For-profit model & hospital change
There is a new, for-profit hospital model emerging in Connecticut that offers some interesting possibilities for dealing with the cost pressures confronting the industry. Yet it deserves the cautionary approach the administration of Gov. Dannel P. Malloy has taken toward this new development.
One thing is certain for hospitals - change. The nation must slow the rapid growth in the cost of health care. The federal government, as the provider of Medicare and Medicaid, the latter expanding as the result of the Affordable Care Act, is cutting reimbursements to control that growth. Private insurance providers are also motivated to drive down costs as their ability to cherry pick low-risk consumers ends under Obamacare.
The movement will be away from fee for service, with separate charges for every test and treatment, towards a system that assesses fees on the overall care of the patient and awards efficiency and good medical outcomes.
Hospitals will be squeezed fiscally in this new environment. Adding to the pressure on Connecticut hospitals are state budgetary policies that increase taxation while cutting reimbursements for the care of uninsured patients.
Recognizing these realities, hospitals in the state have entered into a series of mergers and affiliations to better position for the economic challenges, while making comprehensive services available at the same time they are reducing redundancies.
Despite these changes, Connecticut has remained a haven for the nonprofit community hospital model. That may be about to change, with one of the state's largest nonprofit hospital networks a participant.
A month ago, the national, for-profit Vanguard Health Systems signed a letter of intent to collaborate with Yale New Haven Health Systems and purchase the assets of the Eastern Connecticut Health Network. Vanguard would be the majority partner in charge of corporate and management decisions, with Yale New Haven Health Systems providing clinical support.
ECHN's two hospitals - the 250-bed Manchester Memorial Hospital and 100-bed Rockville General Hospital in Vernon, as well as its other satellite facilities, would convert from nonprofit to for-profit status. The camel would have his nose under the tent.
In a recent meeting with The Day's editorial board, Trip Pilgrim, chief development officer at Vanguard, and Vincent Petrini, senior vice president of Public Affairs at Yale New Haven Health, said if the deal is finalized and all regulatory requirements successfully met, this deal could become a hospital acquisition model for the partnership throughout New England.
Interestingly, Yale-New Haven Hospital itself has no interest in abandoning its nonprofit model. "The nonprofit model works fine for us," said Mr. Petrini.
Why, then, would for-profit work better at smaller, community hospitals? Two major reasons, said Mr. Pilgrim, economies of scale and the ability of the large publicly traded corporation to raise capital. Based in Nashville, Tenn., Vanguard is a Fortune 500 conglomerate with 28 hospitals, nearly $6 billion in profits in 2012, and employing 41,000 people.
When purchasing equipment, medicines or striking health insurance deals on that scale, prices are driven down. In addition, Vanguard, he said, has the ability to invest in the new technologies and constant upgrades that are a necessity in modern medicine.
In separate deals, Vanguard is pursuing the purchase of Waterbury and Bristol hospitals, which would result in two more conversions to for-profit status. Mayors and taxpayers will find a positive aspect - for-profit hospitals are subject to property taxation, unlike their nonprofit counterparts.
Yet the nonprofit model has long served the state well, with a focus on service and patient care, not bottom lines or stock prices. Vanguard points to a record of quality service and expansive charitable care, but who is to say a bigger fish, with different priorities, will not consume it.
In statements made in August, Gov. Malloy recognized that the proposed Vanguard-Yale purchase of Manchester Memorial and Rockville General would set a precedent.
"These community hospitals, many of them were built with donations raised in the very communities they serve. There are interests that need to be protected. And I think rather than doing this one at a time, we need to be thinking about this in comprehensive fashion," said the governor.
That is the right approach. In that spirit, Gov. Malloy vetoed a bill that would have allowed Vanguard to operate doctor networks by lifting a law that now reserves that structure for nonprofits. He wanted more time for evaluation of these rapid changes.
Yet the state cannot stand in the way of new approaches without justification or determine which hospital model it will allow. There need to be necessary safeguards and thorough deliberations, but change is coming.
The editorial board is composed of the publisher and four journalists of varied editing and reporting backgrounds. The board's discussions and information gained from its meetings with political, civic, and business leaders drive the institutional voice of The Day, as expressed in its editorials. The editorial department operates separately from the newsroom.
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