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Payers & Providers Midwest Edition – Issue of November 13, 2012

Payers & Providers Midwest Edition – Issue of November 13, 2012

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Published by PayersandProviders
Payers & Providers is the Midwest's premier healthcare business journal.
Payers & Providers is the Midwest's premier healthcare business journal.

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Published by: PayersandProviders on Nov 13, 2012
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13 November 2012

Midwest Edition
November 15-16
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Ford Merger Likely To Disappoint
Economists Say Few Such Deals Achieve Objectives
When Henry Ford Health System and Beaumont Health System announced their intent to merge last week into 10-hospital system expected to dominate much of the healthcare landscape of the Detroit area, ofcials with both systems said that it was expected to cut costs and leverage prices from area insurers. Although it is too early to know what the impact of the merger might be on the community, history and studies have shown that hospital mergers often don’t achieve the positive results often expected by both parties. Brian Peters, executive vice president of the Michigan Hospital Association, said his organization has been monitoring the trend of independent hospitals linking up with systems. The “next shoe to drop” will be mergers like Beaumont and Henry Ford – larger systems merging into integrated organizations, he said. “This is a newer trend and one that will accelerate given the pressures of the Affordable Care Act,” he said. “Also by healthcare reform more broadly speaking – some of the things in the private sector like moving away from reimbursement structures that reward volume to those that reward quality and efciency.” But Cory Capps, an economist at Northwestern University’s Kellogg School of Management, in Evanston, Ill., said that, while the ACA is the reason most frequently attributed to consolidation, it really isn’t a cause. “ It may be an easy thing to point to, but it is not clear that these mergers would not be pursued if was still no ACA,” he said. “If the election had turned out differently, I don’t think we would have seen a sudden stop to it.” Peters said there are a handful of reasons why hospital mergers are a good idea. One reason is the economy of scale – having a larger organization can reduce costs for things like health IT. Peters also said shared learning is incredibly important. Having a wider range of clinicians to share with and learn from “goes a long way toward improving performance.” “Only time will tell how these decisions play out and whether they meet the needs of their communities and are effective in containing cost and quality,” Peters said. “There is every reason to believe they will do exactly that.” The new, combined organization will be more than large enough to use its scale. It will have 10 hospitals, two medical schools and 200 patient care sites. But Robert Town, a health care economist and professor at The Wharton School, said it can be difcult to use economies even during large mergers.

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December 13
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Continued on Next Page

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Merger (Continued from Page One)
“On paper it seems plausible – you reduce services and consolidate services – but it is hard to implement that,” he said. “There are a lot of political decisions.” Capps said there are clear exceptions to the rule, but costs often do not go down after a merger. Those with “tight plans” to consolidate licenses, integrate staff and close certain service lines can sometimes see reduced operational costs. Those that retain local control aren’t changing their operations enough to cut costs. The second consideration is quality, which Town said is very difcult for a hospital to improve – “If it were easy, everyone would do it.” He said hospitals might have even less incentive to invest in quality improvement if they have fewer competitors. Town produced a 2012 report looking at ve studies of major hospital consolidations across the country for the Robert Wood Johnson Foundation. He found that, after mergers, there is no evidence that quality is improved

Page 2

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In Brief
Meridian Wins Illinois Dual-Eligibles Contract
Chicago-based Meridian Health Plan has received a contract from the Illinois Department of Healthcare and Family Services to provide coverage to the dualeligible population – those who are enrolled in both Medicare and Medicaid. Under the terms of the contract, Meridian will enroll in dual-eligibles in Cook, DuPage, Kane, Kankakee, Lake and Will counties. It will operate as Meridian Complete. "We are honored to be a part of this pioneering joint venture between the State of Illinois and CMS, aimed at utilizing coordination, accountability and innovation to improve health outcomes, increase quality and improve independence in the community for this special population," said Michael Cotton, president of Meridian Health Plan of Illinois.! "We pride ourselves on our interdisciplinary approach to care coordination centered on the member and their personal needs to maximize access to resources to achieve these shared goals."!

that it often remains the same, and sometimes worsens. “There is no evidence that it improves,” he said. As for sharing knowledge, Capps said hospitals in particular regions usually follow what he calls “persistent geographic practice” patterns. If they really want to learn new ways to practice, he said organizations are better off merging with organizations in different areas of the country. Price is the third leg of the health economy stool. Literature shows that mergers, particularly with closely competing nearby rivals, actually raise prices hospitals charge insurers. This can, in turn, trickle down to consumers if insurance companies raise their premiums to compensate. “The magnitude of price increases when hospitals merge in concentrated markets is typically quite large, most exceeding 20 percent,” he said. “I think the motivation (to merge) is nancial as with most things in healthcare,” he said. – TAMMY WORTH

