County and hospital leaders sat down for a long look at the negative impacts of mergers in the past and the potential benefits of new forms of healthcare that could include addressing affordable housing and food deserts. Then they answered reader questions, including: whose idea was a sale, where will the money go, how can the public have a say, and is Medicaid involved?
WILMINGTON — Barring a last-minute change of mind, county commissioners are likely to approve exploring options for selling, leasing, or otherwise partnering the New Hanover Regional Medical Center with a larger healthcare system. Doing so will take the hospital into so-called ‘uncharted waters,’ as the healthcare system both nationally and locally face potential upheaval — and, as hospital officials acknowledge, there’s a wide spectrum of possible outcomes between the dire predictions based on past examples and optimistic hopes based on new approaches to healthcare.
A majority of New Hanover County commissioners – Patricia Kusek, Woody White, and Julia Olson-Boseman – have stated they will approve a resolution on Tuesday, September 3. However, New Hanover County Manager Chris Coudriet and NHRMC President and CEO John Gizdic have repeatedly stated that although Tuesday’s resolution is entitled an “intent to sell” it could result in a broad range of options. Given the concerns voiced by Coudriet, Gizdic, and commissioners about the financial future of the hospital – among other issues – it is unlikely the end result will be the current status quo.
The county could decide to sell the hospital outright, lease its operations, or enter into a new partnership or partial sale. That’s led to questions, ranging from what happens to costs and quality of care, to what the benefits for the region are, to why this is happening now (and whose idea was it?).
Coudriet and Gizdic agreed to a two-hour interview to address many of these issues, including a much more specific look at what, exactly, the looming “uncertainties” of the healthcare industry on the horizon are, as well as a chance to answer some reader questions. They also addressed possibilities for NHRMC that, while deep in uncharted waters, would be very, very different from the region’s current healthcare system.
Negative impacts of mergers
Healthcare mergers get a bad rap and according to many experts, they’ve earned it. Predictions include a honeymoon period, but then a trend towards a common set of consequences, including increases in health insurance premiums, decreases in hospital wages, and consolidation of a hospital’s best resources towards larger urban centers.
Dr. Gerard Anderson, director of the John Hopkins Center for Hospital Finance Management, put it starkly:
“Everyone involved with a hospital sale promises to maintain quality of care, reduce prices, maintain charity programs,” Anderson said. “Everyone claims this, no one delivers it.”
Anderson noted that when smaller hospitals are brought into larger systems that are facing financial concerns, the impetus is to cut costs. And, in some drastic cases, Anderson said hospitals are shut down. He gave the example of Hahemann Hospital in Philadelphia, which was purchased by American Academic Health System, an affiliate of the for-profit Palladin Healthcare, LLC, and then shut down completely this summer.
Kevin Schulman, currently at Stanford Graduate School of Business, addressed the impact on insurance premiums. Schulman specifically discussed the potential Atrium merger with Wake Forest Baptist Health, saying a “back of the napkin calculation” showed it would take upward of 35-percent increases in premiums to make the deal financially worthwhile for Atrium. In general, Schulman said, premiums increased between 10 and 30 percent following mergers he had studied.
Schulman also noted that these impacts were often delayed, noting that “at a national level what we see very generous offers for three years – and then three years from now you have no control of the situation.”
North Carolina State Treasurer Dale Folwell has also been vocal on the issue, focusing on the impact mergers have had on tens of thousands of state employees.
“All the evidence points to consolidation and mergers like this driving up the prices up… and decreasing patient outcomes,” Folwell said. “We’re not saying this because other people are saying this — we’re saying this because we see the bills.”
NHRMC CEO John Gizdic’s response to dire predictions
Gizdic acknowledged that in many cases, mergers had led increased costs. However, he countered that in his own 28 years of experience in North Carolina he had “never seen any of what they said” and pointed to local examples – including increases in services offered at Brunswick Medical Center under Novant’s ownership, and the success of Atrium’s management agreement in Columbus County. He also noted that both Atrium and Novant had implemented their “own versions of living wages,” approaching a $15-an-hour minimum.
