With systems’ merger application in, deciders making haste slowly

By Jeff Keeling 

Work groups are meeting in Southwest Virginia with health care access, quality and cost on their minds. An advisory group is making the rounds in Tennessee, seeking input on measures for an “index” that would grade any merged hospital system on its effectiveness in a variety of areas. Health officials in state capitals Nashville and Richmond are scrutinizing reams of documents and proposals to determine how they square up with the requirements in recently revised Tennessee and Virginia laws allowing anti-competitive mergers.

It all shows that Feb. 15 clearly marked the end of the beginning concerning the effort by Mountain States Health Alliance and Wellmont Health System to gain approval to merge. Since then, the state and regional entities charged with helping shape a Certificate of Public Advantage (COPA) in Tennessee and Cooperative Agreement in Virginia have launched full-scale into laying regulatory groundwork that would govern a merger. They have also begun parsing the voluminous applications the systems submitted.

Over the coming months, all the parties will study, work, negotiate and revise their way toward a groundbreaking, finalized regulatory regime. It may take a good while. Two members of one Virginia work group already have questions about the systems’ proposal for capping increases in a merged company’s charges to payers and patients. All of this, according to a member of each system’s executive team, is ok.

“We have always expected that there will be a fair amount of conversation back and forth regarding any clarifications or additional information that the state might need,” MSHA Senior Vice President and Chief Development Officer Tony Keck said March 31. “We feel like that process has been going well in both states.”

The states, and in the case of Virginia, the Southwest Virginia Health Authority (SVHA), need time to digest all the information they’ve received from the systems, request any additional information and ask for clarification where they have questions, Wellmont Senior Vice President of System Advancement Todd Norris added.

“That’s important for them to make a determination that’s in the best interest of the community, provide mechanisms for active supervision through the law and so on,” Norris said. “We think it’s really important the process take the amount of time it’s taking in order for all that to happen effectively.”

On Feb. 16, the day after submitting applications for merger approval, Mountain States and Wellmont leaders said they hoped to see Tennessee and Virginia both approve those applications by sometime in September. Given the steps necessary to reach that point, though – particularly in Virginia – that timeline may be on the optimistic side. CEOs Alan Levine (MSHA) and Bart Hove (Wellmont) spoke of a 120-day process toward approval or denial of a “Certificate of Public Advantage” (COPA) in Tennessee and a 150-business-day process in Virginia. At best, that might have allowed for a September stamp of approval. But as Norris said, getting it right is critical, and a group charged with the next step in the process is comprised of volunteers with no specific timetable.

 

Virginia Two Step: The Process in 

the Commonwealth

North of the Tennessee state line, the process toward a merger approval decision has some significant differences from Tennessee’s. For starters, the only clock ticking in the Commonwealth at this point relates to the SVHA and its task of determining whether the systems’ application for a cooperative agreement (the Virginia equivalent of a COPA) has been “received.” Further, that clock is an open-ended one.

“The status of the application right now is that it has been submitted,” consulting attorney Jeff Mitchell of Blacksburg, Va., told the group at its March 15 full board meeting. “It’s not been received until you deem it complete.”

That isn’t just semantics, even though the systems submitted their application for a cooperative agreement Feb. 16. The 150-day Virginia clock doesn’t start ticking until the application is officially received. The Virginia law that established the SVHA in 2007 was amended significantly last year in order to allow for a cooperative agreement. It gives the 32-member SHVA – created “to bring area leaders together to recommend ways to improve health and health related prosperity in the far Southwest Virginia region” – a significant role in the approval process.

The board’s chairman, Virginia Delegate Terry Kilgore (R-First), sponsored a major rewrite of the SHVA law last year that cleared the way for a potential merger. Much like Tennessee’s rewritten COPA legislation, that law’s gist was to allow for mergers that, “supplant competition with a regulatory program to permit cooperative agreements that are beneficial to citizens served by the Authority, and to invest in the (state health) Commissioner the authority to approve cooperative agreements recommended by the Authority and the duty of active supervision to ensure compliance (with the agreement’s provisions).”

The intent of that law change, the statute reads, “is within the public policy of the Commonwealth to facilitate the provision of quality, cost-effective medical care to rural patients.”

SHVA board members’ current job – aside from the estimated 11 or more who will be largely sidelined from the process due to conflict of interest – is to determine whether the application includes “enough information to make an informed decision” about whether to approve it, Mitchell said. Only when that is done, various clocks will start ticking as the SHVA holds public hearings, continues studying the application and any supplemental materials, and makes a recommendation to the state health commissioner on whether to approve the proposed cooperative agreement. Ultimately, it is the health commissioners in both states – Drs. Bill Hazel in Virginia and John Dreyzehner in Tennessee – who will have the final say.

