Virginia’s deep dive into Ballad: The Commonwealth is not simply rubber-stamping Tennessee’s approval of the Mountain States-Wellmont merger
Photo above: The chairmen and CEOs of Mountain States Health Alliance and Wellmont Health System meet the press at Mountain States corporate headquarters Sept. 19. Photo by Scott Robertson
By Jeff Keeling
Whatever uncertainty remains regarding a potential Mountain States Health Alliance-Wellmont Health System merger – given Virginia’s delay in deciding whether to approve it – one thing now appears clear.
The two private not-for-profit systems, accustomed to driving in much the same operational lane as for-profit competitors (with some notable exceptions), appear set to take a road much less traveled. In fact, they may as well be ditching the car for a spaceship, with a “COPA monitor” as onboard navigator and two state health departments back at mission control. Such is the apparent tradeoff for granting of the “state action immunity” (see box) that could allow the systems to merge despite the anti-competitive situation their blending will create.
Quibble with the spaceship analogy if you will, but the public record speaks for itself, particularly since the Sept. 19 release of the Tennessee Department of Health’s (TDH) “Terms of Certification” governing the Certificate of Public Advantage (COPA). Additionally, reams of documentation housed on the Virginia Department of Health (VDH) website show Commonwealth officials also have been wrestling with this steep challenge: constructing a regulatory environment that can successfully oversee a newly minted healthcare monopoly so consumers aren’t just unharmed by the lack of competition, but that they actually benefit.
Layered on top of that is the goal of improving overall population health in a region where health factors – tied in with related demographic and economic ones – lag the states and the nation as a whole. The merger’s primary driver from the systems’ side, Mountain States CEO Alan Levine, has pointed frequently to that additional layer and how it adds complexity to the process of developing a COPA. In all, it makes for a transition to something much more like a public hospital system than a private not-for-profit, with a shared stake in the region’s public health – all while navigating health care’s transitions from fee-for-service to value-based payment systems and from an inpatient focus on to an outpatient, community-based one.
At this stage, the regulatory environment has many similarities and a few differences in the state and the Commonwealth. That is likely one reason Levine and his Wellmont counterpart Bart Hove wrote Virginia Department of Health (VDH) Commissioner Dr. Marissa Levine Sept. 28 requesting extension of Virginia’s Sept. 30 merger decision deadline. They cited a need to give Dr. Levine and her staff ample time to review the Tennessee Terms of Certification and “the possible interplay” between it and the Virginia application.
Undoubtedly, the highly detailed, robust terms delivered by Dr. Levine’s counterpart, TDH Commissioner Dr. John Dreyzehner, will require some review by Dr. Levine, her staff and the Virginia’s attorney general’s office. But the record in Virginia clearly shows an activist role there to match Tennessee’s – one that has left the systems continuing to answer requests and engage at a very detailed level with VDH up to the present.
Tennessee hurdle cleared – mountain climb ahead
Tennessee’s long-awaited decision came complete with 50 pages of primary rules and another 19 pages (Addendum 1) specific to “managed care contract pricing limitations and excess payment testing.” The primary rules specify elements of running Ballad Health (the systems’ chosen name should they merge) as mundane but important as spending on plant and equipment, and as complex as the development and execution of a population health plan. The Addendum contains formulas for things such as “Inpatient Payment Indices and Inpatient Deviation for Large Network Payors.” (That is on pages 4 and 5 of addendum 1 for those keeping score at home.)
In addition, Addendum 1 sets out a formula for calculating what it deems “excess payments” by payors or individuals, and a mechanism for both revising Ballad’s charge structure and refunding what the state deems overpayments. It also triggers a potential modification of its terms if Ballad’s operating margins are either too high or low as defined by the addendum, or if the COPA monitor simply decides to propose a modification to TDH.
But wait, there’s more. Roughly 50 pages more, in exhibits A through K. Those cover matters ranging from access to care and population health measures (and how those will be scored) to the COPA’s active supervision structure and the “remedial contributions” (fines) Ballad can be assessed for various examples of noncompliance that aren’t “cured.” There are 10 commitments for which noncompliance can result in fines of $251,000 to $1 million. Among them are the incremental spending commitments (more than $300 million over 10 years to improve population health, boost access and drive research), employee benefits and protections, discounts for the uninsured and charity care.
(On the employee front, the state requires $70 million in investment over a decade to improve pay for employees to a more competitive level. Regarding charity care, it tilts toward policies that should increase health care access for indigent, uninsured and low/moderate income patients while leaving them less exposed to crushing debt.)
Quality measures covering all patients, not just those with Medicare, also will be reported and are required to improve annually from the baseline year. Important indicators of good inpatient care such as postoperative sepsis rate and pressure ulcer rate are among the 16 factors measured.
The COPA Monitor – paid for by Ballad – isn’t a person. It’s an entire independent firm TDH will rely on to bring to bear its expertise in hospital finance and accounting, auditing, population health management, community health improvement and data/statistics as it oversees Ballad’s performance in meeting the COPA terms. Dreyzehner also will rely on a local advisory council to garner community input and feedback. The council will publish an annual report on community feedback.
