Mountain States Health Alliance CEO Alan Levine and his Wellmont counterpart, Bart Hove, sat down with reporters the day after the systems filed with the state of Tennessee and Commonwealth of Virginia for approval to merge. A wide-ranging, 50-minute question and answer session followed. The majority of that transcription can be read here.
Bart Hove: What continues to transpire in health care today convinces us more and more that we have collectively made the right decision within our boards to pursue the merger of our organizations in order to stabilize the health care of the communities, to be able to provide additional services and access points, and to improve the population of the regions that we serve with many of the new offerings that are described and contained in the COPA application going forward. So we look forward to the further review by the states and our participation in the public forums associated with the reviews of these documents, and look forward to the receipt of the approval process to merge our organizations and move forward.
Alan Levine: Let me add a couple other things to Bart’s point. If you think about what we’ve been doing since April: negotiating a definitive agreement, which is a very thick document; negotiating the bylaws; drafting the COPA; conducting due diligence; holding more than 40 public events; putting together four community teams to begin looking at the process of child and family health, addiction and mental health, research and academics and population health and where we’re going to go with that; engaging more than 200 people in the community – an awful lot has been happening over the course of the last year. When I think back to April 2, we were asked, are you going to be transparent with the process. If there’s anything I’m proud of, it’s that we’ve done this in a ver methodical, transparent way. We’ve said from the very beginning what we were going to do, we’ve done what we said we would do, with total respect for the regulatory process, not to mention that we got the law changed, both in Virginia and Tennessee, to permit this type of relationship, almost unanimously, with the support of both governors. It’s been a monumental amount of work, and if that’s any indicator of just how effective we can be when we’re together as a system, that should be pretty compelling for people – especially when instead of focusing on all those things, we’re focusing on actually improving the health of the region.
Johnson City News and Neighbor: Are there clocks that start ticking in both states today?
Hove: There is a prescribed process both in Tennessee and Virginia once the applications have been reviewed and deemed complete, and so it still rests with the states to respectively declare those complete, and then we go into the 120-day review process in Tennessee and 150-day (business days) in Virginia.
Cumulus Radio Tri-Cities: I assume this will be a very thorough review with both states looking at everything literally from A to Z.
Levine: I would presume so. There’s two paths they have to go here. One is they have to look at the economic issues related to a merger, and the other one is looking at what we believe is the compelling and clear and convincing case for why this merger’s good for the community. I think both states – they’ve taken it very seriously. We’ve met with the secretary of health in Virginia and the commissioner in Tennessee. We’ve met with both governors. I think the state takes its role very seriously in this. On the one hand I think they’re very excited. I don’t speak for the state, but I think there’s a level of excitement about what we’re trying to accomplish, and obviously there’s a sense of responsibility for making sure that they comply with the law, which is very important, and we want them to comply with the law. We very much want to stay well within the boundaries and do the right thing. That’s really why we’ve gone about the process the way we have. One thing I also want to point out: It’s not just the work of the people in Mountain States and Wellmont that have done this, and our boards. If you think about the people in the community, the business leaders who stepped forward, this would not have happened if the business community didn’t say ‘we want this to happen.’ Whether it’s Eastman or Food City or banks, small businesses, we’ve heard from all of them. The chambers (of commerce). There’s been a phenomenal amount of support for this. That’s not to say it’s unanimous, I’m sure there are people who have their doubts, but there’s a lot of support for this, and to have been able to get all those things lined up and get to the place where we are today, I tip my hat to our teams both at Wellmont and Mountain States. They worked really hard to get us here.
Hove: Alan also mentioned transparency in a previous statement, and just to carry that forward, we want to make sure that in the transparency process communities have had a lot of opportunity to have input into our application process so far. The states will continue that process as well. As a matter of fact, Tennessee has already scheduled times and locations for public hearings, which we’re very pleased to see the timing of the state of moving forward in the process of declaring the applications and then being engaged with our process. To already have those scheduled and formatted is quite a feat.
Health Leaders Media: One of the reasons for mergers such as this is to eliminate duplications, redundancies, etc. Have you identified redundancies in either system, for example is there a particular service area that might be done away with at a particular hospital? Are there personnel that might be redundant who would be done away with, or issues of data processing, HIT etc. Have you identified redundancies in this new system?
