I just think the hospitals are going to need to be affiliative in order to have the services they currently provide be high quality and low cost, rather than trying to sort of be dominant.
– Dr. Scott Fowler, CEO, Holston Medical Group
If you have the correct organizational structure with transparency and accountability and input from the private health community, you’re going to increase the likelihood that there’ll be compliance related to the elements of the COPA.
– Rich Panek, CEO, State of Franklin Healthcare Associates
By Jeff Keeling
The Business Journal gave a double honor for innovation at its 2017 Healthcare Heroes awards July 21. Holston Medical Group (HMG) and State of Franklin Healthcare Associates (SoFHA), two of the area’s largest independent physician practices, were represented. HMG and SoFHA were honored for developing clinics to help keep patients whose conditions have traditionally landed them in the hospital from having to go there.
The work occurring at HMG’s “Extensivist Clinic” and SoFHA’s “Acute Care Clinic” is described on pages 26 and 27 of this issue. It represents an overarching trend in health care toward “value-based” and “patient-centric” models. Its continuation and expansion will greatly impact whether Wellmont and Mountain States separately, or Ballad Health collectively, succeed in the goals they’ve laid out in their merger application.
The clinics’ work, and other initiatives at the independent provider level, represent something else, too: a potential threat to the inpatient-based business model that has driven hospitals’ financial fortunes for decades. As a result, guarded optimism and healthy skepticism best describe how SoFHA CEO Rich Panek and HMG CEO Dr. Scott Fowler view the proposed merger.
Panek (the guarded optimist) and Fowler (the healthy skeptic) seem in lockstep about at least one thing regarding the prospect of the two hospital systems gaining approval by late September to become Ballad Health. State regulation of a merged system must be intensive, it must have teeth, and it would work best if the states (and even moreso Ballad) leaned heavily on groups such as theirs for guidance.
“Part of what the state needs to require is that it has the power to just take whatever authority it wants,” Fowler told The Business Journal recently. “This is state action. This wouldn’t even be approved without the states. At some level (the systems) are giving up their autonomy to the state, and if the state wants that thing, it needs to actually get the power to pull it off.”
“That thing” is the Certificate of Public Advantage (COPA) that would govern a merger in Tennessee. A similarly structured “Cooperative Agreement” would govern the merger in Virginia. And the “state action” is rooted in law that permits states to allow for anti-competitive mergers the Justice Department or Federal Trade Commission otherwise would likely block.
If Dr. John Dreyzehner and Dr. Marissa Levine, Tennessee and Virginia’s health commissioners, along with the states’ attorneys general decide to grant the COPA and cooperative agreement, they’ll be certifying their confidence in their states’ ability to “actively supervise” the merger such that its benefits outweigh any harms caused by reduced competition. To insure that result in an age of decreasing inpatient admissions and a focus on quality and value, both CEOs said the states, not to mention Ballad, would do well to turn to groups such as HMG and SoFHA.
We’re from primary care and we’re here to help
SoFHA’s Panek said the systems’ merger plan, particularly the reinvestment of merger-generated efficiencies into combatting community-wide health challenges, “is absolutely key for helping develop a system of population health and care improvement regionally.”
Panek called the prospective influx of several hundred million dollars dedicated to child health, mental health and moving the needle on chronic adult conditions “exciting.” Getting the most out of that money, he said, should involve “an open dialogue” about how best to use those funds, “to help longitudinal care improvements for the chronic disease patient.”
And since HMG and SoFHA, with probably north of 200,000 patients between them, will know just how collaboratively the challenge is being addressed, Panek said they should be highly involved in the process.
“The state really needs to come to us and say, ‘is the system working in the way they advertised?’” Panek said. “Are they collaborative, and are their efforts improving your ability to deliver healthcare and improving the results of the patients’ actual health care in and of itself?’”
The primary care and hospitalist physicians at SoFHA can tell the state through personal experience whether the system is operating as advertised, Panek said, because they are “on the ground.
“This is actual, ‘how was the patient treated, was their health improved, how is the interaction with the physicians?’ – things you don’t necessarily pick up on in numbers. Is the business being run in a way that the independents are being squeezed out of business, and you don’t see it in the numbers? You’re not reporting what’s happening to us in the community but you’re reporting the financial viability of the health system. But they could be choking us down by what they’re doing.”
Were a combined hospital system to “choke down” on the independents, HMG’s Fowler said, it would be a mistake.
“I think the ACO (Qualuable, an accountable care organization) has been successful because it attaches a patient to a doctor and then it holds the doctor responsible for satisfaction, for trying to utilize the facilities and the testing and all that that are needed to result in high quality outcomes, but also measures the waste in the system,” Fowler said. “So it focuses the doctor’s brain and experience along with the patients’ desires to try and not do things that really don’t help at all, but they generate dollars.”
