Hospital systems clear preliminary merger hurdle
Southwest Virginia Health Authority deems merger application complete
Process ongoing in Tennessee
Story and photos by Jeff Keeling
ABINGDON, Va. – Mountain States Health Alliance and Wellmont Health System reached a milestone Friday in their effort to gain approval to become one system as the Southwest Virginia Health Authority (SVHA) deemed the hospital systems’ application for a “cooperative agreement” complete.
The unanimous vote – with numerous members abstaining due to conflicts of interest – came six months after the application was filed and nearly 17 months after the systems first announced they wanted to merge. It also followed more than two hours of public comment – including a call from a health insurers’ organization for the SVHA to demand more specifics before deeming the application complete – as well as comments from hospital officials and questions from SVHA board members.
Friday’s action by no means signals the Virginia application is good to go, but rather starts a clock ticking in Virginia – one that could last up to 150 business days, or roughly seven months, and will culminate in Virginia Department of Health Commissioner Dr. Marisa Levine either approving or denying the cooperative agreement. That agreement would govern the merger, and provide a framework for “active supervision” by the state meant to mitigate the disadvantages that would result from reduced competition.
“It is one step in a long process, but it’s a major step for us,” Wellmont CEO Bart Hove said. “It’s really an open door to now get down to a lot of the more detailed hard work … with the Authority to make sure that all of their questions and concerns are answered and addressed and the commitments are fully vetted and spelled out in the application process.”
Tennessee’s Department of Health (TDH) is charged with both deeming complete and ultimately approving or denying a “Certificate of Public Advantage” (COPA) application in that state, and has not yet deemed the systems’ COPA application complete (see section at the end of this story). TDH Commissioner Dr. John Dreyzehner has cited in particular the systems’ failure to yet submit what TDH deems a satisfactory “plan of separation” should the state, post-merger, decide the combined system isn’t providing sufficient benefits to outweigh the disadvantages of reduced competition.
SVHA members had spent several months mulling the initial application and interacting with hospital system officials. In March, they formed five “working groups” centered around major issues related to the proposed merger, and presented MSHA and Wellmont with 68 additional questions following several months of discussion with hospital representatives and internal meetings. The group, which includes representatives from government, health care and education who live throughout the region, also engaged the services of three healthcare experts, who studied the application and helped explain it in the context of macro trends in health care business and economics.
Friday, board members heard prepared comments from Kyle Shreve, director of policy for the Virginia Association of Health Plans. They heard from Hove and his MSHA counterpart Alan Levine, then spent considerable time questioning Levine about the proposed merger and its effects on hospitals, health care professionals and health care consumers in Virginia. And they heard from two of the health care experts, both of whom said that despite the need for additional information and clarity prior to actual merger approval, they believed the application had sufficient detail and heft for the process to move forward.
VAHP’s Shreve presented a multi-point argument (that was also written) against moving the application forward. “Many questions have not been answered fully, or the answers given do not provide the requisite level of detail or explanation,” Shreve said.
VAHP’s top concern was what it said was inadequate measures to address potential harm to competition. The comments referenced what VAHP said would be a 90 percent-plus market share in most cases, which it said, “will result in very likely anticompetitive harm.”
The remarks also mentioned “vague and illusory benefits,” commitments to report rather than achieve outcomes, and insufficient information on the proposed scoring system the state would use to determine how well the merger is meeting its objectives. The final primary concern was a claimed failure by the systems to identify specific efficiencies.
Following Shreve, Hove and Levine spoke, with Levine laying out the same case he has for nearly two years about the benefits a regional merger could bring. His primary argument centered around the decreasing number of inpatient admissions per 1,000 population nationally, how that trend is likely to impact this area even more acutely because its hospitalization rates are higher than average, and how stagnant population growth here simply compounds those factors.
Those things combined, Levine said, make the systems’ current situation unsustainable, and he argued that absorption of one or the other, or both, by outside systems wouldn’t solve the problem of costly duplication of services, or allow for efficiencies.
SVHA members’ questions centered around potential detrimental effects in Virginia, where, by Levine’s own admission, most of the MSHA-owned hospitals lose money and are subsidized by other MSHA hospitals that are making better margins. Members have asked repeatedly about commitments in the agreement to keep all hospitals open in some health care capacity for at least five years, and to predicate any major changes in services on some form of approval by local boards.
That proposed commitment, Levine said, should actually leave Southwest Virginia’s rural hospitals with a greater chance of continuing to serve their communities than where things stand today. He pointed to trends in health care payment reform and other indicators suggesting that inpatient volumes are going to continue to decline, making it more difficult for systems to continue subsidizing rural hospitals that are struggling to keep from losing even more money as care shifts to a more outpatient-centered model.