Certificates of need (CON) also afford protection against the kind of ‘resource-mining’ predicted by some experts, Gizdic said. Under state law, CONs prevent unnecessary duplication of hospital services in certain areas. And, while CONs don’t prevent a healthcare system from taking services out of a region, the would prevent to some extent the centralizing of regional care to Charlotte or Durham, because the CONs for those counties would block it. While CONs can be modified and appealed, Gizdic noted that – based on the density of medical services already in those areas – it makes it far less likely that a healthcare company would try to do so.
He also pointed to several academic studies that included a minority of mergers that did, in fact, show increased quality in care and decrease in costs. These hospitals had the benefit of what he called “intentionality,” or – essentially – being able to dictate terms during a merger as opposed to being simply ‘acquired.’ Gizdic said it was his speculation that those hospitals that benefited from mergers were those that “got the process started before they were in [financial] trouble.”
Gizdic also made a point of noting, in those cases where mergers drove up premiums, it was the insurance companies that profited.
“Why aren’t we having a conversation about Blue Cross Blue Shield of North Carolina? Why don’t we have a conversation about their 84% market share? Why aren’t we having a conversation about the $700 million in profit they made last year alone? We haven’t made that in the last decade. Yeah, they made it last year on premiums, we’re paying that – subsidizing care around the state,” Gizdic said.
Ultimately, Gizdic noted much of how a merger plays out depends on who the merger is with. He acknowledged that there could be a spectrum of results, including – at one negative end – a situation where costs went up and some of NHRMC’s hallmark services fell prey to consolidation. But, he noted, there are also potentials situations where healthcare isn’t just improved but would be radically changed.
Getting past the jargon: What’s ‘value-based healthcare’?
The absence of drawbacks of a merger isn’t the same as an argument for a merger. So, to understand why Gizdic thinks a merger might be beneficial, you have to take a look at what’s called ‘value-based healthcare.’
One of the major “uncertainties” that have been debated in somewhat abstract terms recently is the potential change from ‘fee-for-service’ to ‘value-based’ healthcare. Gizdic argued that all of the negative merger situations cited by experts took place under the ‘fee-for-service’ model — one that may be usurped by a very different model.
A position paper on the future of healthcare, authored in 2016 by the Healthcare Financial Management Association and provided by NHRMC, notes a “murky forecast” for the industry and states “Much depends on the degree to which changes in the industry represent a break from historical trends. In the past, neither health plan consolidation nor provider consolidation has led to lower consumer prices.” The paper notes that, to buck those trends, the industry needs to move away from ‘fee-for-service’ and to increase cost transparency.
Fee-for-service is the mainstream model for healthcare in the United States, where hospitals charge and receive reimbursement based on individual services. Many hospitals – including NHRMC – often bill a la carte: bills include individual line doses of medicine, bags of saline, tests, procedures, consultations, and so on.
This model has many issues, not least of which are major discrepancies in procedure costs, Gizdic said. Two similar patients have little certainty of paying the same out-of-pocket costs for the same procedure, even if they have comparable insurance plans and visit similar (or the same) hospital. Something as simple as the cost difference between IV and tablet Tylenol (which do the exact same thing, medically) can impact a bill. Gizdic noted that, because of this, even the new laws regulating hospital pricing transparency are not helpful, because patients cannot effectively guess which individual line items will ultimately stack up on their bill.
Because of this, even without complications, costs for a procedure can vary wildly. And, while many hospitals will offer cost estimates, there are no laws making those figures enforceable — as the Kaiser Health Network has reported, industries like real estate and construction are regulated or are open to civil liability for cost fluctuations, a hospital can’t be sued if a procedure comes in over an original estimate.
There have been some efforts to combat this – including “bundling” in Medicare and Medicaid – that seek to define set pricing for particular procedures. But even these have their drawbacks. For example, in patients with multiple and overlapping issues, doctors have an incentive to “shift” treatment away from their bundle to keep costs down.