Nonetheless, Fowler and Panek expressed some level of concern that, without strict oversight, a new hospital system could balk at a collaborative path that moves the region more or less in line with national trends.
Panek said bad signs would include Ballad using its market power to squeeze the independents, whether through losing staff, making some hospital-based specialties exclusive to the system, or negotiating exclusive contracts with payors that disadvantage the independent providers.
The systems have downplayed their market power on the outpatient side, but Fowler said Ballad would have sufficient opportunities to exercise that power, including payor contracting. Payors “have to contract with” the biggest provider in a marketplace, he said.
“In the outpatient marketplace they know there are plenty of competitors besides them,” Fowler said. “We’re just very small … compared to their size now, and when you combine them we’re tiny compared to their size.”
The hospitals’ conundrum
With nearly 300 practitioners between them, SoFHA and HMG have been at the forefront of innovation as health care has transitioned from a fee-for-service environment to value-based payment models. The groups provide the primary heft behind Qualuable, a highly regarded accountable care organization (ACO) with more than two dozen partner practices.
Qualuable has focused on improving patient outcomes and satisfaction while reducing cost, in large part by keeping patients out of hospitals. The better Qualuable members have achieved those goals, the better it’s been for them financially. That trend is favored by payors ranging from the Centers for Medicare and Medicaid Services (CMS) to private insurance companies. It supports national goals of reducing cost and improving quality of access – and it tears at the core of hospital business models.
“That can run afoul of the business models on the inpatient side,” Panek said, adding that’s one reason he sees a need for robust state oversight. Without the right “sticks” in place, the financial“carrots” of inpatient admissions can color hospital systems’ approach to dealing with patients.
“If the inpatient revenue related to readmissions well outstrips the penalties you get from CMS related to admissions, what are you going to do?” Panek said. “I really do have compassion for the position of the health systems, because they have a high fixed-cost-based model. And that model isn’t designed to treat chronic, complex, longitudinal diseases out over time.”
Fowler agreed. A hospital system, he said, “has a little bit of a conundrum, since its business model is based on driving that volume.”
State oversight will be critical to keep trends moving in the right direction, Fowler said. “I believe that on that regulatory piece you need to balance the power that was there before, the power between … medicine from the point of view of the hospital and … medicine from the point of view of the patient and the view of the doctors. All that has to hit a balance and in the end it has to be best for the patient.”
Is a ‘better mousetrap’ possible?
Dreyzehner, Tennessee’s health commissioner, has stressed the proposed merger’s unprecedented nature. The application process, now spanning 18 months, has drawn on-the-record written commentary from a host of health care experts, some in favor, some opposed. The Federal Trade Commission has written and spoken at length, outlining its opposition and the harms it believes a merger would create. Allowed to stand, the merger almost certainly would draw close attention in markets around the country.
Fowler admittedly leans toward the value of competition, even in the already heavily regulated healthcare market. He said he could envision “a set of compromises” the hospital systems could make to reduce his concerns significantly but added those haven’t yet been made to his knowledge.
“If the merger creates a better environment for patients, it’s right now still based on just a hope that things will just happen to go that way, and I think there’s a strong concern still despite everything that’s been submitted (and) resubmitted.”
Still, he doesn’t discount the possibility, however slim, that a merger could work.
“Reduction in admissions comes out of the hospitals’ pocket. Surgeries done outside the hospital come out of their pocket. Diagnostic procedures done at a lower cost setting comes out of their pockets. So the state would have to be able to literally require that the hospital do something that would cause it to lose money, and at that point, aren’t those independent decisions the hospitals could make on their own – do I want to invest in something that’s going to cause me to lose money in the hope that it will generate something better for me? But you could do it with state regulation.”
“We can envision a place where it would work. It would be very complicated, very expensive.”
For his part, Panek said a new system will only thrive with state-mandated outside input and involvement.
“If there is not that accountability structure with the input of people who are not beholden financially to the health system, it’s going to be very difficult. Because then you’re purely at the mercy of the integrity of the managers of the health system.”
If the state can pull off such an “accountability system,” Panek sees the SoFHAs and HMGs “essentially managing primary care in the community.”
“If we trusted each other at that level we could do some great things. When you take those investment dollars and you seed a lot of these initiatives and you develop that structure where the people who are best at operating various components of the system operate them and are held accountable I think you could do some great things.”
Panek said such a scenario could provide the greatest “lift” for patients when it comes to merger-generated investments, but added that the state would have to play a strict role as overseer.
“I don’t think we could cede a structure completely over to Ballad without outside input and outside organization that designs that structure to have accountability and transparency to the local health community,” Panek said. “If you have the correct organizational structure, with transparency and accountability and input from the private health community, you’re going to increase the likelihood that there’ll be compliance related to the elements of the COPA.”
(Jeff Keeling is vice president of communications for Appalachian Community Federal Credit Union and former associate editor of The Business Journal.)
