payers & providers – issue of august 19, 2010
TRANSCRIPT
8/9/2019 Payers & Providers – Issue of August 19, 2010
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The pending sale of Brotman MedicalCenter and four other Los Angeles-areahospitals suggest the mergers andacquisitions market in California may be
perking up again after 18 months of stillness.
Culver City-based Prospect MedicalHoldings announced this week it would beacquired by Los Angeles-based investmentfirm Leonard Green & Partners, L.P. for$205 million in cash and the assumption of $158 million in debt. Leonard Greenoffered to pay the shareholders of Prospect$8.50 per share, a 39% premium over thetrading price of Prospect shares in recentdays.
“We are pleased to have reached anagreement that will enable us to deliver
significant and certain value to ourstockholders,” said Prospect board memberGlenn Robson in a prepared statement.
Neither Prospect not Leonard Greenofficial returned repeated phone callsseeking comment.
Along with Brotman, which Prospectacquired a majority stake in last year, itowns four smaller facilities: 50-bedNorwalk Community Hospital; 100-bedHollywood Community Hospital; 130-bed
Los Angeles Community Hospital and 59-bed Van Nuys Community Hospital, apsychiatric facility. It also has a medicalgroup arm that manages more than
170,000 lives in Southern California.The acquisition is a departure forLeonard Green, an investment firm whichfocuses on such consumer businessessuch as the Claim Jumper restaurant chainand the Container Store home furnishingsretailer.
The company will be acquiringproperties that may pose a challenge for ahealthcare novice to manage. AlthoughBrotman is Prospect’s flagship, it filed forbankruptcy protection in 2005, faces aseismic retrofitting bill in the tens of millions of dollars and has trouble filling
its beds. The addition of Brotman intoProspect’s portfolio helped dragged downits overall occupancy rate more than 27%during the first six months of this year,according to recent filings with theSecurities & Exchange Commission.
In mid-2009, one of Prospect’slenders asserted the company haddefaulted on its loans, although the
Brotman Purchase May Signal TrendDeal Could Portend Revived Hospital M&A Activity
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September 8-9
September 19-21
Calendar
19 August 2010
September 22-24
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the details of your event, or call(877) 248-2360, ext. 3. It will be
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Continued on Next Page
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Payers & Providers
assertions were later waived afternegotiations. However, the company hasbeen profitable this year, reporting net
income of $8.3 million on revenues of $349.7 million for the first nine months of 2010.
Although the deal is not a big-boretransaction, some industry observersbelieve it may signal the return to thestate of hospital mergers and acquisitions.The last one to occur in SouthernCalifornia took place in February 2009,when Manhattan Beach-based AvantiHospitals acquired two small facilitiesfrom Health Plus, according to IrvingLevin & Associates, Inc. a New Canaan,Conn.-based firm that monitors healthcare
transactions.Sandy Steever, who edits an Irving
Levin publication that follows healthcareM&A, observed that deal-making inCalifornia has been stilled by a
Page 2
combination of factors: a difficultoperating environment, strong laborunions and a lack of capital driven by the
steep recession. “M&A hit its lowest markin about a decade last year, although itshould slowly improve,” Steever said,adding that many would-be buyers aresitting on large amounts of capital.
Nationwide, there were only 80hospital deals in all of 2009, compared to246 in 2006. There were 50 through thefirst half of this year.
In the meantime, a fight could belooming over the Prospect deal: at least ahalf-dozen law firms have announcedthey were launching investigations intothe proposed transaction, suggesting
Prospect’s shares were underpriced.Both parties may entertain other offer
until late September, according to SECfilings.
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In Brief
California LaunchesTelehealth Network
California unveiled a sophisticatedtelehealth network this week,funded by $30 million from theFederal Communications
Commission, the CaliforniaEmerging Technology Fund, theCalifornia Health Care Foundationand several other parties.
Managed by the University of California at Davis, the networkcurrently has just 50 participantsusing peer-to-peer sharing of x-raysand other tests on a broadbandnetwork. However, the network isexpected to connect 900 healthcarefacilities statewide by 2011. Theresolution of videos and photosthrough the network will be clearenough for physicians to consultremotely, according to networkofficials.
“Through a simple broadbandlink, this state-of-the-art system willsave lives by instantly connectingpeople from across the state,including underserved and ruralareas, with the best and brightestdoctors,” said Gov. ArnoldSchwarzenegger.
