According to the American Hospital Association, 57% of the 5198 non-federal, short-term community hospitals in the U.S. operate as private, nonprofit organizations. 25% operate as for-profit and 19% are owned and operated by state and local government. To maintain their tax-exempt status which relieves them of obligations for income and state property taxes, they are required to provide a commensurate level of public benefit aka ‘charity care’.
A new study in Economic Inquiry compared changes in levels of charity care provided by for-profit and not-for-profit hospitals in the context of consolidation and competition. Analyzing data from California hospitals from 2001-2011, they found:
Wide variation in how all hospitals calculate charity care, bad debt and the volume of services provided often overstating their contributions by using gross charges to calculate their uncompensated care.
Non-profits accounted for 63% of beds and discharges and 66% of non-compensated care and charity volume vs. 37% and 34% in for-profits.
The burden of uncompensated care represents 13% of government-owned hospital operating revenues vs. 4.7% and 4.2% in nonprofit and for-profit hospitals.
As hospitals markets consolidate in markets, for-profit operators provide more charity care as competition decreases while nonprofits and government owned hospitals provide less.
The provision of services like burn care, trauma and others associated with more financial risk is not impacted by ownership status: hospital size, regardless of ownership, is the major determinant of clinical service offerings.
The researchers concluded that “there’s no evidence that nonprofit hospitals are more likely than for‐profit hospitals to provide more charity care or offer unprofitable services” and “price increases drove the rise in charity-care and uncompensated-care expenses at both sets of hospitals more than increases in actual patient volume.” In other words, both have used inflated charges to account for higher levels of charity care.
Charity care is a touchy subject in hospital circles and hospital ownership is tricky issue. It’s difficult to define and measure charity care as this study and others confirm. And many non-profits operate subsidiaries and joint ventures with for-profit partners.
I studied the methodology used by this research team to capture their data and draw their conclusions. One might argue that California hospitals, the basis for this study, are not reflective of hospitals elsewhere in U.S. and the exclusion of Kaiser in the analysis problematic. Nonetheless, the study’s likely to prompt attention from policymakers about charity care in the context of hospital competition and consolidation.
For me, this study prompted reflection in three areas:
The role of safety net hospitals: This study shows that government-owned hospitals are delivering higher levels of charity care than for-profits and nonprofits. Some would say that’s their mission. All would agree safety net hospitals enable for-profit hospitals and not-for-profit hospitals to compete profitably because they serve unprofitable patient populations. And all recognize public funding for government-owned hospitals is inadequate but hard to remedy.
The likely surge in charity care: According to S&P Global Economics, the economy will contract 5.2% this year. The Congressional Budget Office forecasts the economy may not fully recover until 2028. More than 40 million have lost their jobs and half of all U.S. households are financially insecure. That assures expansion of charity care demand and greater attention to how it’s provided and by whom.
The value proposition for not-for-profit hospitals: This study shows that comparison of not-for-profit hospitals to for-profits on the basis of charity care is zero-sum game: the difference seems negligible. Comparisons between non-profits and for-profits can justifiably be drawn based on important measures beyond charity care. It deserves thoughtful discussion in every Board room and C suite.
When it comes to charity care, does being a not for profit hospital matter? Not much based on the results of this study. But the bigger issues—the role of safety net hospitals, the surge in charity care demand and clear delineation of how for-profit and not-for-profit hospitals operate—need more attention in these challenging times.
Be safe. Stay well.
P.S. Headline in today New York Times: “U.S. Hospitals received billions in bailout grants as CEOs got millions.” The NYT analyzed tax and securities filings by 60 of the largest for-profit and not-for-profit hospital chains. They found the organizations received $15 billion in relief funds while “sitting on tens of billions of dollars of cash reserves”. They reported the 5 highest paid execs’ in these 60 organizations took home $874 in compensation last year while 36 laid off employees. Question: will readers of this article think “not-for-profit” matters?
