10 January 2012

Midwest Edition
Calendar
January 20
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Chicago Market on Merger Binge

Standalone Hospitals Suddenly Yearn for Partners
The shape of the Chicago hospital owner, SSM Health Care, for $1 to Falcon marketplace is in the process of altering Investors and Transition Healthcare Co. fundamentally, as economic pressures and Tennessee-based Community Health already requirements introduced by the health reform owns the Vista Health System, based in law push the local scene to take steps it had Waukegan, with two hospitals and 340 been able to avoid until now. physicians. In short, the region is Whats happening in Chicago seeing hospitals mirrors whats happening on a consolidate into larger national level, said Leemore systems and afliations. Dafny, associate professor of Until recently, the Chicago management and strategy at region had been North-western University. characterized by erce This consolidation independence and movement is being inspired by fragmentation. all the healthcare reform, she Recent events conrm said. Theres limited enthusiasm the trend: to implement Medicare ACOs, * Northwestern but there is greater enthusiasm Memorial Hospital to implement the principle announced in October it underlying ACOs in the private was exploring an afliation sector. with Elmhurst Memorial The idea behind acLeemore Dafny Hospital in the afuent countable care organ-izations is Northwestern University western suburbs. to pay providers for delivering Northwestern had previously quality and outcomes instead of acquired Lake Forest Hospital on the well-to- quantity. This requires hospitals and physicians do North Shore in February 2010. to work together to reduce expenses; * MetroSouth Medical Center in Blue otherwise, it is too costly for the hospitals to Island was sold in December to Community lose their revenue streams. For the ACO to Health Systems Inc. In 2008 the former St. Francis Hospital had been sold by its previous
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March 6-7
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June 11-13
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A NEW WEBINAR! Friday, January 20, 2012 Noon, CST

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NEWS
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In Brief
HHS Turns Down Kansas Request for MLR Waiver on Individual Policies
Kansas will not be permitted a waiver to bring the required medical loss ratio on individual insurance policies down below 80%, the federal government ruled last week. The Kansas Department of Insurance had applied for the waiver under a provision of the Affordable Care Act that allows states to assert that their local health insurance market would be destabilized if the rule were enforced. The ACA forces large-group health plans to spend at least 85% of premium revenue on medical care; small-group and individual plans must spend at least 80%, or pay a rebate to customers a year later if they dont spend that much. The Department of Health and Human Services calculated that insurers Coventry, Humana, Time, and Golden Rule might have to pay customer rebates this year, for exceeding the ratio. The federal department found that, contrary to the request by Commissioner Sandy Praeger, the insurance market in Kansas is stable and competitive, and that no insurer would be likely to withdraw from the state because of the ratio.

Michigan Blue Cross Reaches Settlement with Beaumont System

Beaumont Health System and Blue Cross Blue Shield of Michigan reached agreement at the last minute on their contract dispute after three months of a public shouting match. Beaumont had insisted on a major bump-up from the Blues, claiming that it was paid 20% less than other hospitals in the Detroit region. The

