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GoodWill’s Lessons for Health Care

By KIM BELLARD

The New York Times had an interesting profile this weekend about how Goodwill Industries is trying to revamp its online presence – transitioning from its legacy ShopGoodwill.com to a new platform GoodwillFinds — in the amidst of numerous other online resellers.  It zeroed in on the key distinction Goodwill has:

But Goodwill isn’t doing this just because it wants to move into the 21st century. More than 130,000 people work across the organization, while two million people received assistance last year through its programs, which include career navigation and skills training. Those opportunities are funded through the sales of donated items.

Moreover, the article continued: “Last year, Goodwill helped nearly 180,000 people through its job services.” 

In case you weren’t aware, Goodwill has long had a mission of hiring people who otherwise face barriers to employment, such as veterans, those who lack job experience or educational qualifications, or have handicaps.  As it says in its mission statement, it “works to enhance the dignity and quality of life of individuals and families by strengthening communities, eliminating barriers to opportunity, and helping people in need reach their full potential through learning and the power of work.”

As PYMNTS wrote earlier this month: “Every purchase made through GoodwillFinds initiates a chain reaction, providing job training, resume assistance, financial education, and essential services to individuals in need within the community where the item was contributed.” 

I want healthcare to have that kind of commitment to patients.

Healthcare claims to be all about patients. You won’t find many that openly talk about profits or return on equity. Reading mission statements of healthcare organizations yield the kinds of pronouncements one might expect.  A not-entirely random sample:

Cleveland Clinic: “to be the best place for care anywhere and the best place to work in healthcare.”

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Matthew’s health care tidbits: Time to get Cynical

Each time I send out the THCB Reader, our newsletter that summarizes the best of THCB (Sign up here!) I include a brief tidbits section. Then I had the brainwave to add them to the blog. They’re short and usually not too sweet! –Matthew Holt

Plenty of reason to worry about the future of American health care this week. The biggest for-profit hospital chain–HCA–was accused of aggressively pushing patients into hospice care, sometimes in the same room, in order to make their hospitality mortality numbers look better. Most of the leading benefits consulting companies were exposed as taking payments from PBMs–yup, the same organizations their employer clients thought they were negotiating with on their behalf. And one of the biggest names in digital health, Babylon Health, tumbled into destitution, taking billions of dollars with it and leaving uncertain the fate of the medical groups in California it bought less than two years ago. Even the most successful capitalists in health care — United HealthGroup and its fellow insurers — saw their stock fall because apparently outpatient surgery volume is ticking up. 

On the policy front the malaise is spreading too. The end of the public health emergency (remember Covid?) is being used as an excuse by the old  confederate states to kick people off Medicaid. Georgia and Arkansas appear to be bringing back work requirements, even though I thought CMS has banned them and every study has acknowledged that they are cruel and ineffective. About 20 million people got on to Medicaid during the public health emergency and KFF estimates up to 17 million may be kicked off, while over 1.7 million already have.

Finally an article by Bob Kocher and Bob Wachter in Health Affairs Scholar remins us that big academic medical centers are nowhere near ready for value-based care (VBC). Jeff Goldsmith has been vocal on THCBGang and elsewhere about how VBC is becoming a religion more than a reality. And I remind you that Humana’s MA program is still basically a Fee-For-service program in drag (even though that’s now illegal in their home state). 

I grew up in American health care expecting that eventually a combination of universal insurance mixed with value-based purchasing would lead to a series of tech-enabled companies doing the right thing by patients and making money to boot. With the managed care revolution, the ACA and the boom in digital health all firmly in the rear view mirror, the summer of 2023 is a lesson that you can never be too cynical about health care in America.

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What Can We Learn from the Envision Bankruptcy?

By JEFF GOLDSMITH

Envision, a $10 billion physician and ambulatory surgery firm owned by private equity giant Kohlberg Kravis Roberts, filed Chapter 11 bankruptcy on May 15.  It was the largest healthcare bankruptcy in US history.   Envision claimed to employ 25 thousand clinicians- emergency physicians, anesthesiologists, hospitalists, intensivists, and advanced practice nurses and contracted with 780 hospitals.  Envision’s ER physicians delivered 12 million visits in 2021, not quite 10% of the US total hospital ED visits.

The Envision bankruptcy eclipsed by nearly four-fold in current dollars the Allegheny Health Education and Research Foundation (AHERF) bankruptcy in the late 1990’s.   KKR has written off $3.5 billion in equity in Envision.   Envision’s most valuable asset, AmSurg and its 257 ambulatory surgical facilities, was separated from the company with a sustainable debt structure.  And at least $5.6 billion of the remaining Envision debt will be converted to equity at the barrel of a gun, at dimes on the dollar of face value. 

