kingsport, home of Wellmont’s headquarters, the resolution passed 3-2 (with two abstentions). The resolutions (full text of Johnson City’s is at bjournal.com/localresolution) don’t name hospital systems, but generally reflect the effort led by Greene. That effort features a website, saveyourhospitals.com, that offers a seeming counterpoint to Wellmont’s website dedicated to informing the public about its strategic process, forwardwithvision.org. (Wellmont issued a short response after the forum, and has indirectly acknowledged the Greene-led effort through some of the material in its website.)

Perhaps most significantly, and almost certainly not coincidentally, the effort has been accompanied by public comments touting the supposed advantages of maintaining hospital system local governance – albeit much more circumspect than Greene’s – by Noland and by Mountain States CEO Alan Levine.

Noland: “A once-in-a-generation opportunity”

“I applaud Wellmont’s board for the manner in which they’re reviewing this, and I’m confident that when decisions are made, we’ll do what we’ve done in East Tennessee for decades – we’ll put the needs of the region first.”

Those words marked Brian Noland’s primary nod to Wellmont during a short address to members of the Washington County (TN) Economic Development Council at its Aug. 21 meeting. His other remarks reiterated sentiments he had expressed at the community forum regarding the potential for enhanced research at ETSU, and the consequences of potential reductions in residency slots at Wellmont and Mountain States.

Noland said the health care systems and ETSU have the potential to come together and address “population health challenges” present across the region.

“This is a decision and a potential that doesn’t come around often,” Noland said. “The decisions that will be made here in the next couple months not only impact us, but will impact generations of East Tennesseans.”

Noland touted ETSU’s health sciences credentials, including Quillen College of Medicine’s No. 1 national ranking in placing physicians in rural areas, its No. 6 ranking in rural and family practice and the university’s $50 million in sponsored research. With an effort like that envisioned by Greene, he implied, that impact could blossom further.

“Our $50 million figure could very easily double,” Noland said of the research component, adding that such a result would create an additional economic impact of about $110 million, given the 2.2 “economic multiplier” of health care research. And he said the case for a Wellmont-Mountain States-ETSU triple threat “is beyond compelling.”

“It’s good for the region, it’s good for our people, it keeps health care decisions local, but it is a shot of adrenaline through East Tennessee State University.”

He predicted such a change, long-term, could make ETSU one of the flagship health sciences institutions in the South. And he warned against a future that doesn’t involve local control of the hospital systems.

“If these two systems go and are controlled by outside entities, 40 years from now we’re all going to sit back and say, ‘what could have been?’ I cannot overstate the importance of the decisions that are about to be made.”

Levine: “Nothing an outside system can do for us that we can’t do for ourselves”

 

Alan Levine, CEO at Mountain States since January, did not attend the Aug. 18 forum, but did speak to the EDC board Aug. 21. Levine understandably took care to say he was not there “to talk about Wellmont and their process.” He then expounded on points he made in an Aug. 14 “community update letter” in which he and Mountain States Board Chairwoman Barbara Allen laid out Mountain States leadership’s intention to remain locally governed, and the factors they believe make that a viable option.

Levine ran down Mountain States’ financial and patient volume information, including projections out to 2019. He explained a projected decline in inpatient utilization in the market, particularly with Mountain States’ 124 admissions per 1,000 population compared to national averages ranging from 110 all the way down to 76.

“There’s going to be a lot of empty capacity, and it’s very costly capacity,” Levine said. With 60 percent of reimbursements fixed by government payors, significant debt and fixed costs to maintain, he said, systems must either increase revenue or “push cost out of the system.” He implied that merger with a significantly larger system, which Wellmont leaders have suggested is their aim, could only create revenue increases by passing costs on to employer-funded health insurance plans, meaning ultimately to patients. “That is precisely the wrong approach,” Levine said.

Rather, he suggested, a successful COPA agreement could create efficiencies in a way that benefits area residents and the economy. Levine repeated the traditional premise that when it comes to health care, “it’s not the same type of competition.”

Instead, he said, in the very capital-intensive hospital industry, the redundancy that creates efficiencies or savings in most market sectors “can create cost.”

Such has been the case with much of the money spent and debt incurred at Mountain States (and presumably Wellmont) “in the name of competition,” Levine said.

He cited a COPA in the Asheville metro that the Mission hospital system has operated under for a number of years as an indication that such an agreement could work here. According to Mission’s website, he said, the system’s “average charge per patient discharged is $3,000 lower than their peer group average.” The system also receives accolades for quality, he added.