.
Study: Palliative CarePatients Live Longer
Terminally ill cancer lung cancerpatients who undergo palliative care intandem with oncology treatmentsimmediately after diagnosis not onlyenjoy a higher quality of life thanpatients who undergo traditionaltreatments, but also live nearly threemonths longer.
The study of 151 patients over threeyears at Massachusetts GeneralHospital found that patientsundergoing palliative care suffered
Prospect (Continued from Page One)
Continued on Page 3
NEWS
FTC Follows DMHC CrackdownFeds Clamp Down On Discount Health Plans
A crackdown on deceptively marketedhealthcare discount plans launched by the
Department of Managed Healthcare earlierthis year has prompted the Federal TradeCommission to target such operationsnationally.
On Aug. 8, the FTC forced HealthCareOne LLC into receivership, effectivelyshutting it down. Although based in Phoenix,it was owned by Corona Del Mar residentMichael Jay Ellman. The FTC also suedHealthCare One in order to return premiumsit collected from customers.
“Victims don’t know they’ve been rippedoff until after they’ve tried to use the service
and paid their bill,” said David Vladeck,which heads the FTC’s of ce of consumer
protection, in a prepared statement.Altogether, the FTC took actions againstthree discount plans earlier this month.
In February, the DMHC issued a cease-and-desist order against HealthCare One andits af liates, claiming it had marketed itself as a health plan, but was instead charging$69.95 a month for discount services. Inmany instances, users received no discountsat all.
“We worked closely with the FTC onthis case, and provided them withinformation that helped their actions,” said
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Page 3Payers & Providers
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NEWS
In Brief
fewer bouts of depression and otherissues such as nausea and decreasedmobility. The patients also lived amedian of just under one year afterdiagnosis, compared to nine monthsamong patients who underwentchemotherapy and other aggressivetreatments without palliative care.
The study’s authors suggested thendings may rebut fears that palliativecare may be equated with “deathpanels” in terms of dealing with end-of-life decisions.
Such research could also greatlyaffect healthcare nancing, given thatthe majority of healthcare dollars arespent on the last few months of apatient’s life. Medicare only covershospice care – which provides mostpalliative care to terminal cancerpatients – if the patient foregoes othertreatments and is certied by at leasttwo physicians of having less than sixmonths to live.
The ndings were published in the
most recent issue of the New England Journal of Medicine.
Sun Nets $224.8M InPublic Offering
Irvine-based Sun HealthcareGroup has netted $224.8 million ina public stock offering of 30.7million shares of common stock ast$7.75 a share. The sale includedmore than 4 million shares offeredas an over-allotment.
“We are pleased with theresponse to the equity offering,”said Sun Chief Executive OfficerRichard Matros.
Sun, which operates nursinghomes and skilled nursingfacilities, said it would use theproceeds to pay down itsindebtedness. The company alsoannounced it would separate itsreal estate and nursing businesses.
The planned imposition of a fee on hospitalsdesigned to draw down extra Medi-Cal fundscould prove to be a nancial imposition onsmaller hospitals, some industry observersclaim.
SB 1383, signed into law by Gov. ArnoldSchwarzenegger late last year, would imposeabout $2 billion in fees on California’shospitals later this year, based on the volumeof Medi-Cal patients they treat. The moneywould be used to draw down an additional$2.5 billion matching funds from the federalMedicaid program.
State of cials are continuing to negotiatewith the Centers for Medicare and Medicaid
Service to put a structure for the fee intoeffect, according to the California HospitalAssociation. A possible scenario is for thefees to be remitted to the California MedicalAssistance Commission, which acts as thestate’s payment intermediary for CMS. CMACwould then return the fee – plus theadditional Medi-Cal payments – to thehospitals.
A similar fee on California’s nursinghomes imposed on themselves in 2004 hashelped draw down about $500 million a year
in extra federal revenue, and is credited fornancially stabilizing that sector.
But the fee, which statewide averagesabout $5 million per hospital, might be toughfor some facilities to pay, observers say.Particularly vulnerable would be smallercommunity hospitals with large Medi-Calpopulations but are tight on working capitaland may have to resort to borrowing the fund
“It is good-hearted legislation, with agood intent, but it may not have been craftedwith the nancial health of all of thesehospitals in mind,” said Shane Passarelli,senior vice president of Healthcare FinanceGroup in Los Angeles.
