The Tribune Democrat, Johnstown, PA

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March 15, 2014

Conemaugh deal raises questions about cost, quality and local control

JOHNSTOWN — With the Friday announcement that Duke LifePoint Healthcare will acquire the area’s leading health care brand later this year, Conemaugh Health System will be shifting from a nonprofit to a for-profit model.

The move raises questions about fluctuations in cost, quality or community control of the health services that have been a local institution for decades.

So far, Conemaugh, Duke LifePoint and county officials have been unable to spell out just how the switch will affect the three Conemaugh hospitals now under the Duke LifePoint wing and the community as a whole, aside from the obvious: The health system will, for the first time, be contributing to the region’s tax base and also will be relinquishing at least some of its community control to the southern-based hospital network.

But while Harold Miller, president and CEO of the Pittsburgh-based Center for Healthcare Quality and Payment Reform, also said it’s too early to define the impact, he said the switch from nonprofit to for-profit – in terms of quality, safety and price – isn’t a black-and-white issue.

“There’s no systematic difference. There’s been various and sundry studies done of non- and for-profits,” he said.

“The bottom line is anything in health care is very, very market-specific.

“There are situations where for-profits are more expensive and situations where they are not. ... Some (studies showed care) had better quality, less quality – something’s good, something’s not. In fact, there’s been studies done saying, ‘why don’t the studies agree?’ ”

He said many factors come into play, such as the number of area hospitals and the nature of the payer structure in regard to which provider is being pressured to grow certain facilities within the local market.

“Let’s suppose you’ve got a nonprofit and a for-profit hospital – multiple hospitals in the market. They’re going to compete with the other hospitals to be able to attract other patients,” he said. “It may not be on quality. It may be on the nature of the services, the quality of the services, etc.”

Miller said there are a number of communities where an independent nonprofit has been bought up by a for-profit chain and the cash infusion allows the hospital more expansive and operational mobility that it wouldn’t have had on its own.

“If that for-profit is part of a chain that wants to invest in the market, then they may be able to do more – be able to make the facility more attractive to patients: better-looking, nicer rooms, etc.

“The problem is people most times think that’s the mark of a quality hospital. It’s not. (Things like) infection rates are more important.”

The effect the new partnership could have on patient premiums also revolves around the local market, Miller said.

When major health insurance providers dominate a market, they have more control over reimbursement rates than in a market with a more fragmented insurer structure, he said. Highmark and UPMC health plans provide a lion's share of western Pennsylvania's private insurance coverage.

But Medicaid and Medicare viability in that market must be taken into account as well, he said. Cambria and Somerset counties have a larger proportion of the population covered by Medicare and Medicaid than many other areas of the nation.

“Even if people are on Medicaid, Medicaid, in most places, does not pay nearly as well as Medicare does and certainly not as much as commercial insurance does,” Miller said, adding that the Affordable Care Act also has a role to play. “All else being equal, it’s better that more people have insurance. From a hospital’s perspective, fewer people can’t pay.”

Miller said suburban-based hospitals see many more wealthy, commercially insured patients, whereas those in urban or inner city locations are likely to get the poorer and uninsured.

When it comes to which hospital in a market will provide more charitable care, Miller said it comes down to the provider’s ideals and the nature of those in management. If a nonprofit is driven by a community-minded mission it has an incentive to provide those services that a for-profit might lack, he said.

“Nonprofits are, in a sense, required to provide community service, to provide charity care, to provide services they lose money on,” Miller said. “There is no similar requirement for for-profit hospitals.”

The Sylva Herald of Sylva, N.C., reported that LifePoint Hospitals spent $206 million in 2011 on charitable or uncompensated care.

Another point of change could lie in how local manufacturers and producers of equipment and supplies continue to do business with a for-profit chain hospital, he said. Would it be feasible for a sprawling regional network to buy from the little guys?

“One way to get economies of scale is to purchase things centrally,” he said, adding that it’s common practice for any organization that joins a larger chain to buy from that chain’s suppliers. “That’s not so different from things outside of health care.”

Although Duke LifePoint and Conemaugh officials confirmed Friday that no changes will be occurring on the hospital board of directors, Miller said he’d bet the board won’t have the same level of unilateral authority it once had.

Elsewhere, in Wilson, N.C., residents were concerned about the Duke LifePoint acquisition of Wilson Medical Center, which was finalized March 1.

Aside from a board shake-up after the merger, Averette Lamm, a former 12-year member of the Wilson Medical board of trustees, said he took exception to the hospital’s appraisal when the deal was in negotiation.

“They appraised it at $70 million and I thought it was worth a lot more than that,” he said. “Duke LifePoint is paying 80 percent, but they’re calling it a 50/50 governance.

“If you own 80 percent of something, you’re gonna govern it.”

Lamm said the appraisal was made by Maine-based consulting firm Stroudwater Associates, which has a history of working with rural health care systems around the country. Stroudwater has also consulted on all of LifePoint’s acquisitions, according to Lamm.

The Wilson Medical board employed Stroudwater to submit a request for proposals, looking for a new partner with which to grow. Lamm said that the request was “slanted” in such a manner that only Duke LifePoint would fit the bill.

“The collusion between the two was awfully suspect,” he said.

And he wasn’t alone in thinking the hospital board should take a step back and consider Duke LifePoint’s proposal more carefully before moving forward. Several hundred citizens pleaded with the Wilson County board of commissioners to reject a legislative change that would allow Duke LifePoint to assume more control over the hospital and its board than they wanted. The new clause was accepted, however, and the hospital moved closer to being purchased on an 80/20 split, in favor of Duke LifePoint.

“I think we all agreed that the affiliation with someone bigger and stronger would be beneficial,” Lamm said. “But (we didn’t want to) give up control of the hospital.

“I guess I was in the minority.”

Justin Dennis is a multimedia reporter for The Tribune-Democrat. Follow him on Twitter at Twitter.com/JustinDennis.

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