Capps et al “Antitrust Treatment Of Nonprofits: Should Hospitals Receive Special Care?” Economic Inquiry July 2020 https://doi.org/10.1111/ecin.12881
“COVID-19 Induced Recession Throws Curveball to U.S. State Budgets” Standard and Poor’s Global Ratings May 21, 2020; https://www.spglobal.com/ratings/en/research/articles/200521-covid-19-induced-recession-throws-curveball-to-u-s-state-budgets-11500627
Paul Hannon, Paul Kiernan “U.S. Economy Faces Long Recovery From Coronavirus Effects, Experts Say” Wall Street Journal June 1, 2020; https://www.wsj.com/articles/decline-in-factory-output-eased-in-may-but-recovery-set-to-be-slow-11591006623
Johnson “On the Minds of Black Lives Matter Protesters: A Racist Health System” ProPublica June 5, 2020 https://www.propublica.org/article/on-the-minds-of-black-lives-matters-protestors-a-racist-health-system?
Brianna Bailey “These Hospitals Pinned Their Hopes on Private Management Companies. Now They’re Deeper in Debt.” The Frontier June 4, 2020; https://www.healthleadersmedia.com/finance/these-hospitals-pinned-their-hopes-private-management-companies-now-theyre-deeper-debt
Wall Street Journal/NBC Poll: 80% think country out of control; deep partisan divide about coronavirus masking
According to the latest Wall Street Journal/NBC News poll of 1000 registered voters conducted May 28-June 2 released yesterday:
Americans by a 2-to-1 margin are more troubled by the actions of police in the killing of George Floyd than by violence at some protests.
80% feel that the country is spiraling out of control
74% of Democrats believe it may take the next year or even longer to curb Covid-19 and return to work as normal vs.32% of Republicans who think the coronavirus is already contained.
63%, said they are concerned that they or someone in their family would catch the coronavirus, down from 73% in April.
64% say they always wear a mask when they leave the house vs. 21% who sometimes wear one and 15% who rarely or never do.
Bender “Americans Are More Troubled by Police Actions in Killing of George Floyd Than by Violence at Protests, Poll Finds” Wall Street Journal June 7, 2020; https://www.wsj.com/articles/americans-are-more-troubled-by-police-actions-in-killing-of-george-floyd-than-by-violence-at-protests-poll-finds-11591534801
Washington Post-ABC Poll: Public Adapting to Coronavirus Reality, Majority Worried about Second Surge
The survey includes responses from a national sample of 1,001 U.S. adults collected via phone from May 25-28. Key findings:
43% of respondents said they would definitely get a COVID-19 vaccine, while 28% said they probably would.
57% of respondents said it was more important to control the pandemic’s spread, even if it hurts the economy.
37% said it was more important to restart the economy, even if it hurts pandemic response efforts.
68% said they were somewhat or very worried about a second COVID-19 wave this fall.
42% said they personally knew someone diagnosed with COVID-19, up 11% from late March.
“May 25-28, 2020 Washington Post-ABC News poll” Washington Post June 2, 2020 https://www.washingtonpost.com/context/may-25-28-2020-washington-post-abc-news-poll
Axios-Ipsos Coronavirus Week 11: Race Matters
Three-fourths of African Americans say they’re extremely or very concerned that the coronavirus is doing greater damage to people of color. Only 30% of whites and 42% of Hispanics share that concern.
64% of Democrats and just 14% of Republicans see this disparity.
Women are more likely than men to worry about the racial inequities of the virus.
45% of respondents said they’ve visited friends or relatives in the last week, up 7% from the previous poll and up dramatically from its low point of one in five.
“Axios-Ipsos poll: America’s big racial divide on police, virus” Axios June 2, 2020 https://www.axios.com/axios-ipsos-coronavirus-week-11-george-floyd-db1a465c-957e-4f91-a21c-2f2aaf3600b4.html
CDC to Congress: Covid-19 Testing Goals Not Met due to Lack of Preparedness of State Labs
Last Thursday, CDC Director Robert Redfield, MD, told the House Appropriations Subcommittee on Labor, Health and Human Services that the CDC had developed a COVID-19 test within 10 days of the SARS-CoV-2 genetic sequence’s publication but blamed state labs for delays in getting testing underway explaining that testing “would be enhanced so much if we had a real-time actual data system across this nation.”