Levine: Part of the agreement that we’ve made, and you’ll read this in the bylaws, is to put together a policy for how we would approach potential synergies and consolidations, which would involve physicians, people in a community, the leadership of hospitals in a community to make sure that whatever decisions we make, they’re based on what’s best for that community. And it does require for the first two years of the merger, it requires a supermajority vote of the board to eliminate any service where a community might be left without a service. So we were very methodical about trying to be sure we go through a process, so that whenever we make those decisions they’re based on the input we get from the physician community as well as the hospital leadership and the people that live in that community. That’s not unusual for systems. I know Mountain States, we go through that process fairly regularly. About two years ago we eliminated the OB program at Sycamore Shoals, for instance, and we went through a very similar process. As health care changes we’ve got to be prepared to adapt. One last thing, and I’m sure Bart will want to add something to this – the decision between Mountain States and Wellmont to merge was not in a vacuum. The option is not to keep things the way they are today or merge with Wellmont, from Mountain States’ perspective. The option is merge with Wellmont, or potentially with someone from outside the region. And the reason I raise that is, if you look at that option of us or Wellmont or both doing something with an enterprise that’s based elsewhere, typically the first thing that happens is you lose virtually your entire infrastructure, because it’s consolidated to where the home office is. That could be close to 1,000 jobs that would be gone. But in the environment that we’re in today, with the revenue pressure that hospitals are facing, the reality is, two small systems like ours staying independent is very unlikely over the course of the next two to three years. So the option of merging together, there will be synergy opportunities, but because of how we structured the COPA with investment and new services and programs, while there may be opportunities for synergies in one aspect of our system, there’s going to be job opportunities in other aspects. For instance, when we develop and build an addiction and recovery center, we’re going to need to staff that, and so those are new jobs. What we’re doing is, we’re eliminating where there’s duplication, but investing where there’s opportunity.
Johnson City Press: There’s mention in the COPA document about the potential to consolidate, and it lists Level I trauma center, specialty pediatric services, co-located facilities, and it talks about potentially repurposing acute care beds. Are those the kinds of things that you’re talking about here?
Levine: Those would be examples, sure.
Press: Are those just examples, or are those discussions that have been had? Why were those listed in the document?
Levine: Well, I think those are some of the obvious things that you would look at. Those are stating the obvious. There’s a lot that are not quite as obvious. There’s a lot of synergy opportunities operationally, and you’ve got to go through a methodical process to do that. But stating those things are really stating the obvious. I think if you asked anybody in the region, they would probably list those off the top of their head, that those would be the obvious things that you would actually evaluate.
Hove: The counter to that, too, is in part of the application it does describe the opportunities for us to grow and enhance services in areas, and to preserve access to health care in the regions that we’re serving as well, so one of our commitments is to maintain health care facilities in communities where we are in existence now, also to develop a physician recruiting plan, a staff recruiting plan, to help us grow and further enhance the services that we propose to offer in the future.
News and Neighbor: Mr. Levine had said something about, speculatively, that the state might be excited about some of the aspects of this merger. If it were, is that access piece one example, and what might be others that would lead you to believe that the state might have some positive thoughts about what this could bring about in terms of the goals of the department of health?
Hove: I think both of us feel that both states are extremely interested in the prospects of the merger taking shape, not only for the increased enhancement of the services to be offered but also in helping to demonstrate the effectiveness of moving more into population health to raise the level of the health of our communities that we’re serving. We’ve mentioned time and time again that Southwest Virginia and Northeast Tennessee rank very low in our states and nationwide as it relates to obesity, diabetes, heart disease, stroke, cancer; and those types of programs that can be synergized across our region, and where programs can be put into place to help raise the overall health of the population, are some of the goals the state is very excited about.