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work, one part of the chain has to reinvented once at all your member hospitals, compensate another part of the chain where Dwyer said. theyre going to be hit, Dafny said. Academic medical centers such as The coming consolidation in Chicago was Northwestern Memorial may feel pressure to signaled in 2007 and 2008, when Advocate keep their ICUs full and their highly trained Health Care, the one large integrated delivery staff and medical faculty occupied. To do so, a system that proved the rule, decided it needed network of feeder hospitals might prove to get bigger, said William Dwyer, a useful. This may be the reason, Dwyer said, healthcare strategy consultant in Kansas City, that Northwest-ern, after a century of splendid Mo. Advocate acquired Condell Medical isolation in downtown Chicago, has recently Center in Libertyville and then BroMenn reached out to Lake Forest and Elmhurst. Medical Center in Executives at Normal, bringing its Northwestern werent total to 10 hospitals available to discuss RECENT CHICAGO HOSPITAL DEALS and 250 patientthe hospitals perscare sites, along pective. The Universwith 6,000 afliated ity of Chicago Med* Provena Health and Resurrection physicians. ical Center, which is Health Care merged Nov. 1, 2011, into a That started still a standalone, single large Catholic system, with 12 unintended consedeclined to comment. hospitals, 22,000 employees, and $2.6 quences, everyone Rush University Medbillion in operating revenues. considering who ical Center has a * Central DuPage Hospital (Winfield) they wanted to be feeder hospital in merged with Delnor Hospital (Geneva). part of, leading to Rush Oak Park * Loyola University Health System an avalanche of Hospital, but admin(including Gottlieb Hospital) was acquired combinations in istrators were not by Trinity Health System of Novi, Mich. 2011, he said. available to talk about * Mercy Medical Center (Chicago) To a certain extheir strategy this announced its intent to be acquired by tent, this consolidaweek, as they were Trinity. tion is a response to moving 200 patients * OSF Saint Anthony Medical Center the aggregation of into a new 14-story merged with Rockford Health System. The market power by patient tower. Federal Trade Commission has the health insurers. Of course there is challenged this merger. If youre a 300a downside to the * Methodist Medical Center of Peoria bed independent consolidations. Even was approved to become part of Iowa hospital, youre if they cant gure out Health System. struggling with your how to cut costs, its * Ascension Health of St. Louis acquired IT implementation not that hard to gure Alexian Brothers, St. Alexian, and Alexian and physician out how to raise Behavioral Health Hospital. strategy, but you prices, Dafny said. * Holy Cross Hospital (Chicago) dont have the The strengthened announced its intention to be acquired learnings that negotiating power of by Vanguard Health Systems in somebody operating the hospital groups December 2010 and to flip to for-profit, in multiple parts of vis--vis insurance but that plan was abandoned in August the city would. You companies is of grave 2011. may not be as concern to the desirable for a antitrust agencies. The physician to join, Federal Trade either as part of ACO or selling their practice, Commission has taken action to halt a Dwyer said. The huge demands for capital proposed merger of two hospitals in Rockford, coming at hospitals, for IT, physician Ill. integration, and implementation of new The irony, noted Dwyer, is that while the quality requirements, are going to force them market believes its going to get control of to scramble to form protable ACOs. Those costs through the ACO structure, the costs suggest having a broader organization to government is concerned that ACOs will have spread the overhead costs, and share it, so pricing leverage over them. Which is a little the wheel isnt reinvented at six hospitals, its humorous to me, since Medicare dictates the price. You take what you can get.

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Hospitals Seeing More Bad Debt

Workers in Ohio Cant Make Copays, Deductibles
Hospitals in northeastern Ohio are reporting increased expenses related to uncompensated care, according to federal tax lings for 2010. The Cleveland Clinic spent almost $150 million on charity care, a 25% rise from the previous year. At the same time, bad debt, including expenses for patients who might have had insurance but who couldnt cover their copayments and deductibles, went up 49%, reaching $86.2 million. The clinic had $6.2 billion in total revenue that year. Across town at rival University Hospitals, bad debt rose to $16.8 million, up 13%. At Parma General Community General Hospital, charity care rose 52% to $5.4 million, while bad debt went up 77%, hitting $3.6 million. Hospital system spokesmen said that the higher amounts of charity care and bad debt may turn into long-term realities because of changes in the employment market and the structure of health insurance. Many employers are embracing new-style health plans that put more of the onus on the employee or dependent for higher deductibles or copays. Many insurance plans have been thinned out to make premiums more affordable to employers. A typical deductible may be as high as $500 or $1,000, which many families dont have available to pay at the time of service. Further, the generally high rate of unemployment means many patients dont have jobs with insurance, and their savings have been exhausted meeting basic living costs, such as mortgages, food, and gasoline. Southwest General Health Center reported that many patients who have jobs and health insurance get extra help from the hospital because insurance isnt paying all the costs associated with a hospital stay. According to research by the Kaiser Family Foundation, insurance coverage for persons younger than 65 fell dramatically during the recession. In 2007, 63.5% of the nonelderly population, or 166.1 million people, had employer-based coverage. By 2010, only 58.8%, or 156.4 million people, did. The analysis, using Census Bureau data, showed that the drop in coverage was related to the faltering economy.

In Brief
Blues had countered that employers and consumers were in no mood or nancial condition to grant excessive increases to hospitals. Neither side would state publicly what the nal agreement was, citing a condentiality arrangement. The Blues had wanted Beaumont and other hospitals to accept a new payment model, in which the providers would receive incentive payments if they gave demonstrably higher quality care for less cost. This model would gradually replace traditional fee-for-service. The dispute wore on the nerves of local patients and employers. During the recent open enrollment period, some patients changed health plans to assure themselves continued access to the three Beaumont hospitals and their afliated physicians.