“Better COVID-19 Testing Data Needed, CDC Chief Tells House Members” MedPage Today June 4, 2020; https://www.medpagetoday.com/infectiousdisease/covid19/86894
S&P Outlook for Hospitals: Negative due to Coronavirus
“We expect nearly all for-profit and not-for-profit health service companies to be negatively affected in the near term, primarily due to very large declines in revenue from patient volume associated with the deferral of elective and non-emergent procedures…There are too many uncertainties to estimate with precision when deferred procedures will be restored to near pre-pandemic levels…We believe the second quarter of 2020 is the low point and we will see sequential improvement (assuming no second surge causing another total lockdown), though total patient volume for most hospitals, particularly outside of hotspot locations for COVID-19, will remain below historical levels for the balance of the year, and into early 2021.”
“A Bumpy Recovery Is Ahead For Hospitals And Other Health Providers As Non-Emergent Procedures Restart” S&P Global Ratings May 26, 2020; https://www.spglobal.com/ratings/en/research/articles/200526-a-bumpy-recovery-is-ahead-for-hospitals-and-other-health-providers-as-non-emergent-procedures-restart-11498942
Update: Drugs, Vaccines, Surgisphere
Vaccines: Last week, Dr. Anthony Fauci indicated the US should have 100 million doses of one Covid-19 vaccine by the end of the year. The first viable vaccine candidate: Moderna’s vaccine that should go into the final stage of trials by mid-summer.
Also last week, White House named finalists for Operation Warp Speed which aims to find a vaccine by the end of this year: Moderna, J&J, the AstraZeneca-Oxford joint venture and Merck.
Drugs: Gilead’s intravenous Veklury (remdesivir), which is effective for moderately ill Covid-19 treatment, will produce $6.7 billion in revenue in 2021 with a 19% profit margin, assuming the company prices each treatment at $5,000. Eli Lilly has started the first human trial of an antibody therapy designed to treat Covid-19.
Hydroxychloroquine: Per a randomized controlled trial testing hydroxychloroquine as postexposure prophylaxis, results showed those receiving the drug did not improve vs. those receiving placebo.
Two studies that relied on data from Surgisphere Corp. were retracted on Thursday. One was the large study in The Lancet published May 22 that found mortality and arrhythmia risks with hydroxychloroquine (HCQ); the other was in the New England Journal of Medicine on May 1 and showed antihypertensive drugs did not worsen COVID-19 risk. Authors of both papers said they could no longer vouch for the data’s accuracy.
“ COVID-19 Studies with Surgisphere Data Retracted” MedPage Today June 4, 2020; https://www.medpagetoday.com/infectiousdisease/covid19/86887
Boulware et al “A Randomized Trial of Hydroxychloroquine as Postexposure Prophylaxis for Covid-19” New England Journal of Medicine June 3, 2020; https://www.nejm.org/doi/full/10.1056/NEJMoa2016638
Beigel et al “Remdesivir for the Treatment of Covid-19 — Preliminary Report” New England Journal of Medicine May 22, 2020; https://www.nejm.org/doi/full/10.1056/NEJMoa2007764
Bob Herman “Wall Street forecasts blockbuster sales for Gilead’s coronavirus drug remdesivir” Axios June 3, 2020; https://www.axios.com/remdesivir-sales-predictions-gilead-coronavirus-adeb5473-9f7e-429b-a0a5-343903a9305a.html
Nursing Homes: CMS: States haven’t Inspected Nearly Half of Nursing Homes, Infections Related to Setting Location, Size
26,000 residents in the U.S 16,000 nursing homes have died due to Covid-19–a fourth of all U.S. deaths. Despite a CMS requirement, 46 states haven’t inspected all their nursing homes to make sure they’re meeting federal infection control standards with a deadline of July 31 approaching. In the CARES Act, Congress gave CMS $80 million to give to states to spend on nursing home inspections and related activities.
Study: Of 9,395 nursing homes in our sample, 2,949 (31.4%) had a documented COVID‐19 case. Larger facility size, urban location, greater percentage of African American residents, non‐chain status, and state were significantly related to increased probability of having a COVID‐19 case.