Levine: The section in the COPA that relates to public health, we adopt some models that are very – the logic model that is widely used in public health – to establish sort of how we would go forward with the public health components of it. I think if you look at that document, you’ll see for instance, insuring strong starts for children, making sure children can read at grade level by third grade, or trying to reduce the number of low birthweight babies: those are clear goals of the state. And what we’re providing with this merger is a vehicle to help the state actualize those goals in a coordinated way. That’s one of the things that’s unique and different about this. One of the things we wanted to do in the very beginning was take off the table the notion that we’re doing this just to get ourselves better pricing. Because that has been in essence what has occurred with a lot of mergers, and we agree that that’s a problem with the consolidation that’s occurred in the industry. That’s why we wanted to take that issue off the table from the very beginning, and that’s why we’ve committed to the pricing model that we did, where existing agreed-upon increases in the first full contract year after the first year of the merger, we would actually decrease the agreed-upon pricing increases by 50 percent, and then cap our future increases to the CPI minus .25 percent for hospitals and for medical care. That takes that issue off the table, and it gets us focused where we need to be, on the population health and the improvement of the health of our region. That’s really where the debate ought to be.
News and Neighbor: Glad you brought up that quarter percent. What if the Southeast’s trends are lower than that? Is there an openness to that increase being an even greater percentage below the national health care CPI. Because it’s not a huge difference, and there will be lots of systems in the country whose increases will be below that amount, because otherwise you don’t get that mean.
Levine: Keep in mind, that’s a cap, and there isn’t one today, and if we merge with an outside system there wouldn’t be and there would likely be pricing increases. So we’re very careful about making sure that we leave ourselves the ability to act within the market, but we will negotiate with the state based on what the state’s position is. But our position is, the number we put out there is an easy-to-identify number, it’s published by the Bureau of Labor Statistics, it can’t be argued, it is what it is, and so we felt that was the easiest way. When you start moving the parts around, then you start having to negotiate every year what the number actually is. We’re going to negotiate with the state, but our position is very measured. We are very confident that the goal of the antitrust or anticompetitive process is to prevent mergers from increasing the cost above what the cost otherwise would have been. We really believe we’ve done that.
Health Leaders Media: Can you talk about the antitrust process? I’m sure you were highly cognizant of that throughout this process – how confident you are that there will not be any sort of FTC intervention? What was in the process as you were moving along to insure that no antitrust issues would arise?
Levine: Good question. First, no one can predict what the FTC will or won’t do, and we certainly would respect their prerogatives as they see it. That’s why we’ve been following the law very closely. We’ve looked at case law, we’ve looked at Supreme Court rulings. Before we endeavored to do all this, we did our homework to make sure we stayed within the appropriate space, and we believe that we’ve done that. We think the state has a role here, both Tennessee and the Commonwealth. They seem to be taking their role seriously, and we fully expect that we’re going to go through a robust negotiation with both the state and the Commonwealth. I think if we do that – we comply with what we believe are the rules, or what the rules say – we’re well within a safe space. The FTC has spoken at a couple of public forums, they’ve offered their expertise to the state. I suspect the state will take them up on it. It’s probably also instructive to point out, just as we do in the COPA document, if you look at outpatient services, which is more than half of our revenue, outpatient services are very competitive here. Mountain States and Wellmont combined do not have a majority of the market share. Only on inpatient services do we have about 75 percent of the market share. But on the outpatient side, in areas like home health we’re less than 30 percent or so of the market. If you break up these outpatient services, there’s going to remain a very competitive outpatient environment, and that’s where it’s happening in health care, it’s moving into the outpatient setting. So I think it’s easy to say you’ve got two big systems that are merging and oh, it’s creating something that we don’t want to create. On the other hand, if you look at where the majority of our business is in the outpatient space, it’s incredibly competitive and will be even after the merger.
Health Leaders Media: With the 75 percent inpatient (market share), the cap on the cost, do you feel like that is going to play a significant role in arguing your case and perhaps tempering any criticism of control in the inpatient market?
Levine: We’ve seen in each case where the FTC has inserted themselves, one of the arguments that they make is, this merger will increase costs. Almost uniformly in every case that’s what they say. And I respect that, and I think we all respected that. And I think it’s hard to say with credibility that this merger will increase costs, when in fact it will decrease costs, and it’s an enforceable commitment that we made. So I really believe that we’ve done what we need to do to deal with those concerns, and certainly we will engage in a dialogue with the states to make sure that we’re certain about that.
