Thursday, December 11, 2014

Two leaky lifeboats strapped together?

Priyanka Dayal McCluskey and Robert Weisman at the Boston Globe report that Boston Medical Cemter and Tufts Medical Center are considering a merger, "a deal that, if approved, would be the biggest union of Boston teaching hospitals in nearly two decades."

They note:

A merger would link two nonprofit hospitals that both treat many low-income patients and have endured financial struggles.

While such conversations are worth pursuing, the issue facing the institutions is whether they would be stronger together than they are separately.  If not, this could be a case of strapping two leaky lifeboats together, leading to a faster demise than if they remained apart.

What are the obstacles to success?  First, one of the consequences of the Affordable Care Act has been a diminution in public support for safety net hospitals, like BMC.  There's no indication that government policy will change on that front.

Second, TMC has the weakest referral base of all the teaching hospitals in Boston and, despite best efforts on that front, it remains behind the other big hospitals on that front.

Third, BMC has a large number of unions (is it 14?) that, in the words of a prior CEO, "make it impossible to manage."

For a merger to succeed financially, we need to look for accretive value.  Would it be possible to eliminate layers of overhead, achieve economies of scale in purchasing and other functions, and negotiate better contracts with insurers?

Is it possible to rationalize areas of clinical care?  For example, both hospitals have kidney transplant programs that are, frankly, too small to justify in the own right.  By combining them, costs could be reduced and outcomes likely improved.  Might there be other examples?

But it is often  difficult to accomplish such rationalizations, in that the doctors in each hospital might feel a proprietary interest in their programs.  Someone would have to negotiate a new clinical leadership agreement.

Which brings up the biggest issue of all:  Most mergers are not mergers.  They are takeovers by one party.  The BIDMC example is apt.  A so-called merger of New England Deaconess Hospital and Beth Israel Hospital in the mid-1990's was actually a takeover of the former by the latter.  This led to resentment, alienation, and near bankruptcy.  (In contrast, the successful "merger" of MGH and Brigham and Women's Hospital to create Partners Healthcare System was not a clinical merger at all.)  The cultural issues associated with mergers reign supreme, and I trust that the parties at BMC and TMC are thinking through those aspects as well as the clinical and business aspects.

Interestingly, the Globe story notes that while Tufts is connected with Tufts University School of Medicine and BMC is affiliated with Boston University School of Medicine, "the medical schools . . . would not be part of the deal."

A question to ask is, why not?  We don't need to consider a merger of the two medical schools to rationalize their undergraduate medical education and graduate medical education programs.  There might be efficiencies to be garnered there.  And with the weakness of its other education affiliate, Steward Healthcare, perhaps Tufts Medical School should be considering more of a strategic alliance with its colleagues at BU to ensure the strength of its medical education program.


nonlocal MD said...

As an outsider I have no comment on the issues you raise except to agree, BIG mistake to keep the medical schools separate. This leads to division of loyalties and logistical difficulties that will plague them for years to come and eventually endanger their accreditation. Whatever obstacles which seem to them now too high to surmount will be dwarfed by those which can arise if they are not merged. Quite frankly, Boston will easily survive the loss of one medical school.

Anonymous said...

Hi Paul,

Some comments on your post.

You mention Tufts Medical Center has a poor referral base. That is factually not true if by referral base you mean advanced medical cases which produce a high case index. TMC has not tried to pursue medical cases that could better be done in community hospitals.

The following is based on 2012 CHIA Data (Mass State Government)

Case Mix indexes

Tufts 1.51
MGH 1.50
Lahey 1.47
B&W 1.39
BID 1.24
BMC 1.15

Tufts Medical Center has a high case mix for referrals. It currently has over 2000 doctors and over 500 primary care doctors in its network and over 1.2 primary care physicians per bed [for its 400 staffed beds], which might be the BEST ratio in Boston and the doesn't include most of the physicians at Lowell General Hospital, which in October of this year became part of Wellforce (a new Parent entity) in partnship TMC. The 100 plus additional primary care doctors at Lowell General would increase the ratio of primary care doctors to beds further.

[Note: You can check for yourself the doctors in The New England Quality Care Alliance (TMC's physician network) by searching for doctors on the NEQCA web site, note the web site only mentions fewer than 1800 doctors in it's description but doctors have been added since that was written.]

Tufts Medical School has major affiliations with Tufts Medical Center, Lahey Hospital, Baystate Medical Center, Maine Medical Center, St Elizabeth's (part of Steward) and Newton Wellesley Hospital. They also have lesser affiliations with approximately 15 other hospitals for its M.D. program and approximately another 20 hospitals for its Physician Assistant program.