Abrams et al “Characteristics of U.S. Nursing Homes with COVID ‐19 Cases” June 2, 2020 Journal of the American Geriatric Society; https://doi.org/10.1111/jgs.16661
“Nursing Home COVID-19 Data and Inspections Results Available on Nursing Home Compare” CMS June 4, 2020; https://www.cms.gov/newsroom/press-releases/nursing-home-covid-19-data-and-inspections-results-available-nursing-home-compare
Trade Associations Petition Congress for 12% Medicaid Increase
Last Thursday, 20 leading healthcare trade groups with the notable exception of the American Hospital Association sent a letter to Congressional leaders Pelosi, Leader McCarthy, McConnell and Schumer asking Congress to enhance federal financing for Medicaid programs by at least 12%, with additional support for those states hardest hit by the economic shockwaves.
“Academy Urges Congress to Extend Medicaid Payment Increase” June 4, 2020 https://www.aafp.org/news/government-medicine/20200604fmapletter.html
CMS Makes Changes to Alternative Payment Models due to Covid-19 Disruption
Last Wednesday, CMS announced changes to the alternative payment models which essentially achieve two aims: delays financial risks and quality reporting until after the pandemic is no longer the major public health emergency and provides time for CMS to encourage higher levels of participation in their models.
The major changes are these:
Next Generation ACO: CMS is reducing downside risk by lowering shared losses by proportion of months; capping gross savings upside potential for Next Generation ACOs at 5%; cancellation of 2019 quality audit and extension of 2020 quality reporting through December 2021.
Direct Contracting Model: start date delayed 3 months to April 1, 2020.
Bundled Payments for Care Improvement Advanced: participants have the option to eliminate upside and downside risk and modify episodes for model year 2020.
Comprehensive Care for Joint Replacement Model: removal of downside risk by capping episode payments at the target price for episodes with admission dates from Jan. 31 through the public health emergency period and extension of appeals timeline for performance years three and four by 120 days.
Oncology Care Model: provides option to elect to forgo upside and downside risk for performance periods affected by the public health emergency and extends the program for one year through June 2022
Comprehensive ESRD Care Model: caps gross savings at 5%, removes the 2020 financial guarantee requirement, extends through March 31, 2021 and reduces 2020 downside risk by reducing shared losses by the proportion of months throughout the public health emergency period.
CMS previously provided regulatory relief for the MSSP and post-acute care programs. CMS is making changes to alternative payment models to increase savings for Medicare that favor fewer, stronger provider participation.
“CMS Innovation Center COVID-19 Flexibilities” CMS June 4, 2020 https://innovation.cms.gov/innovation-models/covid-19-flexibilities
Hospital System Affiliations for Cancer Care: Branding Play or Quality Improvement?
Patient outcomes after complex surgical procedures for cancer at top-ranked cancer hospitals (as ranked in top 50 by US News and World Report) were compared with outcomes at affiliates of top-ranked cancer hospitals (affiliation listed in American Hospitals Association survey and confirmed by search of internet presence). Adjusted long-term survival following cancer treatment at affiliate hospitals was only 77% that of top-ranked hospitals.
Background: a 2019 study of Medicare enrollees found that mortality after complex surgical procedures to treat cancer was 1.4-fold higher at affiliate hospitals compared with the top-ranked hospitals whose brands they shared.
Boffa et al “Survival After Cancer Treatment at Top-Ranked US Cancer Hospitals vs Affiliates of Top-Ranked Cancer Hospitals” JAMA Netw Open. May 26, 2020;3(5):e203942. doi:10.1001/jamanetworkopen.2020.3942
Hoag JR, Resio BJ, Monsalve AF, et al. Differential safety between top-ranked cancer hospitals and their affiliates for complex cancer surgery. JAMA Netw Open. 2019;2(4):e191912. doi:10.1001/jamanetworkopen.2019.1912
Humana Launches Medicare Clinic Expansion with Welsh Carson
Last week, Humana announced it will open 20 new senior-focused primary care centers over the next year in Las Vegas, Louisiana and Houston as part of its Partners in Primary Care $600 million venture with private equity giant Welsh, Carson, Anderson & Stowe. Humana Partners in Primary Care already operates 48 care centers located in Kansas, Missouri, North Carolina, South Carolina, Texas, and Florida that treat about 35,000 seniors enrolled in multiple Medicare Advantage plans.