With respect to research, residency positions and economic growth, Levine said Shands Healthcare in Florida offers a model. Levine serves on the board of Florida’s university system, and Shands, with close ties to the University of Florida, is a research juggernaut. It’s smaller than Mountain States, but garnered $80 million in National Institutes of Health grants in the last year alone. Levine said he believes such an outcome is possible in the Tri-Cities.

“The ability to work together no matter what Wellmont’s decision is, to try to find ways to work together with ETSU to develop research and academics is something that we would rightfully be able to say, we are a major hub for health care research and academics,” Levine said.

“Making a commitment to research is like starting a whole industry in this region with high-wage jobs in the sciences.”

Pulling that off could be easier with an integrated hospital system, Levine seemed to suggest.

“If we’re in an environment where all we’re doing is clubbing each other over the heads to steal patients from each other or whatever, if you’re spending resources on that, then it’s harder to put resources into the investment at ETSU.”

What’s to say it would even be allowed?

At the Aug. 18 forum Shine, a Kingsport attorney, said even if Wellmont and Mountain States chose to pursue a merger, it would have to be reviewed and approved by the Tennessee Attorney General. Shine told the Business Journal he did not think Tennessee had yet allowed or even considered a COPA of the magnitude being discussed.

“These hospital mergers are exceptions to federal antitrust law, which is allowed by state law, and therefore there is a keen interest to make sure that competition is not decreased,” Shine told people at the Aug. 18 gathering. He added, however, that Tennessee’s “Hospital Cooperation Act of 1993” balances likely decreases in competition against other likely gains for the community.

The law states that a COPA can be issued by the attorney general if it is determined “that the applicants have demonstrated by clear and convincing evidence that the likely benefits resulting from the agreement outweigh any disadvantages attributable to a reduction in competition that may result from the agreement.” (TCA 68-11-1303 [d]).

According to the law, benefits that could outweigh decreased competition include: enhancement of the quality of hospital and hospital-related care; preservation of hospital facilities in geographic proximity to the communities traditionally served by those facilities; gains in the cost-efficiency of services provided by the hospitals involved; improvements in the utilization of hospital resources and equipment; and avoidance of duplication of hospital resources. (TCA 68-11-1303 [1] (A-E)

Shine said the process could be completed fairly quickly and allows for significant public input. Greene, for his part, is confident a deal could get approval. “I’m as satisfied as I’m sitting here,” he said during the Business Journal interview. The full text of Tennessee’s law can be found at bjournal.com/copalaw.

There is one wrinkle. Virginia doesn’t have an existing COPA law, and both systems have hospitals in the commonwealth. In fact, Greene believes that may be one reason Eastman Chemical Co. has remained silent since the “hole-in-the-wall gang” went public – and Eastman’s silence, he said, is one reason he considers the odds of a Wellmont about-face to be less than 50-50. Greene isn’t deterred, and believes with federal involvement and the political clout of some of the folks behind the effort, some sort of regional dispensation could be arranged.

“If the community can demonstrate they would like this approval, we’re satisfied we could get the approval in Southwest Virginia,” he said.

 No rose garden promised – just a fighting chance

Greene says he’s under no illusions that the future of health care in the region will be without additional economic hardship to that inflicted in the past couple of years, which have seen layoffs at both systems. The region remains poorer and less healthy than the nation as a whole. With reimbursements declining and reform likely to further drive down the inpatient admissions per 1,000 population mentioned earlier by Levine, “there will be pain,” Greene said. “It’s going to knock you in the creek either way.”

But like Levine, Greene is convinced that an outside system operating in the metro would likely recoup its investment by using its scale to wring higher payment out of insurors. That, he said, would ultimately be borne by local consumers.

“If you’re together, it stands to reason you and I can control the number of beds better than someone from Charlotte with half the facility (Wellmont),” Greene said. “If you don’t put heads in beds (potentially fewer beds via efficiencies), in this region small business starts paying the price.”

He also believes it would be simply a matter of time, should an outside system purchase Wellmont, before Mountain States would be backed into a corner and forced to consider a merger as well. Levine and Mountain States’ board have come out as adamantly determined to retain local governance. But the Levine-Barbara Allen letter of Aug. 14 hedged, saying “we will not depart from this strategy unless fundamental changes in our local market force us to do so.” Greene doesn’t think it should come to that, and hasn’t yet come to that for either system. He says he’s still hoping Wellmont’s board will come to the table with other local leaders to discuss the possibility.

“I’d like someone to tell me what someone from outside – Novant, Carolina Health (both hospital systems) – can bring to our region that we can’t do for ourselves. We’re as smart as everyone else in the United States. Let’s get on with it.”