Early steps towards value-based healthcare
Gizdic said these plans are steps in the right direction, but the endgame he has in mind is referred to as “capitated” or more specifically “value-based” healthcare. In this model, hospitals ultimately bill – and are reimbursed – per person’s overall health. In other words, costs aren’t based on the number of nights in a hospital or how many X-rays a patient gets, they’re based on the total health outcome a person receives. (Yes, it’s way more complicated than that — but it’s the rough idea.)
If that sounds like a fairly radical change, it is — and Gizdic notes that no one knows exactly how or when a shift to ‘value-based’ care will happen. But there is some evidence that the shift is already underway.
Recently, Blue Cross has signed five contracts with major healthcare systems around North Carolina that take a step in this direction. According to the New York Times, these contracts pay healthcare providers a set amount per capita (thus, ‘capitated’ healthcare) instead of amounts based on individual procedures or nights in the hospital. What’s more, the contracts can cut reimbursements to hospitals if they don’t provide quality results.
These contracts are something of an experiment, and it’s not clear how they’ll play out. But they’re a movement towards something even more different. According to Gizdic, a full commitment to value-based healthcare could mean things like using the general pool of ‘per-patient’ funding to address issues that currently fall outside of traditional healthcare, including addressing affordable housing and food deserts.
Asked if Gizdic was actually talking about a scenario in which NHRMC would take significant amounts of funding usually spent on facility upkeep, staff, and materials and use it to, for example, build affordable housing units and help facilitate putting grocery stores in food deserts (i.e. in the Northside or Greenfield Lake regions of Wilmington)?
“I would not only say yes, I’d say we’re already doing it,” Gizdic said.
Gizdic pointed to nutrition education outreach and funding for Habitat for Humanity projects as embryonic versions of what value-based healthcare could look like.
Why would a hospital go so far outside the traditional mandate of healthcare? According to Gizdic, value-based healthcare aims to save money by worrying about a person’s whole health. That means, in part, detecting and managing early signs of diabetes, substance abuse, or heart disease – even if the patient comes in for a broken wrist. But it also means identifying some major factors in poor health, including insecure housing, inadequate access to healthy foods, and other “social determinants of health,” as Gizdic called them.
“I’m not saying let’s be socialist or anything like that,” Gizdic said. “But that’s what we’re calling value. The social determinants of health. Housing is health. Food is health. Education is health — poverty, is health,” Gizdic said.
There’s a big question though: how do you make that work?
What does value-based care have to do with mergers?
It’s not clear what, exactly, would be the tipping point to shift the healthcare industry as a whole to a value-based system. Coudriet and Gizdic said that, in theory, there’s nothing preventing the hospital from switching today. But to make it work in the real world, NHRMC needs at least two things: data management and risk capacity.
Both of those, Gizdic said, would be improved by a merger.
Healthcare requires a lot of data management, entire industries have grown out of it. Value-based systems would require more — and it’s not cheap. Software and staff for the kind of advanced data systems that could track hundreds of thousands of patients could cost millions. Additional costs could come from the use of ‘predictive analytics’ — healthcare algorithms that can help institute preventative care (which is cheaper for the patient) before they need medication or surgery (which are far more expensive).
Most experts argue that mergers don’t drive down costs through ‘economies of scale.’ NHRMC already has an ‘economy of scale’ agreement with Atrium, which allows it to purchase supplies at a lower rate. But Gizdic argues that, when it comes to software, NHRMC would be able to leverage the software and data of a larger healthcare system.
The second issue is risk. Value-based healthcare works based on a certain amount of funding per individual. The more people in a system, the more broadly the risk is spread out.
It’s possible that the costs of affordable housing, for example, result in overall savings in medical needs — but sometimes medical needs will be unavoidable. Injuries, congenital disorders, cancer: these are expensive. The more people in a system, the less the burden everyone paying into that system.
Right now, spreading risk over a large population is what insurance companies do. But, according to Gizdic, it’s also something NHRMC could do, if paired with a larger enough partner.
“The way I look at it is, I’d like to have a partnership, whatever that model is with a larger health system. So that I can pull the resources I want need for our region. Then … do we even need Blue Cross and Blue Shield of North Carolina, if we’re taking the risk, aren’t we kind of sort of becoming an insurance company? If you’re sending me one payment, that kind of feels like a premium payment,” Gizdic said.