Health Leaders Media: If you exceed that cap, what happens?
Levine: Well, the state has the right to tell us we’re not compliant. Under the COPA, we propose an annual report, and this is a really easy thing to verify. Either we’ve kept our word on the pricing or we haven’t, and if we don’t, then the state has the power to compel us to comply, or to terminate the COPA, which would then subject us to FTC scrutiny in terms of our behavior. Plus there’s a required plan to unwind if the state were to terminate the merger.. in terms of the states, they wield a pretty big gavel here, and our behavior in this COPA, it’s important that we comply or we face the repercussions from that.
News and Neighbor: Some of the competitors in the outpatient market have expressed some concerns about the additional amount of heft that could impact their ability to, I suppose, gain business, because of privileges and things like that. Do you anticipate them to continue to put that forward at the state level, and do you anticipate the states being pretty strict about making sure there isn’t anything a merged system would do that could impede those private outpatient practices’ ability to be on a level playing field?
Hove: I think both states are interested in preserving competition within the marketplace beyond the COPA itself, and would take appropriate steps to make sure – as we’ve declared in our application – we’ll have open medical staffs, we’ll be improving actual access of care where patients will be able to go to their choice location of health care, our physicians will be able to practice at any facility in the region that they choose to do so, so trying to open up that process as opposed to close it down as it relates to the merger coming together.
Levine: There are specific conduct commitments that we make in the application. For instance, we can’t tie certain services to inpatient services, which by the way we can do today. We can do that today, but we commit ourselves to certain behaviors that try to preserve the competitive marketplace in the outpatient space. To some degree, we actually give – if you actually read the COPA, we put some data in there that shows the market share in certain of these services, and you’ll be very surprised to see that in the outpatient space, we’re actually a minority combined – we’re a minority of the market share. A lot of people will be surprised by that.
Nashville Tennessean: I was reading over the state’s January 16th response to the summary of the COPA, and they mentioned they were interested in hearing more about plans to address physical inactivity. So I was just curious about what the outlook on that is.
Levine: We appreciate that letter. That was actually very instructive for us, and to some degree the state did a really good job of sort of telegraphing what some of the things are that they’re looking for, and we’ve tried to incorporate those into the COPA document. There are things that we’ve put in there to address that. Things that we want to do to increase activity, particularly among children, and we look forward to the dialogue with the state. I think it’s probably important to say this: Whatever we put in the COPA as it relates to these metrics, that’s just the beginning of the process. We need to have some dialogue with the state, which up until this point we’ve not done, in terms of the details of the types of things they want us to focus on to improve health. They need to give us what their priorities are, so we can adapt the COPA and the metrics to those priorities that the state wants us to focus on, and that will be the process between now and the time that it’s approved, presuming it’s approved, where we agree on those specific things they want us to focus on. And then importantly, to measure those on an ongoing basis, because going forward, as we address certain things if we find that we’ve had success, there may be new initiatives they want us to focus on. So I think the COPA as it relates to those things in public health that we’re going to focus on, it’s going to be a living document that has to adapt to the circumstances that we find ourselves in, one year, two years, five years from now.
News and Neighbor: One of my colleagues brought up the (Department of Health) letter from January 16. If I recall correctly, one of their six points was asking for some specifics about FTE’s – projections, numbers – is that something that is going to be provided to them but not to the public, or is it somewhere in the document that we received today?
Levine: There’s some language in there about that, and I can’t remember the exact language, I would refer you to it, but we did try to answer that question. One thing I’ll say again, and we urge people, we said this in the document, even if we weren’t doing this merger, because of the reimbursement challenges we have, and I’m speaking for Mountain States, we’re already facing a scenario where we have to reduce the cost structure of our system, because we’re getting paid less. This has been an ongoing challenge for us. If there were no merger, we would be seeing a reduction in the number of people that work for us. That’s by necessity. Particularly the non-clinical people, because that’s what’s had to happen all over the country. If we merge with an outside enterprise, you would see a substantial loss in the numbers of people that would be employed locally. The reality is that by merging, there will be the opportunity to create synergies, but I will repeat, with opportunities by eliminating redundancy that’s unnecessary, it gives us the capital to then be able to invest in things that today we can’t invest in, which creates new opportunity to create jobs. So it’s a process, and I’m not going to say it’s all going to be easy. There’s certainly going to be challenges along the way, but the question we could ask ourselves is, do we just want to survive, which is what we’re trying to do now, or do we want to thrive? And the only way you thrive is by making investment, and we think this gives us the capital to be able to make those investments in those things that we can’t currently do today.