“Partners in Primary Care Begins Major Three-Year Expansion with 20 New Centers” June 2, 2020 https://humana.gcs-web.com/news-releases/news-release-details/partners-primary-care-begins-major-three-year-expansion-20-new
Zipline, Novant Health Launch Drone Deliveries in North Carolina
Last week, Novant Health, a major hospital system in North Carolina, announced the launch of an FAA-approved “emergency drone logistics operation” that will deliver medical supplies to the Charlotte, NC metro area. The announcement marks the first time the FAA has approved long-range drone logistics flights. Novant Health’s operation is also the first to be cleared for Class D airspace, where the FAA actively manages all air traffic.
“Zipline, Novant Health launch the first long-distance emergency drone operation in U.S. to deliver PPE and medical supplies” CNBC May 27, 2020; https://www.cnbc.com/2020/05/27/zipline-novant-health-launch-us-drone-service-to-fight-pandemic.html
Rural Hospitals: What’s the Future?
The Johns Hopkins researchers analyzed the financial viability of 1,004 US rural hospitals that had maintained their rural status from 2011–17. Key findings:
The median overall profit margin improved for nonprofit critical access hospitals increased from 2.5% to 3.2% but declined for other hospitals from 3.0% to 2.6 % for nonprofit non–critical access hospitals, from 3.2% to 0.4% for for-profit critical access hospitals, and from 5.7% to 1.6% for for-profit non–critical access hospitals).
Compared to their urban counterparts, rural hospitals had median occupancy rates of 32% compared to 57%, charge markups of 2.6% versus 4.5%, and profit margins of 2.7% compared to 5.6%.
Bai et al “Varying Trends In The Financial Viability Of US Rural Hospitals, 2011–17”: Study examines the financial viability of 1,004 US rural hospitals that had consistent rural status in 2011–17” Health Affairs June 2020; https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2019.01545
Campaign 2020: Congressional Candidates Websites Rarely Focus on Child Health Policies
Researchers looked at 4600 campaign websites for Democrats and Republicans running for the U.S. House of Representatives between 2008-2018 and found that pediatric health was discussed on only about 14% of candidate sites in relation to health care or education issues. Only 11% mentioned specific pediatric health policies. More than 18% of sites for Democratic candidates included such policies, compared to fewer than 4% of Republican candidates’ sites.
Tyler J. Benning, Grayson B. Ashby, Christopher B. Chapp, Frequency and Specificity of Pediatric Health Policy Discussions in Political Campaigns JAMA Pediatr. June 1, 2020. doi:10.1001/jamapediatrics.2020.0932
JAMA: Electronic Health Records Vary in Dependability, ‘Buyer Beware’
A study published in JAMA Network Open last week by researchers at the University of Utah Health, Harvard University, and Brigham and Women’s Hospital in Boston found that the most commonly used EHRs in hospitals across the nation fail to detect up to 33% of potentially dangerous drug interactions and other medication errors that could harm or kill patients.”These findings suggest that, despite broad adoption and optimization of EHR systems in hospitals, wide variation in the safety performance of operational EHR systems remains across a large sample of hospitals and EHR vendors, and serious safety vulnerabilities persist in these operational EHRs.”
Classen et al “National Trends in the Safety Performance of Electronic Health Record Systems From 2009 to 2018” JAMA Network Open. May 29, 2020;3(5):e205547. doi:10.1001/jamanetworkopen.2020.5547
Study: Restrictions on Direct to Physician Access for Opioid Drug Rep’s Reduce Prescribing Patterns
Researchers examined the effects of 85 academic medical centers’ conflict-of-interest policies that restrict direct-to-physician marketing of all drugs on opioid prescribing by physicians in the period 2013–16. Bans on sales representatives were associated with a 4.7% reduction in the total volume of opioids prescribed and disclosure requirements with a 2.5% reduction, while limiting other marketing restrictions i.e. sponsored means et al was associated with an 8.8% reduction. “Policies that restrict direct-to-physician pharmaceutical marketing may curb opioid prescribing, but additional patient-level research is needed to understand how such policies affect the delivery of evidence-based treatment for chronic pain.”