The most difficult thing to find in medicine today is doctors especially primary care doctors. A combination of TMC and BMC will be well positioned to ensure community hospitals can find the doctors they need to thrive, if hospital price becomes more transparent and consumer pay for the care they get from the hospital who charges it. [For instance, ff someone goes to MGH or B&W they would pay twice as much for routine care as they would at a typical community hospital]

If health insurance stops subsidizing high cost hospitals like MGH and B&W which they do by allowing patients to get their basic health care needs met by high cost hosptipals and paying community hospitals much less for the same treatments, then finding doctors will be a critical element to success.

If all of the hospitals in Eastern Mass with a high percentage of doctors who graduated from Tufts Medical School or Boston University Medical School and their affiliates referred to a combined TMC and BMC that could shake up health care in Eastern Mass.

You are correct that the form the combination takes will make a difference. Whether a full merger like BID or something closer to the Partners model of two separate hospitals working together or maybe a combination of both models - rationizing programs to strengthen if that is needed. TMC and BMC have long had a combined residency program for Dermatology. That could be a model where necessary.

Tufts Medical Centers new affiliation with Lowell General wproduced a new parent company - Wellforce. It is designed to give a high degree of autonomy to hopitals and other organizations (including doctors groups, and possibly behaviorial, home care and rehab groups as part of the parent entity).

Maybe BMC joins this group as well after some rationalization of clinical programs where necessary.

As for the medical schools combining, I doubt that happens. Both Boston University Medical School and Tufts Medical School have enormous influence at Boston Medical Center and Tufts Medical Center. Whatever is happening, I assume is happening with their thorough knowledge and approval.

There are some smart people at Tufts and B.U. I personally would assume that their plan if it works will be a good one.

Paul Levy said...

Thanks so much, Anon.

It is hard to disagree with your concluding remark:

"There are some smart people at Tufts and B.U. I personally would assume that their plan if it works will be a good one."

Indeed, the second sentence is a bit of a tautology.

I know the statistics of which you speak, but I also know that both hospitals have had serious financial issues ot face, so it's not clear that the numbers you cite are germaine to the issue.

In any event, I'd like to be clear that I wish them both (separately or jointly!) great success, as they are wonderful institutions with lots of great people. But other institutions with bright, great, and wonderful people have failed terribly in carrying out mergers. Here's hoping that this will not be one of those case.

Anonymous said...

Financial problems for community hospitals and smaller academic medical centers like BMC and TMC are due to one basic fact.

Highly prestigious hospitals mike MGH and B&W are paid much more than community hospitals (typically twice as much) for basic procedures like uncomplicated births and are also paid far more than some other academic medical centers.

For instance in the statistics cited in the second comment above, Tufts Medical and Lahey have case mix indices roughly the same as MGH and B&W but reports produced a few years ago (by CHIA) showed that MGH and B&W were paid 40% more.

If insurance payments made patients responsible for their selection of high cost care like MGH and B&W then financial problems for community hospitals and high quality low cost academic medical centers would end. Most patients can not afford to pay 40% more for care and volumes at hospitals like TMC and Lahey would rise substantially.

[Note: The Mass Attorney General, and the Mass healthcare reporting agency, CHIA have shown that MGH and B&W are higher cost because of bargaining power. They are of "average" quality when compared to their peers.]

Boston Medical Center has a different problem from TMC. It has a lower case mix because it is a community hospital for many poorer Boston residents. As an academic medical center, BMC will be higher cost than most community hospitals for routine care. [I believe BMC's costs for tertiary and quaternary care are similar to TMC, which makes it far lower than hospitals like MGH and B&W]

If BMC could transfer a significant parts of its routine care to a community hospitals like say, Carney and St Elizabeths and could attract more tertiary and quaternary volume by drawing volume from other Steward hospitals for Tertiary and Quaternary care that could help both BMC and Steward. The six core Steward hospitals have had long term relationships with Tufts Medical Center including St Elizabeths and Carney (which are also Tufts Medical School teaching hospitals)

As was mentioned in another postig above Tufts in partnership with Lowell General has created a new entity Wellforce. Lowell General has over 100 primary care physicians that could also refer to BMC and TMC, if BMC offloaded routine care volume.

There are also other community hospitals and physician networks that could refer to BMC to offset routine care volume shifted to Carney and St Elizabeths.

A few examples.

Reliant Medical and Southboro Medical are leaving Atrius and merging. They have over 150 primary care physicians that could refer to a combined Tufts and Boston Medical.

If the judge evaluating Partners take over South Shore Hospital and the two Hallmark hospitals, rules against Partners, both BMC and TMC have long term relationships with South Shore hospital physicians and the Hallmark hospitals.

Obviously if a combined Tufts Medical Center and Boston Medical Center could create some type of partnership with the Steward hospitals and with the major physician networks for Metrowest and St Vincents [the new Reliant Medical] that opens up other possibilities as well.

all of these steps would lower the cost of care in Massachusetts as any tertiary and quaternary care shifted to Tufts Medical And Boston Medical will save money versus other Boston academic medical centers.