Currently, Levine said, MSHA and Wellmont are not nearly as obligated to keep struggling rural hospitals open – the 2014 closure of Wellmont’s Lee County, Va. hospital serving as a prime example.
“I know and I understand – we’ve talked a couple times about what’s happening in health care today,” SVHA board member Dixie Tooke-Rawlins said near the end of Levine’s presentation. “But what’s happening in health care in Southwest Virginia is our concern. We recognize that hospitals are at risk here. We’re really all about a plan to still provide services in the community. In general it was good to hear you say, ‘these are the services we want to have in the community,’ so we know the repurposing is robust.”
Levine said the systems’ ability to “continue to cross-subsidize these types of things becomes more difficult” as volumes decline at the more successful hospitals. “That’s why eliminating duplicative overhead between Mountain States and Wellmont and gaining the synergies from there, and eliminating redundancies in services where it’s not necessary generates the synergies that enables us to continue to do those things (support rural services, for instance). That’s why we made the commitment to continue sustaining these enterprises for at least five years as health care enterprises.”
“I ask you to look at this incrementally,” Levine continued. “What is the state of affairs in Southwest Virginia if there’s no merger, and what are the possible consequences of that decision, and what are the consequences of the decision if there’s a regulated merger where we have a partnership with the Southwest Virginia Health Authority and a regulatory structure in place within the Commonwealth of Virginia to make sure that we aren’t hiking prices up because of the merger and that we aren’t letting quality decline because of the merger?
“Those are the fundamental issues that any antitrust authority should be concerned about.”
Along with SVHA’s attorney, Jeff Mitchell, Dr. Thomas Massaro, one of the healthcare experts, said it wasn’t necessary for SVHA members to have enough clarity on all the issues to recommend approval or denial of the merger. That could come later, he said.
“From my perspective and I think from all three of our perspectives, this is a very unique situation,” Massaro said. “You’ve got two states involved, you’ve got a regional authority, you’ve got two departments of health, and the sooner that you can get to the position where everyone who deserves to be at the table is at the table and discussing what’s going on, the better off you’ll be.”
Voting to deem the application complete, Massaro said, “doesn’t speak to whether in fact the merger should be approved, because you clearly do not have enough data to know at this point whether it should be approved. The question is whether you can get closer to that information moving toward a collaborative and interactive model (among the entities considering its approval) once the application is deemed complete.”
Wellmont’s Hove said the systems appreciated the experts involvement in the initial step.
“We appreciated the fact that they also commented, saying, ‘we studied this application and based upon the material and information we have, we realize and understand why the merger is being proposed and the approach taken in Southwest Virginia is what it is.’ Because health care is getting to be a very complex, complicated, regulated and financially oppressed business. It is multifactorial, especially when you try to weave in population health and some of the other great needs that we have in the area.”
Before authority members even left the meeting room Friday, they had begun arranging follow up meetings with hospital system representatives and some of the work groups, “to be present to have some of those negotiations and discussions in their respective areas,” Hove said.
Meanwhile in Tennessee…
While Friday’s decision started the clock ticking in Virginia, the Tennessee Department of Health (TDH) continues to wait on a different version of a “plan of separation” from the systems before it will deem the COPA application complete.
TDH also has scheduled additional public hearings on the COPA. One was held in Kingsport Sept. 1, and others are scheduled for Nashville (Sept. 29) and Bristol (Oct. 6). Additionally, the agency has been meeting with consultants, which may prompt yet more questions or requests for clarification.
According to TDH, a public hearing in Johnson City will be held after the application is deemed complete. The public also will be allowed to submit comments on whether the COPA should be granted for 60 days after the application is deemed complete. Tennessee’s process calls for a 120-day review period after the COPA is deemed complete and before a final ruling is issued. TDH and the state attorney general’s office both are involved in the review process.
An Aug. 17 letter from TDH Commissioner Dr. John Dreyzehner to the CEOs of the Johnson City, Kingsport and Bristol chambers of commerce provides an instructive encapsulation of where TDH is in the process. As previously reported in News & Neighbor, the CEOs had urged in a letter to Dreyzehner dated July 20 that TDH, “work with the two health systems to bring the merger to a conclusion rapidly.”
Though he also wrote that the department is “committed to moving as quickly as possible to complete this evaluation process,” Dreyzehner also noted that unlike Virginia’s decision, which involves a statute applying only to Southwest Virginia, “this COPA application will set precedence for the entire State of Tennessee.”
Dreyzehner also wrote: “(T)he best interests of the citizens of Tennessee require that we not only perform our work timely but also with a full and complete application and a robust understanding of its implications so we can make the best possible decision for the people of Tennessee.”