Ill. For-Profit Hospitals Get Tax Break
Minimum $10 Million Cut Tucked in Medicaid Bill
A bill signed into law by Illinois Gov. Pat Quinn earlier this year meant to cut costs in the Medicaid program contained a minimum $10 million annual tax benet to the state’s 28 for-prot hospitals, the Associated Press reported earlier this week in a special investigation. The legislation was part of a package of $2.7 billion in budget cuts and tax increases to help keep the Medicaid program functioning. Its provisions included eliminating working parents from the Medicaid rolls and raising the tobacco tax. The bill was crafted in part by former state senator A.J. Wilhelmi. He left the Legislature in February to take a senior executive position with the Illinois Hospital Association. He estimated that the bill could benet hospitals by as much as $15 million per year. Wilhelmi told the Associated Press that the legislation represented good public policy because it supported “the charitable activities of investor-owned hospitals. “We want to encourage hospitals to continue to provide free and discounted care," he said.
Continued on Next Page

Link Discovered Between Obesity, Serious Ankle Injury
The Chicago-based College of Foot and Ankle Surgeons has established a link between obesity and the severity of ankle fractures. According to a study of 280 patients that was published in the CFAS’ Journal of Foot and Ankle

Need to promote a conference? Or your brand? Payers & Provider!s e-mail list for all editions is available for your marketing needs. Reach out to more than 12,000 healthcare professionals who read our publications. Call our advertising director Claire Thayer at (503) 226-9850, or e-mail her at clairet@mcol.com.

Continued on Page 3


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Tax Break (Continued from Page One)
However, the tax break, tucked into a bill that meandered for hundreds of pages and whose language would bewilder the most hard-boiled lawyer, was blasted by consumer groups. “When they’ve got a hole of that magnitude in their existing budget, they’re giving a tax credit to certain investors. That's saying we'd rather spend that $10 million to subsidize the income of these mostly afuent investors than use that $10 million to pay for the core services we directly fund,” Ralph Martire, the executive director of the Center for Tax and Budget Accountability, told the Associated Press. Under the provisions of the law, for-prot hospitals will be able to use their property tax

Page 3

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In Brief
Surgery, those with a larger-thanaverage body mass index were twice as likely to suffer from an ankle fracture than those of a lighter weight. The highest risk groups were men under the age of 25 and women over the age of 50. “The increase in weight can have grave effects on the bone and joints, increasing the risk of osteoarthritis and (potentially) the need for total joint replacement at a younger age,” the College said in a statement. “The findings of this study correlate with what I continue to see in my practice. It's basic physics; as body mass increases, so does the kinetic energy associated with the injury. The higher the body mass, the greater the risk of more severe ankle injury,” said Alan MacGill, the podiatrist who helped perform the study.

liability or what they spend on charity care to offset their state income tax liability, although only the lesser amount is applicable. However, those hospitals with a property tax liability higher than their income tax liability will be able to either sell their tax credits to other businesses, or apply it to their ongoing tax liabilities for the next ve years. The Associated Press calculated most of the state’s for-prot hospitals will have an offset that exceeds their income tax liability. Nashville-based Vanguard Health Systems, which operates four hospitals in Illinoiswill share the lion’s share of the largesse. Vanguard is expected to receive a tax break of $5.5 million a year.