The authority created “work groups” March 15 to review the application for completeness in five areas: population health, health care cost, health care access, health care quality, and competition. Members expressed a desire to try and determine the application’s completeness by their April 13 full board meeting. Mitchell cautioned them to make haste slowly, and not hesitate to ask for more detail, with questions flowing through his office.

“My anticipation is that there will be some questions … just from some initial conversations,” Mitchell said. “I think that’s probably healthy. So don’t shy away if you think there’s something that can be more defined. Remember, your standard at the end of the day is, ‘do the benefits outweigh the disadvantages?’ At this stage in the game, you’re simply asking yourself whether or not you think you have enough information to later make that assessment.”

Kilgore, in announcing that all board members would be included in the competition work group, noted: “That’s one of the most important aspects of the whole cooperative agreement.”

As the Business Journal went to press April 1, only the health care cost group had met, and it had enough questions to have scheduled a follow up meeting for April 7. The health care access group was scheduled to meet April 4.

 

A question about cost

If the health care cost work group’s March 28 meeting is any indication, SHVA members are taking their role to heart and dismissing any potential pressures to rush their work. At that meeting, its Washington County (Va.) representative, Sam Neese, raised a question about how the application deals with charges to payers and with the $450 million of excess margins it proposes to invest over 10 years in population health, mental health, children’s health and medical research.

“A lot of the savings shown here are going into programs,” Neese said. “There’s not a lot of discussion on how much of that might be used to keep costs from going up – how much are they going to do to filter some of that back to payers and users?”

Neese also asked, during the 20-minute meeting, how strictly the Commonwealth would enforce the commitments on cost containment the systems have made. Those include a pledge to pare back in mid-year, once a merger is into its first full year of operation, the already negotiated charge agreements with insurers. Following that year, charge increases would be limited to an amount a quarter percent below the national “hospital price index” (HPI).

Neese’s fellow board member, Virginia Delegate Will Morefield (R-Third), expressed similar concerns to Neese.

“The primary concern that I have is, at the end of the day, what is the cost savings going to be for patients?” Morefield said. “I think that from the public’s perspective, the majority of them are being told, at least, that this merger is going to result in cost savings for the patients, and I think we need to be in a position to not only say that we’ve reviewed it, but we understand it and we agree with that.”

MSHA’s Keck said the systems’ leaders have been meeting with payers to discuss their proposals for containing charges, and that he expects payers and others to comment on those through the process.

“We expect at some point with the commissioners of health in both states that we will have a conversation about their view of what we’ve proposed and do there need to be adjustments,” Keck said.

“We’ve certainly done our best to reflect what we think the needs of the community are and the expectations of the payers. But people continue to provide input throughout this process, and we expect that input’s going to be considered by the states and then we’ll have a conversation with them about it.”

Norris said the systems are attempting to balance several important elements as they create a roadmap for how to utilize an expected $120 million in extra annual cash flow once the merger is fully integrated several years after its consummation. A good bit of that is slated for the investments in the four areas mentioned above. Norris also mentioned what he called the “sustainability” of the new company, and its ability to invest in capital improvements that help keep its ability to offer high quality health care at the forefront, “and reducing the pace of cost growth. It’s important to keep all of that in balance.”

 

So what, when exactly?

The deliberations of the SVHA, and both states, appear likely to bring their own set of tweaks and alterations. Tennessee, where the COPA Index Advisory Group should complete its work in June, is also expecting to amend the rules that govern the COPA sometime this spring, according to TDH representatives. The COPA itself, though, is on that 120-day timetable for an up or down decision from Dreyzehner’s office.

The Virginia process is a little hazier. A clock will start ticking once the SHVA deems the application complete. Early in that period there will be a 20-day public comment period, after which the authority and health commissioner must agree on a public hearing date that is within 45 days of the application’s being deemed complete. All told, the SHVA has 75 days after deeming the application complete to make a recommendation on whether it should be approved, with a 15-day extension available.

(To see the specific factors the SHVA and Commonwealth are to weigh in the balance, visit bjournal.com/virginiafactors.)

If a recommendation for approval is forwarded to the state commissioner, he has another 45 days, with up to a 15-day extension, to render a written decision approving or denying the request. With potential extensions and accounting for weekends and holidays, it could be slightly more than seven months from the time the SHVA deems an application complete to a decision being rendered. Were the SHVA to make its initial call April 13 a final decision could be pushed out to mid-November.

“The states and the Southwest Virginia Health Authority are doing a very conscientious and thorough job in the work that they’re doing, and we fully expect that they’ll need time to do their work,” Norris said. “We appreciate the way they’re approaching it. We’d obviously like for the process to take less time, but the process is extremely important.”