There is a grassroots movement, 4300 strong, known as “Save Our Hospital” gaining notoriety in Albert Lea, Minnesota. This story is symptomatic of the fact that hospital consolidation has slowly become a national pastime. With declining revenue under the Affordable Care Act, mergers increased by 70%, leaving small communities scrambling for healthcare access. The latest casualty in the ‘hospital-consolidation-for-sport’ trend is Albert Lea, a small city located in Freeborn County, Minnesota.
Known affectionately as the ‘Land between the Lakes,’ it has a population of 18,000 spread over 14 square miles. Not surprisingly, Mayo is their largest employer; the 70-bed hospital serves almost 60,000 in a region including patients who live in Iowa. In Rochester, MN, the Mayo Clinic is regarded by many as one of the premier medical facilities in the country. Originally of humble origins, founder William Mayo opened a practice during the Civil War and later, passed it down to his sons; today, the Mayo Clinic flagship is located in Rochester, Minnesota and plans to become a renowned premier medical destination for the world.
Corporations with such lofty ambitions tend to make “small” sacrifices along the way; often, on the back of a beloved rural town. On June 12, Mayo clinic administrators announced they would transition all inpatient services to Austin, more than 20 miles away. Mayo cited ongoing staff shortages, reduced inpatient censuses, and ongoing financial difficulties as their reasons for hospital closure. Rural care was mentioned to be at a crisis point, which is an altogether callous assessment of the troubling situation facing communities across this country.
When the Cleveland Clinic announced job and expense reductions of 6% in 2013, the healthcare sector took notice.
Did the world-renowned hospital and healthcare research center, with 40,000 employees and a $6 billion budget, really believe it did not possess the heft to take on the increasingly turbulent sea changes in American healthcare? Or was this yet another stakeholder using Obamacare as cover to drive draconian change?
Both sides of the political aisle were quick to make hay of the announcement, with conservatives blaming reform for eliminating jobs while liberals questioned the timing of the cuts when the Cleveland Clinic was posting positive growth. The answer from Eileen Sheil, corporate communications director, was apolitically straightforward: “We know we are going to be reimbursed less.” Period.
The question of reimbursement reform and the unintended consequences of the Affordable Care Act are weighing on the minds of hospital executives nationwide as independent, regional and national healthcare systems grapple with a post-reform marketplace. The inevitable conclusion that the unsustainable trend in American healthcare consumption is now at its nadir seems to have finally hit home.
These days, America’s hospitals are scrambling to anticipate and organize around several unanswered questions:
- How adversely will Medicaid and Medicare reimbursement cuts affect us over the next five years?
- Can we continue to maintain our brand and the perception that any employer’s PPO network would be incomplete without our participation?
- Can we become a risk-bearing institution?
- Can we survive if we choose not to become an accountable care organization (ACO)?
- Will the ACO model, by definition, cannibalize our traditional inpatient revenues?
- Can we finance and service a hard turn into integrated healthcare by acquiring physician and specialty practices?
Go It Alone or Join a Convoy?
Mergers and acquisitions remain in high gear in the hospital industry—“the frothiest market we have seen in a decade,” according to one Wall Street analyst. “Doing nothing is tantamount to signing your own death certificate.”
Many insiders believe consolidation and price deflation is inevitable in healthcare. Consolidation, however, means scarcity of competition. If we operate under the assumption that scarcity drives costs higher, we may not necessarily feel good about consolidation leading to lower costs unless mergers are accompanied by expense cuts that seek to improve processes, eliminate redundancies and transform into a sleeker, more profitable version of one’s former self.
Bigger may not always be better, but bigger seems to have benefited a select group for the last decade.
Is hospital consolidation creating new efficiencies or does it give health care providers clout over health care insurers? A well-publicized study published in Health Affairs last year by Robert Berenson, Paul Ginsburg, et. al said the latter: hospital consolidation has resulted in “growing provider market clout.”
The Berenson study’s key conclusion is that growing hospital clout has resulted in insurers not aggressively containing their claims payments, a view that will stun every patient who has had a health insurance company deny coverage for a procedure, prescription or preferred health care provider.
Because the Berenson study’s finding are counterintuitive to consumer experience, and because they have been widely discussed in publications ranging from Forbes to National Journal, the Center for Regulatory Effectiveness, a regulatory watchdog with extensive experience in analyzing federal health policies, undertook an analysis to see if the study complied with the Data Quality Act (DQA).
The DQA, administered by the White House Office of Management and Budget (OMB), sets standards for virtually all data disseminated by the agencies. Under the DQA, agencies may not use or rely on data in federal work products (reports, regulations) which don’t comply OMB’s government-wide Data Quality standards. Thus, unless the Health Affairs study complies with federal Data Quality standards, it is useless to Executive Branch policy officials.
The primary data source cited by the Berenson study as the basis for their conclusions regarding trends in relative clout between hospitals and health insurers is a well-respected, longitudinal tracking study which included interviews with heath care leaders from insurance companies, hospitals, and academia. The health care interviews, however, were only conducted in a single year following a change in longitudinal study’s methodology.
Affordable Care Act (ObamaCare) has been knocked for its alleged unintended consequences. The bill’s attracted speculation that workers will lose their health plans, college grads will stop looking for jobs, and even that fewer people will get married.
Those are just the effects related to insurance regulations. Less attention has been given to how hospitals and health systems might change after ObamaCare.
The most common theory is that reform causes consolidation. But what if the effect on hospitals is even more radical? What if the legislation changes the largely nonprofit nature of the industry?
Right now approximately 60% of the 6,000 or so hospitals in the U.S. are nonprofit, while 25% are government-owned. The rest–fewer than 1,000–are for-profit. There’s a reason the pie cuts this way.
Religious groups, especially Catholic orders, opened many of these facilities as charitable institutions. (Ever driven by a hospital with Mercy in its name?)
Then during the post-war infrastructure boom the federal government offered subsidies to cities that wanted hospitals. Getting the money required nonprofit tax status and a promise to provide “community benefit.”
As health reform evolves, I’ve been watching multihospital systems grow in size and power and speculating what their gigantic size means.
Here, as of 2008, were the 10 largest systems in revenue size
1. Veterans Administration Hospitals, $40.7 billion
2. Hospital Corporation of America, $28.4 billion
3. Ascension Health, $12.7 billion
4. Community Health, $10.8 billion
5. New York Presbyterian, $8.4 billion
6. Tenet Health, $8.3 billion
7. Catholic Health Initiatives, $7.8 billon
8. Catholic Health West, $7.6 billion
9. Sutter Health, $6.9 billion
10. Mayo, $6.1 billion
What strikes me about this list are that such giant systems like Kaiser, the Cleveland Clinic, Johns Hopkins, Duke, and Health Partners in Boston don’t even appear, and the large number of Catholic multisystem chains. The revenues of multihospital systems has undoubtedly grown since 2008. In 2011, hospital mergers and acquisitions hit an all time high.