Eisenberg et al “The Impact of the Academic Medical Center Policies Restricting Direct to Physician Marketing on Opioid Prescribing” Health Affairs June 2020; https://www.healthaffairs.org/doi/10.1377/hlthaff.2019.01289
Private Equity Deals with Providers: Steward, Enhanced Healthcare, CARES Act Funding
Cerberus: A group of physicians has acquired a 90% controlling stake in Steward Health Care, a Dallas-based health system operating 35 hospitals in nine states from Cerberus Capital Management.
Enhanced Healthcare Partners is acquiring Synergy Surgicalists Inc. and EA Health creating EA-Synergy. which will offer clinical staffing and management services for emergency medicine, orthopedic and general surgery staffing, as well as specialty on-call services.
Bloomberg reports that private equity companies have borrowed at least $1.5 billion through federal government emergency relief funding through programs intended to help struggling health care companies during the coronavirus pandemic. Examples: KKR received $60 million via subsidiaries of KKR-owned companies and has more than $58 billion of cash to invest. Apollo Global Management started the year with about $46 billion, but its health care facilities received at least $500 million in loans. Noting that PE has invested $10 billion in private medical practices in recent years, Bloomberg said ““the paradox of private equity funds, which profit from tax breaks the U.S. offers on debt, is that even when they’re brimming with cash, there is little incentive to use it to prop up their struggling investments.”
“Team of Steward Doctors Acquire Controlling Stake of Steward Health Care” June 3, 2020 www.steward.org
“Private Equity Lands Billion-Dollar Backdoor Hospital Bailout” Bloomberg June 2, 2020 https://www.msn.com/en-us/finance/companies/private-equity-lands-billion-dollar-backdoor-hospital-bailout/ar-BB14UxzH
“Private equity is ruining healthcare” Bloomberg May 20, 2020 https://www.bloomberg.com/news/features/2020-05-20/private-equity-is-ruining-health-care-covid-is-making-it-worse
Private Insurer Participation in Exchanges Increasing
Urban Institute researchers analyzed exchange enrollment data in 39 states for 2016-2018. Key findings:
Blue Cross Blue Shield-affiliated insurers account for 47% of marketplace enrollment in 2018, down slightly from 2017.
Medicaid insurer enrollment grew from 15%of the marketplace in 2016 to 26% in 2017 and 27% in 2018. Enrollment in national and regional insurer plans fell from 33% in 2016 to 14% in 2018. Thus, most of the growth in Medicaid plans essentially replaced enrollment in national and regional insurers.
Provider sponsored insurers consistently had 8 to 11% of enrollment, Co-ops had 2 %.
“Which Types of Insurance are Marketplace Enrollees Choosing?” Urban Institute June 1, 2020; https://www.urban.org/research/publication/which-types-insurance-are-marketplace-enrollees-choosing
JAMA Health Forum: Are State Health Spending Benchmarks the Future?
In 2018, national health care spending increased 4.6% reaching $11 000 per person. Some states are setting benchmark spending targets: others are expected to follow.
Massachusetts’ Health Policy Commission initially set at 3.6% in 2013 and now at 3.1%
Delaware Executive Order in November 2018 setting benchmark at 3.8% in November 2018.
Rhode Island benchmark of 3.2% for 2019.
Oregon benchmark of 3.4% to go into effect in 2021.
Connecticut Office of Health Strategy benchmark program for 2021 which includes a goal of increasing primary care spending to 10% of total spending by 2025.
Elsa Pearson, Austin Frakt “Health Care Cost Growth Benchmarks in 5 States” JAMA Health Forum June 4, 2020; https://jamanetwork.com/channels/health-forum/fullarticle/2767017
NACD: How Boards should Address Systemic Racism in America
The National Association of Corporate Directors is advising boards of directors to develop a four-part strategy to combat systemic racism: Demonstrate purpose and values; Elevate the experts; Allocate corporate resources; and Clarify expectations of the CEO. It also encourages boards to make sure there’s a key role in the C suite for the organization’s Chief Diversity, Equity and Inclusion officer.
Buscecsu, Orme“How Boards Can Help Address Systemic Racism in America” National Association of Corporate Directors June 4, 2020; https://blog.nacdonline.org/posts/boards-address-systemic-racism