St. Lukes, Wisconsin Heart Hospital Dig into Mummies for Science
The origins of arteriosclerosis will be explored through a research grant to 14 teams around the world, including St. Lukes Hospital in Kansas City, Mo., and Wisconsin Heart Hospital in Milwaukee. The $84,566 grant from the National Endowment for the Humanities will allow St. Lukes investigators to participate in building a comparative database of medical imaging of mummied human remains using CT scans. The goal is to uncover the relative importance of genetics vs. risk factors for modern cardiac patients, said Randall Thompson, M.D., a cardiologist at St. Lukes. Athero-sclerosis is the disease that causes heart attacks and strokes. Thompsons previous research presented at scientic meetings showed that atherosclerosis was not uncommon among ancient Egyptians, which confounded the widespread belief that heart disease is a consequence of the modern age.

Wellmark Wins 9.3% Increase in Iowa

Regulator Approves Premium Hike for Individuals
Wellmark Blue Cross and Blue Shield, the leading insurer in Iowa, has received a 9.35% increase in allowable individual policy premiums, under a decision by Susan E. Voss, commissioner of the Iowa Insurance Division. In a letter on Dec. 30, 2011, Voss explained the reasoning behind the decision. The state has authority to regulate rate increases as long as it obtains an actuarial report documenting the reasonability of the proposed rate increase. The division also held a public hearing and received public comment from more than 300 consumers. The division conducted its own actuarial study, and engaged an independent actuary also. The independent rm found that a rate increase of 13.3% could be justied by the rise in local medical costs.

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OPINION

Page 4

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Some Predictions for Medicine in 2012

Control of Data Will Be Key, for Better and for Worse
What might we expect in the year ahead in the downside: they put care providers in the catch-22 evolving eld of medicine? of trying to maintain data security while I suspect we will see more market healthcare is provided over larger geographic consolidation with larger hospitals eating locations in near real-time, 24 hours a day. What smaller, nanciallystrapped hospitals and do you mean they cant use their cell phones to doctors throwing in the towel of nancial send clinical data to each other? independence in favor of corporate The big news story of 2012 will be the employment or retirement. Supreme Courts ruling on the constitutionality of But the real effects of healthcare reform our new healthcare laws mandate to purchase have yet to sink in. I expect healthier hospital health insurance. The Republican presidential systems will look for new ways to leverage their candidates have vowed to repeal and replace current nancial largesse with national namethe Affordable Care Act, but they would be better brand centers of regulatory excellence to served to acknowledge that our healthcare system maintain their public perception has already made irrevocable as cutting edge. changes as far as doctors are With that, the use of data to concerned. Hence, repealing improve clinical efciencies and replacing the ACA will not while simultaneously marketing change what has happened services will become more already. important. Those with the Nobody should delude foresight and wherewithal to himself that its possible to go process and puree the large back to the days of a doctors volume of clinical data will be ofce on every corner. Instead, richly rewarded. There will be a care for minor problems will be distinct competitive advantage provided by the likes of Riteto those who can Aid, Walmart, or Walgreens. For simultaneously compare those who want to see a doctor, treatment, demographic, and from now on a nurse might socioeconomic trends in near have to do. Appointments for real-time with an eye for more skilled care providers will By Westby Fisher, M.D. nancially efcient care. increasingly be made online or The demand for this data to via kiosk. If a phone call is help to cut costs and maximize prots has desired, large call centers with built-in logic and already superseded the governments ability to recordings to check for quality will be our new maintain patient privacy. Oh sure, well still see reality, as administrative health care personnel are a handful of large-dollar HiTECH Act and increasingly replaced by technology. HIPAA violation penalties assessed to make it Some independent practices will survive for a look like things are under control, but theres a while in the more afuent regions of the country. different reality now: clinical data leaks are Cash-based practices will ourish thanks to a worse than ever and not likely to be slowed persistent demand for this care. Their challenge any time soon. will not be in providing care but rather getting the One only has to realize the extent of the data to do so. Larger health systems in control of mobile-medical movement and the innovations laboratory and medical record operations are in hand-held devices capable of fully managing unlikely to relinquish the power of their data patients at a distance to appreciate how futile it willingly. will be to try to enforce the HIPAA and HiTECH acts. Westby Fisher, M.D., is an internist, cardiologist, Despite the governments heavy-handed and cardiac electrophysiologist who practices efforts, I have yet to see a story of how the at NorthShore University Health System in government recovered any of the data lost or suburban Chicago. He blogs at how they rectied damages to those whose DrWes.blogspot.com, from which this article medical information was compromised. was adapted. Shouldnt that be the focus? Sadly, these rules have had another

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