Johnson City Press: You mentioned, Alan, the shift from inpatient to outpatient services occurring, and this may be a question to file under things that may have happened anyway, but part of the COPA document talks about differences in the number of certified beds currently, the number of staff beds, and the occupancy or utilization of those. Are you looking at a trend in staff and certified beds being reduced?
Levine: That is happening today. Our use rates here, our inpatient use rates, generally run higher than the national norms. We’re running about 124 admissions per 1,000, whereas the rest of the country is somewhere in the range of 90 to 110. So we’re already seeing a decline, we estimate year over year, about a 4 percent decline per year in the use rates. That’s why the merger makes so much sense, because instead of retaining that redundant capacity, which is very costly to sustain, in an environment where you’re seeing decreased use rates, you’re able to actually come together and have some rational discussions about how to better use the capacity. So instead of just seeing use rates decline, what service can we offer that we’re not offering today. There might be in some communities, instead of having redundant acute care capacity that’s diluted, and both hospitals or three hospitals are losing money, you might be able to consolidate acute care capacity but then create alternative use for that other bed capacity. It might be mental health, it could be long-term acute, it could be rehab, which are services that are not currently offered. I think the use rates are going to decline no matter what happens, and the next question is, when you merge what happens? We think if we’re good at what we do, with improving population health, and we make the community healthier, over time you should see a reduction in hospitalizations. And if that happens, then yes, you’ll see a reduction in the need for inpatient beds, which is a good thing if it’s done the right way.
Health Leaders Media: If all goes well, when do you expect to dot the final I’s and cross the ts, etc?
Levine: March 1st. No, I’m just kidding. I think we’re hoping sometime during the latter part of the summer
Health Leaders Media: What had to be changed in the COPA, to be updated?
Levine: In Tennessee, the original statute said collaborations between hospitals were permitted, but it didn’t explicitly state merger, so we wanted certainty in that. And number two, if you look at the Supreme Court’s rulings and you look at the two-pronged test for state action immunity, there has to be a clear policy articulated that it’s the policy of the state to permit the supplanting of competition with regulation, and we wanted to make sure that that was clearly the policy of the state and that the state said that in law. Now in both Tennessee and Virginia the law does state that, which puts us squarely in the right place when it comes to federal antitrust law. We wanted to make sure first, it was the policy of the state, and then we want to make sure that the commitments we make in the COPA are properly supervised by the state. And the law now reads that way in both Virginia and Tennessee.
WJHL-TV: What if this isn’t approved? Will you go back to the drawing board?
Levine: That’s a hypothetical. We don’t know what the circumstances of that would be. It’s a good question, but it’s a hypothetical – we don’t really want to go down that path. It’s important for both states to support this. If you look at Southwest Virginia, the overwhelming majority of those hospitals in Southwest Virginia are losing money, and we make a commitment to keeping healthcare access in those communities permanently in this COPA. Without the COPA and with the continuing revenue pressure, it’s going to be hard to sustain subsidizing these hospitals. It’s very difficult. Almost 70 rural hospitals have closed in the last five years, and there’s a reason for that. It’s hard to continue to subsidize in communities where the payor mix and the demographics don’t support the hospital. So I think both the state of Tennessee and the Commonwealth of Virginia understand the complexities of our market. Commissioner Hazel (Virginia Secretary of Health and Human Resources Dr. Bill Hazel) has a tremendous understanding of the challenges in Southwest Virginia. I certainly don’t speak for him, but I can tell you when we talk about improving the health of the region, combined with sustaining those hospitals, he seems very interested in that. As did the governor.