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Dear Friend,
A 171 year old hospital is about to bite the dust.
It’s easy to be a backseat driver, but in the context of case flight from hospitals to outpatient facilities, buying large hospitals from national chains “because we can run them better” is a bit risky.
Well, what the heck, it’s incredibly risky, so risky in fact, that one investor, Joel Freedman, and his company American Academic Health System LLC, an affiliate of Paladin Healthcare of El Segundo, California, just announced that they’re closing down one of the hospitals they purchased from Tenet less than two-years ago.
The hospital in question: 171 year old, 496-bed Hahnemann Memorial Hospital in Philadelphia, a teaching facility affiliated with Drexel University’s medical school.
Unless something drastic changes very quickly, no one is going to have to drum up 172 candles for Hahnemann’s next birthday.
News reports indicate that the facility is saddled by longterm insurance contracts with low reimbursement, a significant Medicaid population, high operating costs, and an overall declining patient census.
And, it’s not as if Mr. Freedman and his crew at American Academic Health System didn’t do all that they could to turn the facility around. He sold other healthcare investment assets and even moved his entire family to Philadelphia. He obviously stands to lose millions.
And, it’s not as if Tenet sold them a pig in a poke: It was no secret that the hospital lost money each and every of the 14 years it was owned by Tenet.
Year by year, month by month, the hospital business is eroding. The type and number of cases that can be performed on an outpatient basis is growing. And, sooner or later, very few will be performed in hospital outpatient departments. That’s both because HOPDs are more expensive than ASCs, and because, with tremendous shortsightedness, Obamacare, upon the lobbying of the American Hospital Association, pushed physicians out of hospital ownership. Good timing, right? They succeeded in protecting a dying business by pushing those who can influence referrals to refer those patients somewhere else.
There are, of course, exceptions, and well-run, small hospitals, especially physician-owned facilities outside of the bureaucratic prohibitions (update – once again there is new federal legislation in the works to end the prohibition on physician ownership of Medicare participating hospitals), can make sense under the correct circumstances and location.
So too, do physician-forward “hospital-like” ventures combining ASCs, imaging facilities, aftercare and medical office buildings.
Do yourself a favor. Even if the prohibition on physician investment in Medicare participating hospitals ends tomorrow, don’t go buying a gigantic facility that has lost money every year for as long as anyone can remember and that serves as a quasi-social services agency. Instead, explore facility ventures that make sense.
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| | Tuesday - Success in Motion Video: But, Does the Deal Make Sense?
Watch Tuesday's video here, or just keep reading below for a slightly polished transcript: |
| | Does the deal make sense? Does it actually make sense?
These are forms of a question that, unfortunately, doesn’t seem to be asked that often in many healthcare deals.
There’s a fear of missing out - everyone else is selling their ophthalmology practice, why shouldn’t we? Everyone else is entering into exclusive contracts with systems . . . maybe there’s a reason why hospitals want to contract system-wide that cuts in their favor and not in yours.
Maybe those are examples of real issues for you or maybe they're not, but the underlying point still applies to you in any dealmaking context: Always ask the question, "does this particular deal actually make sense, and does it make sense for us?"
Many deals seem to make sense on paper, but they don’t make sense in reality. Many deals make sense in reality, but on paper it’s hard to see why, or, even worse, on paper they attract unwarranted attention.
Remember, just because everyone else is doing it doesn’t mean it’s right for you.
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| | | Wednesday - Medical Group Minute Video: Does More Financial Pressure on Hospitals Signal the Return of Questionable Medical Directorship?
Watch the video here, or just keep reading below for a slightly polished transcript:
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| In the Wild West days of the 1980s and 90s, it wasn’t uncommon to see as many medical directors receiving stipends from a hospital as there are aspirins in a Costco-size bottle.
There were medical directors of this and medical directors of that. All designed, of course, to cement or bond or align (which, in 1990, was a word chiefly applied to automobile wheels) physicians who directly or indirectly referred significant numbers of patients to the hospital.
Sure, lots of those arrangements were legal. But lots weren’t.
Due largely to enforcement actions under criminal (the federal anti-kickback statute and state counterparts) and civil (the federal, i.e. Stark, and state prohibitions on self-referral) regulatory regimes, the occurrence of softball, fluff, and close-to-or-actually-completely-BS medical directorships waned considerably over the ensuing years.
But they didn’t go away.
Consider the warning shot fired by the Office of Inspector General of the U.S. Department of Health and Human Services (the “OIG”) in its June 2015 Fraud Alert: Physician Compensation Arrangements May Result in Significant Liability.
In the Fraud Alert, the OIG warned that physicians entering into medical directorships must ensure that they involve fair market value for bona fide services that the physicians actually provide. The OIG warned that a compensation arrangement may violate the anti-kickback statute if even one purpose of the arrangement is to compensate a physician for his or her past or future referrals of Federal health care program business.