The elements above represent a small portion of the regulatory framework TDH spent more than eight months developing. In all, TDH has been directly involved with the systems on this matter for 20 months.
Virginia is for regulators
One would be mistaken to think the VDH has been sitting back waiting for Tennessee to lay down the law. Along with her staff and representatives from the AG’s office, Dr. Levine didn’t pull punches with the Wellmont and Mountain States leaders when they met together in May and again Aug. 8. The May meeting commenced with Dr. Levine saying VDH would act as “a regulator, not a partner” in its relationship with any merged system. Those meetings reflected a continued dialogue surrounding the “Virginia Commitments,” an outgrowth of months of meetings with the first gatekeeper in the Commonwealth, the Southwest Virginia Health Authority (SVHA). Nearly a year has passed since that body completed its review (recommending approval), and those commitments have undergone multiple changes since being passed on to Richmond. Lengthy as that process has been, though, the commitments will be trumped by whatever Levine ultimately decides regarding a Cooperative Agreement – Virginia’s counterpart to the COPA. Their 20 pages (excluding appendices) begin with a note that “the Commissioner shall retain the final authority with respect to conclusions reached by the Commonwealth or actions to be taken by the Commonwealth.”
On May 17, Dr. Levine said her expectations are that prices will increase and competition will decrease following a merger, and that her department would examine whether the merger would yield any advantages in quality, cost-efficiency and population health. She also stressed the importance of population health improvements for a region of Virginia that is poorer and sicker than the rest of the state. She suggested not “compartmentalizing” population health in the new system.
Minutes from the Aug. 8 meeting show a process far from complete. They also show a vision for the new health system born of the original merger principles but informed by Southwest Virginia’s particular challenges and by the broader changes occurring in health care.
Dr. Levine said the systems’ application refers to the creation of a “health improvement system,” but that details are scant, in both her opinion and those of some of her advisors. With the systems’ traditional focus on inpatient services, she said, “more information is needed concerning how the new system will evolve from its current focus on hospitals and health care to a new focus on primary and preventive care.” (The question is even more salient considering the existence of an independent provider community wary of Ballad overreach in the outpatient arena.)
Those broader comments, though, have been accompanied by a process arguably as detailed and granular as Tennessee’s. And Dr. Levine hasn’t been timid in her expectations. For example, identical July 28 letters to Alan Levine and Hove request specifics on just two of many issues – one regarding the buy-in of independent physicians to the Ballad approach, the other calling into question the true value of the systems’ commitment to a rate adjustment cap.
Dr. Levine noted the systems’ intention to collaborate where possible with the 70 percent of area primary care physicians who don’t work for either Wellmont or Mountain States. “A member of my staff then asked what evidence MSHA and WHS have that these physicians are actually on board with what Ballad wants to do, and willing to share financial risk.” She also wanted to know whether the systems would agree to a more restrictive rate cap on pricing.
The Commitments as a whole have undergone changes up to as recently as late last month, partly in response to “gaps” Dr. Levine and her staff identified. A revision dated Sept. 1 was then revised again and carries a most recent date of Sept. 22.
In fact, the Virginia extension granted Sept. 28 was the second that month. On Sept. 1, Dr. Levine granted the systems an extension from Sept. 15 to Sept. 30. The reason in that instance was the systems’ claim to having been “unavoidably delayed in providing the commissioner with additional information regarding the Virginia application.” As always, Dr. Levine’s response left the door open for as much time as might be necessary – promising a decision by Sept. 30 only so long as “all information I deem necessary to my decision has been received.”
Where is the spaceship headed?
When she met with system officials Aug. 8, Dr. Levine stressed several provisions in the law enabling the cooperative agreement, including one that showed the Commonwealth’s hand when it comes to any successful merger. The systems must show “in detail” what they want to do, and how they plan to achieve it, with respect to: “population health improvement, improved access to health care services, improved quality, cost efficiencies, ensuring affordability, and, as applicable, supporting (SVHA’s) goals and strategic mission.”
Distilled down, TDH’s goals for a merger are similar. Nowhere does the record show officials from either state disputing the claim that the Wellmont-Mountain States service area is beset with deep demographic, economic and population health challenges. Nor do officials argue with the notion that unchecked competition between the systems has led to expensive, unnecessary duplication of services. Rather, they seem determined to build a regulatory structure that protects consumers and employees, keeps a merged hospital system financially viable but accountable, and provides a framework in which a new system and its partners can be a force for positive change in a region sorely in need of it.
Tennessee has finished the framework. The state stands ready to embark on what, should oversight and enforcement reach the levels spelled out in the COPA terms, will be a groundbreaking level of involvement in a hospital system. Virginia is nearing the finish line. If VDH approves the merger, it should be clear within a few years whether the spaceship’s direction is being jointly determined – in other words, whether oversight is active and Ballad is striving to be sincerely compliant.
Where the spaceship is headed is another matter. It will likely take several years to get a true sense of whether the merger’s vision and goals are truly bearing fruit – helping move the region toward a reality that includes healthier citizens, greater prosperity, and better quality, accessibility and affordability of health care.
(Jeff Keeling is vice president of communications for Appalachian Community Federal Credit Union and former associate editor of the Business Journal.)