Healthcare Cultural Gaps Probed
Disconnect Between Administrators, Doctors
A new study by the Minneapolis-area rms Cejka Search and Physician Wellness Services concluded that there is often a fundamental disconnect between the expectations of physicians and the healthcare organizations they work for. The study surveyed more than 2,200 physicians and more than 120 hospital executives to determine their specic healthcare delivery ideals and the gaps between the two groups. According to the data compiled, the most important cultural attribute to physicians is patient-centered care – it also had the smallest gap between what physicians wanted and what they perceived their organizations delivered. However, there were large gaps in other key attributes physicians desired from their organizations, specically transparent communication, collaborative leadership and organizational adaptation to change. According to the data, the gaps ranged from three to 4.3 points on a 10-point scale. “At a time when physician engagement is of paramount importance and healthcare organizations seek to promote satisfaction and loyalty, closing these organizational culture gaps can have a strong positive impact,” said Dan Whitlock, M.D., a Cejka consultant for its physician wellness services division. Cejka ofcials noted that it can cost up to $100,000 to recruit a single doctor, meaning signicant savings if such gaps can be closed. However, the study also found that healthcare administrators tended to underestimate the inuence of organizational culture on a physician’s decision to accept or leave a job.
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Minnesota Children’s Names New Chief Strategy Officer
Carol Koenicke-Grant has joined Children’s Hospitals and Clinics of Minnesota as its chief strategy officer. Koenicke-Grant was previously senior vice president of strategic planning at Guthrie Health System, a three-hospital network in Pennsylvania and New York. “Carol brings a keen, strategic eye to our business and a deep understanding of the changing healthcare landscape,” said Alan L. Goldbloom, M.D., president and CEO of Children's Hospitals and Clinics of Minnesota, which is based in Minneapolis and is comprised of two hospitals. “She'll be a great asset in helping us grow core programs, expand our clinic footprint and evolve the patient family experience.”

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The WalMart Effect On Healthcare
Its Push For Deals And Data Should be Emulated
Walmart’s sheer size makes almost any of their these arrangements have developed reputations initiatives newsworthy. That said, despite being for high quality. It’s worth noting that the unit a lightning rod for criticism on employee pricing of their services can be high, but their benets and healthcare, they have introduced episodic costs tend to be low. Their specialists initiatives with far-reaching impacts. are salaried, and therefore have no nancial Their generic drug program began in stake in ordering unnecessary services. And, in September 2006 – more than 300 prescription the words of a colleague knowledgeable about drugs for $4 per month or $10 for a 90-day these efforts, “because they use evidence-based supply – and was widely emulated. Imagine vs. money-driven care, they tend to get the the difference it made to a lower middle class diagnoses on complex cases right the rst time. diabetic who had been paying They also coordinate care and are more than $120 per month for more likely to be accountable medications, and suddenly could than other systems.” get them for about $24. Absent a healthcare Last month, Walmart environment that, as a practical announced that covered workers matter, actively shares and and their family members needing translates evidence into practice, heart, spine or transplant surgeries the purchaser, out of enlightened could receive care with no out-ofself-interest, has incorporated this pocket cost at six prominent health process as a cornerstone element systems around the country: Mayo of its program. Clinics; Cleveland Clinic; Health systems and specialty Geisinger Clinic; Mercy Hospital groups in the US have operated Springeld; Scott & White Memorial completely outside conventional By Hospital and Virginia Mason Medical market forces for decades, a fact that Brian largely explains U.S. healthcare’s Center. Walmart’s Center of Excellence Klepper egregious cost, highly variable quality program builds on its own and other and rock-bottom value relative to health organizations’ pioneering efforts with similar care in other industrialized nations. As the programs. Walmart developed a relationship market becomes more cost-weary and pricewith Mayo Clinics in 2007 for transplant and sensitive, purchasers will follow the leads set by lung volume reduction surgeries. In March Walmart, Lowes and Pepsico. They’ll align with 2010, Lowes reached a similar arrangement organizations that can measurably demonstrate with Cleveland Clinic for heart surgeries and, better care at lower cost. last December, Pepsico announced a global As market forces take hold, success will be pricing deal with Johns Hopkins for cardiac associated with driving appropriateness, and and joint replacement surgeries. with accepting lower per patient revenues in It’s worth asking why these large rms exchange for more market share and greater would bother to do these deals for expensive patient volumes. Growth will come at the care, and what this means for healthcare in the expense of entrenched, less agile competitors. future. What’s different about the health The big winners here will be patients, who will systems that have been involved? Could these be subjected to signicantly less unnecessary arrangements catch on and inuence care risk associated with overtreatment, and elsewhere around the country? purchasers, who will receive far better value at The procedures involved are typically lower cost. complex and high cost. Because they provide health coverage for more than a million Brian Klepper is an independent healthcare people, Walmart has accumulated tremendous analyst and chief development officer for data and experience, and they are famous for WeCare TLC Onsite Clinics. A version of this their analytical acumen. They know that these article was first posted on Medscape.com. kinds of treatments, though relatively infrequent, consume disproportionately high resources. Op-ed submissions of up to 600 words are All of the organizations contracted in welcomed. Please e-mail proposals to

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