The goal is high quality low cost care, with routine care kept in the community setting.

Paul Levy said...

Thanks, and please recall my proposal that Steward sell its community hospitals to Tufts:

At this point, I bet Steward would be happy to exit the MA market and cut its loses.

retired lmd said...

Do not think Steward is planning to leave without the big pay day they planned in a flip and I do not see Tufts having the cash to offer that. Steward has sold everything that isn't nailed down, and now the shenanigans of the closure of Quincy and the "deal" escorted through ex and future exec of Steward Mr. Polanowisc to allow the very profitable cardiac lab to be transferred from Quincy to St.Ann's when Southcoast already provided the same service 2 miles away. St. Ann's has tried for several years and been denied this very profitable goodie. Apparently Steward has some powerful political connections who are not shy about making favorable decisions to favor their pals regardless of how badly they perform on the sniff test. I have been waiting to hear Paul share insight on this last little stunt.

Paul Levy said...

I certainly noticed it and marveled at their chutzpah.

Anonymous said...

I noticed today that Tenant, owner of Metrowest and St Vincents backed out of a deal to buy 5 hospitals in Connecticut.

Maybe they could use some of that money to make a deal with Steward in concert with Tufts Med and Boston Med.

Paul keeps saying Steward refers to MGH. Assuming this is correct (I have no way to independently verify), then moving those referrals to BMC and TMC would save much money.

That would be a good thing if it happened!

[Note: P.S. the deal for St Ann's cardiac lab was put on ]

retired lmd said...

Paul is correct, although there are Nequa docs on staff at Steward hospitals, the patients who need more complicated care end up at PHS primarily. I do not think that a change in this referral pattern is likely to occur, although I can not verify this. They are not going to refer the high value diagnostic stuff----radiology/cardiology, and they like to keep as much surgery as they can but sick patients who are expensive and difficult to take care of are "shipped" very fast. At the time Caritas turned into what is now Steward, their stated plan included an increase in the high profit procedures and they continue to guard against
"leakage" of their money makers. It would be safe to assume that the attempt to close Quincy with it's red ink, but to keep the money maker and try to transfer it to St. Ann's. A last ditch effort to try to survive----or part of a bigger and stranger it chutzpah or some secret santa?

Anonymous said...

Let me begin by saying, I don't know if there is a plan or what it would be. I am telling you what I would do.

If BMC wants to be a low cost academic medical center on a risk adjusted basis, I would try to adjust my case mix upward, which means more complex cases, which, I think, BMC can do cost efficiently and fewer "routine" cases. You want the routine cases done well in a community hospital that is less expensive.

In Boston there are only 2 hospitals that are fully community hospitals, Faulkner which is owned by B&W, part of Partners and more expensive than most academic medical centers and Carney, which is owned by Steward and St. Elizabeths, which does research and teaching but much less than a full blown academic medical center.

Carney is having big financial problems and could use much more volume. St Elizabeths could also use more volume. It has many beds sitting idle.

So it could be win win for both BMC and Steward, if some of BMC's routine cases went to Carney and St Elizabeth, and BMC got more complex cases from Steward, from Tufts Medical Centers more extensive referral base and from new community hospital referral cases that a combination of BMC and TMC could attract like possibly Reliant Medical or South Shore Medical (both formerly of Atrius) or others.

This also would lower the cost of care in Mass as a whole, by keeping routine case in a less expensive setting and moving complex cases from high cost academic medical centers to lower cost ones.

Like I said thats what I would do.

Anonymous said...

Interesting that Mayor Walsh of Boston made a statement and seemed to imply he would like to see every "neighborhood" of Boston serviced by a hospital. Obviously as a union guy he would be very concerned with job losses if a Boston hospital were to close. That being said, take Carney in Dorchester or St. Elizabeth's in Brighton or even NEMC just a mile from BMC if they were to join.... I could easily see any of these facilities closing and what could the mayor really do to stop this from happening? Too much capacity so something has to give in Boston. It will be interesting to see if Charlie Baker weighs in on any of this being a healthcare guy.

Anonymous said...

If you pull patients out of MGH or Longwood, which cost much more than Carney, St E's, Tufts Med or Boston Med'

you save much money for all health care consumers.

Those institutions have sucked so much money out of health care that even if they lost patient they would be fine.

Any work force reductions at MGH or Longwood would be offset by additional hiring at the institutions with more patients.

To put it in perspective MGH and B&W between them made 3 Billion in profit (with a "B") in the last decade with MGH getting 2/3 of that.

The best way to save money in mass health care is to reduce the number of patients at MGH and Longwood (with the exception of BID) and move those patients to community hospitals and lower cast academic medical centers.