The Fraud Alert cited the OIG’s settlements with 12 individual physicians who were alleged to have received improper medical director compensation. The OIG alleged that the compensation violated the anti-kickback statute for a number of reasons, including that the payments took into account the physicians’ volume or value of referrals and did not reflect fair market value for the services to be performed, and because the physicians did not actually provide the services called for under the agreements.
Today, and tomorrow, as more and more surgical procedures leave the hospital setting for ASCs and other outpatient facilities, query whether hospital administrators will revisit medical directorships with renewed fervor as they seek ties that bind.
Certainly, many medical directorships can be structured to be in compliance with applicable law and regulation. Others are simply attractive traps: they are ties that blind.
Among the many factors that physicians must consider when vetting and negotiating medical directorships are: (1) the demonstrable establishment of fair market value; (2) the actual, provable, and documented performance of duties; and (3) the relevance of duties (e.g., tasks and responsibilities that are not duplicative of hospital administrative staff roles).
Of course, for maximum assurance, directorship deals should comply with the relevant federal anti-kickback statute safe harbor. And, if the physician is in a position to refer for designated health services under Stark, the deal must fit within one of that law’s mandatory safe harbors.
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| | Thursday - Podcast: Conflicts of Interest: Do You Have One? |
| Listen to the podcast here, or just keep reading for the transcript
Conflicts of interest. Everyone’s talking about them. Do you have one? They’re apparently bad. Or are they?
But what in the heck does “conflict of interest” even mean?
When you think about it, “conflict of interest” is a term of a type similar to those other PC favorites, “greed” and “fair share” (which, by the way, are two sides of the same coin): terms that are simply lobbed at someone in an attempt to gain the upper hand. Oh, and conflicts of interest prohibitions are the basis for termination, lawsuits, and arbitration without the right to conduct discovery.
Reality check: Life is filled with conflicts of interest. My interests are different than yours, your interests are different than mine, and both of our interests are different from that of a third person’s. So, we all have conflicts of interest and that doesn’t make it bad, it only makes it a fact that they exist.
In my work representing medical groups in their dealings with hospitals and health systems, I’m seeing more and more facilities imposing prohibitions on “conflicts of interest” via contract. And some are even attempting to impose “conflict of interest policies” on all affiliated physicians via the medical staff’s bylaws or rules.
What are those provisions? Are they simply a disguised form of covenant not to compete, which may or may not be legal? Are they restrictions on referrals outside of the hospital’s sphere, in violation of a number of federal laws? Are they, in essence, backhanded ways of requiring physicians to refer to the hospital, creating potentially, both federal anti-kickback statute and state law violations, and, depending on other terms involved, violations of Stark?
I don’t know exactly what a conflict of interest is, but beware if you’ve agreed not to have one. Because even the threat of one can be used as leverage for getting you to stop doing whatever it is that you’re doing or to prevent you from doing whatever it is that you want to do.
I know that hospitals don’t see it this way. All they ask is that you stop being greedy and give up a fair share (i.e., all) of your interests. After all, they deserve it.
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| | | | We all hear, and most of us say, that the pace of change in healthcare is quickening. That means that the pace of required decision-making is increasing, too. Unless, that is, you want to take the “default” route. That’s the one is which you let someone else make the decisions that impact you; you’re just along for the ride. Of course, playing a bit part in scripting your own future isn’t the smart route to stardom. But despite your own best intentions, perhaps it’s your medical group’s governance structure that’s holding you back
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| In fact, it’s very likely that the problem is systemic. The Medical Group Governance Matrix introduces a simple four-quadrant diagnostic tool to help you find out. It then shows you how to use that tool to build your better, more profitable future. Get your free copy here.
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| | | | Whenever you're ready, here are 4 ways I can help you and your business:
1. Download a copy of The Success Prescription. My book, The Success Prescription provides you with a framework for thinking about your success. Download a copy of The Success Prescription here.
2. Be a guest on “Wisdom. Applied. Podcast.” Although most of my podcasts involve me addressing an important point for your success, I’m always looking for guests who’d like to be interviewed about their personal and professional achievements and the lessons learned. Email me if you’re interested in participating.
3. Book me to speak to your group or organization. I’ve spoken at dozens of medical group, healthcare organization, university-sponsored, and private events on many topics such as The Impending Death of Hospitals, the strategic use of OIG Advisory Opinions, medical group governance, and succeeding at negotiations. For more information about a custom presentation for you, drop us a line.
4. If You’re Not Yet a Client, Engage Me to Represent You. If you’re interested in increasing your profit and managing your risk of loss, email me to connect directly. |
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