Gizdic noted that, like any other insurance plan, this could include wrap-around coverage that would, for instance, cover a New Hanover County resident if they needed medical care while out of town.
Although it would be a radical change, NHRMC is already taking steps in this direction, Gizdic said, pointing to the role out of a ‘private label’ NHRMC medicare plan.
“We’re taking the risk, right? Why should Blue Cross make $700 million a year? That money’s not going to care, right? That’s money not going to affordable housing in southeastern North Carolina,” he said.
Ultimately, Gizdic and Courdriet’s argument is that, with a partner to help spread the burden of data management and risk, NHRMC could move to value-based healthcare instead of waiting for federal, state, or health insurance policy to do it first.
It’s worth point out that it is unlikely NHRMC could do these things on its own. While NHRMC has been taking baby steps towards value-based care, it seems to be Gizdic’s opinion that without a partnership, the hospital will have to wait and see how industry trends go, instead of setting its own path.
Does NHRMC have the leverage to make it happen?
Gizdic is talking about redefining the healthcare system from stem to stern (one of many nautical metaphors that seem to crop up around the issue). The question is — are there any large healthcare networks that are willing to bet on such a radical transformation?
And, just as importantly, if New Hanover County sold NHRMC, could it contractually mandate that the new owner make such potentially risky changes?
The answer to the question is, no one knows. Coudriet said that writing such an ambitious mission into a Request for Proposals (RFP) would be one of the most difficult tasks the county had ever undertaken. In addition to the bold aims of value-based care, the county also wants to see the hospital’s no-layoff policy maintained, a continued dedication to living wages, charity care (to the tune of $200 million annually), community outreach, and partnerships with numerous local organizations. In addition to its long-time consulting firm Navigant, Coudriet said the county would assemble a panel of experts to try to put into legal language what the county wants to see from NHRMC, whether it’s through a lease, a sale, or a mutual partnership.
Coudriet did say that he wanted the process to be open and transparent and that there would be plenty of time for both the county and residents to learn about which entities had submitted proposals.
For the second question, Coudriet said he believed that while the county, if assisted by an appropriate team, could “steer a vision” through a contract, complete with punitive options, to make sure a buyer did not deviate from that vision, even several years down the line. Gizdic added that, while “nothing is forever,” he expected to be able to look at communities served by healthcare companies – some for upward of 20 years – and see what the outcomes there had been.
One of the critiques of the potential sale of NHRMC is the “loss of local control” — an argument made by current Commissioner Rob Zapple and former commissioner and current State Representative Ted Davis.
Gizdic and Coudriet both said that a frequent suggestion on social media – a 49% percent sale that would leave New Hanover County as the majority owner, was definitely an option.
However, in the event of a total sale or wholesale lease Gizdic noted that almost every hospital has a local board. Coudriet said there would be nothing preventing the county from writing ‘local control’ into an RFP.
“I would expect that an RFP is going to require as much decision making at the local level as we want… How much delegation of authority and decision making is going to be given to that board? I would think We will have a very high expectation,” Coudriet said.
Gizdic also noted that, while the county commissioners do have some reserve powers of the hospital, NHRMC’s operation is largely guided by hospital management in response to industry trends and the medical needs of the public.
What will happen to the money?
One of the first things seized upon people after the announcement that the county could explore a sale was the potential price tag of NHRMC. Figures quickly escalated from Gizdic’s initial “several hundred million dollars” to a billion dollars, to $1.3 and $1.4 billion being tossed around now.
Many have pointed to NHRMC’s own articles of incorporation, updated in 1986 to specify what could be done with the proceeds from a sale or lease.
The money could go into a trust – like the $1.5 million Dogwood Trust that came from the sale of Mission Health in Asheville to for-profit hospital group HCA. It could also be distributed to other new or existing 501(c)3 non-profit groups charged with a limited range of health-related goals.
County spokeswoman Jessica Loeper said that any funds from the sale could also be used by New Hanover County for any public purpose (i.e. the county could retain the proceeds of a sale or lease and not redistribute them). It’s worth noting that the county is, itself, a tax-exempt organization.