Healthcare Finance Group providesnancing to hospitals – including loans thatcould cover the fee. However, Passarelli notethat some facilities may already havereceivables and other assets already pledgedto lenders, making it dif cult to secure furthelending. Passarelli believes a dozen or moresuch facilities statewide could fall into thiscategory.
The fee has already generated somefriction among California’s hospitals.According to published reports, as many as20% of the state’s 430 hospitals may wind uppaying more in fees than what would be
returned to them in additional Medi-Calfunding.
DMHC spokesperson Lynne Randolph. Sheadded that the agency was working with theFTC regarding other deceptively marketeddiscount plans. Since 2004, the DMHC hasordered 18 discounters to obtain licenses tosell insurance or cease operations.
According to FTC documents,HealthCare One continued to debit users’bank accounts for months after they hadasked to cancel their membership, making itvirtually impossible to cancel their
memberships. In the rare instances when it dicancel an account, the company chargedsteep processing fees in order to do so.
Meanwhile, the DMHC has drafted newregulations requiring all discount plans to belicensed in California and do not engage indeceptive marketing practices. The regulationare currently in the second public commentperiod. They could be implemented later thisyear, Randolph said.
SB 1383 May Strain Some HospitalsSmaller Facilities Could Have Trouble Paying Fee
FTC (Continued from Page One)
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Payers & Providers Page
The passage of healthcare reform helpsbundled payments gain momentum as aviable reimbursement strategy. Rapidlyfollowing the lead of the Centers forMedicare and Medicaid Services,commercial payers are demonstratingheightened interest in bundling paymentsto providers to try and bend the costcurve. Here are six critical successfactors to bundled payments thatevery “C-Suite” executiveneeds to consider:
1. Alignment with YourPhysicians.!Creating astructure and financialrelationship that assuresalignment of the keyphysicians is critical toachieving the performancerequirements for bundledpayment.! The alignmentmodel must be designed tofacilitate the achievement of consistently higher quality, lowerlengths of stay, and lower cost percase.
2. Physician Accountability forDriving Quality, Efficiency, andEffectiveness. Hospitals have workedunder the operating assumption thatphysicians do not have time to own andlead care coordination. As a result,quality monitoring and improvement havelargely been managed by nurses. In alandscape of accountable care, physiciansmust function as equal partners, with aclear line of sight for the care they deliverin an acute care episode.3. Operations IS your Strategy. Silos andturf wars result in unnecessary
readmissions and must be replaced withhigh-level integration. In order tosucceed under bundled payment, ahospital’s ability to approach carecoordination strategically is vital.Engineering care delivery models thatreduce or eliminate waste, minimizeredundancy, and radically improveprovider communication give hospitalsstrategic advantage with all payers byproviding greater value.4. Electronic Medical Records. Whilesome may argue that an EMR is a
prerequisite to success under risk-basedreimbursement and foundational to anenvironment of accountable care, that is necessarily the case. For organizations thhave not yet executed an EMR, now is theperfect time to engineer sustainable carepathways that will ultimately enable a smand successful transition to an electronicenvironment.
5. Clearly Defining The Role of NurseExecutives. As we have sein the past with the advendiagnosis-related groups
(“DRGs”), payment reformtruly is “care delivery refoEqually important to havinphysicians at the table andowning the outcomes of thcare they deliver, nurseexecutives will need to drthe implementation of newcare delivery models andunderstand the risks and
leverage points with bundledpayments.6. Careful Vetting Of NewTechnology. In a bundled payme
environment where value isparamount, acquisition and use of technomust occur only after careful value analyHospital executives must make physiciantheir partners in the value analysis procesensure capital decisions are madestrategically based on value to the patientSubspecialist competition for scarce capitresources should be resolved through thevalue analysis process with physiciansleading peer discussion.
Healthcare reform both poses newchallenges to healthcare executives andtremendous opportunities to be at the
forefront re-engineering our healthcaredelivery system.
OPINION
Unbundling The Task Of BundlingHospital Leaders Must Address Changes in Paymen
By Deirdre
Baggot
Deirdre Baggot, M.B.A., R.N., is a vice
president with The Camden Group, an El
Segundo-based healthcare consulting firm
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Op-ed submissions of up to 600 words are
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[email protected], or call (87
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