Public input: Referendum, survey, hearing
Some have asked if the potential sale of upward of a billion dollars in assets should be put to a public vote. While North Carolina allows state-wide ballots and, in a few select cities, local voter initiatives, there is apparently no legislative instrument for a county-wide vote (at the least, it seems unlikely that the general assembly would pass a bill, placing a state-wide ballot measure affecting only one county out of 100).
Coudriet did not rule out the possibility of a community survey as part of the county’s efforts to gather public input both on a possible sale and on the potential uses of proceeds from such a sale (you can find NHRMC’s current outreach website here).
Coudriet said he would rely on professional staff to direct financial re-investment of funds, but in terms of county projects funded by a lease or sale, he said “I don’t think there’s any question that the commission would work to the community to do that, from any number of ways we have done community surveys now. We have a pretty active social media platform, I think there would be many different vehicles to hear from the community about what we should or shouldn’t do.”
There will be at least three state-mandated public hearings if the sale process continues, in addition to efforts by the county to maintain online information portals and social media updates, according to Loeper.
It’s less clear how much of a say residents in Brunswick, Pender, and the other four counties served by NHRMC will have. Although NHRMC has services across the region, it is owned by New Hanover County, so commissioners in those other counties won’t have a vote. Coudriet said it hasn’t yet been discussed what role officials from those counties will have in the process of moving forward with a sale.
“Whatever happens, we’ve got to make sure there’s a vehicle for all seven counties that are really direct beneficiaries of this system have an opportunity to speak to what is important to them about health care and access and quality and cost,” Coudriet said.
Behind the scenes deal?
It has been suggested across social media that a sale – and even a particular buyer – is a forgone conclusion. Accompanying such suggestions have been accusations that members of the NHRMC Board of Trustees and management team, or New Hanover County commissioners and top staff have already had conversations about specifics of a deal — conversations that would have made several weeks of public hearings entirely for show.
For the record, Coudriet and Gizdic were asked if the public hearings had been a “dog and pony show,” if there was already an interested party or parties, and if conversations or negotiations were already underway. Both staunchly denied that any of those things were true.
Both Coudriet and Gizdic did both further say that they did not stand to benefit in any way from the sale. Both noted that, because of the controversial nature of the proposal and its inherent risk, both were risking their professional careers on exploring a sale.
Lastly, Coudriet and Gizdic stated that the decision to explore the sale did not come from a county commissioner — or any individual stakeholder. Gizdic noted that in open meetings for years he has discussed possible restructurings or management options for NHRMC.
Impact of Medicaid expansion
Many have asked about the impact of Medicaid and, although it’s not a factor in the exploration of a sale, Gizdic briefly explained the factors.
The potential to expand eligibility in North Carolina has been a divisive partisan issue across the state. The move would make more people eligible for coverage, with the federal government picking up 90 percent of the additional tab — but leaving hospitals on the hook for the remaining 10 percent. NHRMC will receive about $14.3 million in additional Medicaid payments, but will also have to pay several million – the exact number is not known yet – as part of the plan. The net gain for NHRMC, according to Gizdic, could be about $10 million.
At the same time, new managed Medicaid rules – taking effect in New Hanover County in February — will eliminate additional payments made to NHRMC for serving a disproportionate number of Medicaid patients, costing NHRMC about $46 million annually; hospitals across the state will instead all receive a higher base rate, which will put more money back into the hospital. In the end, new managed Medicaid rules come out to a $20 million loss for NHRMC.
Taken together, NHRMC takes an estimated $10 million loss. Gizdic, who said he’s in favor of Medicaid expansion, said it was an important issue that shouldn’t be partisan, but noted it had no real impact on the consideration of a sale.
New Hanover County Commissioners will vote on whether or note to solicit RFPs for the sale, lease, or partnering of NHRMC on Tuesday, September 3 in the New Hanover County Government Center at 4 p.m.
It is important to note that while the meeting is open to the public there is no public hearing during this meeting.
Send comments and tips to Benjamin Schachtman at firstname.lastname@example.org, @pcdben on Twitter, and (910) 538-2001