KKR took Envision private in 2018 when Envision generated $1 billion in profit, in luminous retrospect the peak of the company’s good fortune.   Envision’s core business was physician staffing of hospital emergency departments and operating suites.    In 2016, then publicly traded, Envision merged with then publicly traded ambulatory surgical operator AmSurg.  This merger seemed at the time to be a sensible diversification of Envision’s “hospital contractor” business risk.   

Indeed, Envision’s bonus acquisition of anesthesia staffing provider Sheridan, acquired by AMSURG in 2014,  helped broaden its portfolio away from the Medicaid intensive core emergency room staffing business (EmCare), which required extensive cost-shifting (and out of network billing) to cover losses from treating Medicaid and uninsured patients.   It is clear from hindsight that where you start, e.g. your core business, limits your capacity to spread or effectively manage your business risk, an issue to which we will return.

The COVID hospital cataclysm can certainly be seen as a proximate cause of Envision’s demise.

The interruptions of elective care and the flooding of emergency departments with elderly COVID patients, which kept non-COVID emergencies away, damaged Envision’s core business as well as nuking ambulatory surgery. By the spring of 2020, Envision was exploring a bankruptcy filing.  An estimated $275 million in CARES Act relief and draining a $300 million emergency credit line from troubled European banker Credit Suisse temporarily staunched the bleeding.  But the pan-healthcare post-COVID labor cost surge also raised nursing expenses and led to selective further shutdowns in elective care and further cash flow challenges.  

While one cannot fault KKR’s due diligence team for missing a global infectious disease pandemic, with hindsight’s radiant clarity, there were other issues simmering on the back burner by the time of the 2018 deal that should have raised concerns.  Two large struggling investor owned hospital chains,  Tenet and Community Health Systems, began divesting marginal properties in earnest in 2018, placing a lot of Envision’s contracts in the pivotal states of Florida and Texas at risk.

More importantly,  there were escalating contract issues with  UnitedHealth, one of Envision’s biggest payers,  as well as increasing political agitation about out-of-network billing, which provided Envision vital incremental cash flow.  These problems culminated in a United decision in January 2021 to terminate insurance coverage with Envision, making its entire vast physician group “out of network”. 

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Health in 2 Point 00, Episode 118 | Aledade, Medopad, Amblyotech and Yes Health

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Today on Health in 2 Point 00, Jess and I talk about HCA now that the real numbers have come out. On Episode 118, Jess asks me about Aledade raising $64 million. Founded by former ONC director Farzad Mostashari, they set up ACOs for independent physician practices and have been doing a lot around COVID-19. Medopad has rebranded as Huma and acquired Biobeats and Tarilian Laser Technologies (TLT); they’ve been doing remote monitoring and have been around for a while. Novartis acquires Amblyotech, a lazy eye digital therapeutic. Finally Yes Health gets $6 million – yet another “we’ll put you on a diet and have coaches bully you” platform. —Matthew Holt

HCA: The Bashful Giant

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JEFF GOLDSMITH

Screen Shot 2014-09-24 at 1.25.29 PMJudging by its nearly invisible public presence, you’d never know that this is prime time for HCA, the nation’s largest hospital chain.    A former HCA regional VP, Marilyn Tavenner, runs the nation’s Medicare and Medicaid programs.  Former CMS Head and Obama White House health policy chief Nancy Ann DeParle, sits on the HCA Board.  Its longtime investor relations chief, Vic Campbell, is immediate past Chair of the highly effective trade group, the Federation of American Hospitals.  And its Chief Medical Officer, Jonathan Perlin, MD, is Chair Elect of the American Hospital Association.

This astonishing industry leadership presence is something most health systems would be trumpeting, perhaps even placing ads in Modern Healthcare.  But not HCA, the bashful giant of American healthcare.  Most hospital systems make a show of “branding” their hospitals with the company logo.  Yet in its corporate home, Nashville, and the surrounding multi-state region, HCA’s 15 hospital network is called TriStar.  Everyone in Nashville’s tight knit healthcare community knows who owns their hospitals, but you have to read TriStar’s home page closely to find the elliptical acknowledgement of HCA’s ownership.

Despite a nationwide merger and acquisition boom, HCA hasn’t done a major deal in twelve years (Health Midwest in Kansas City joined HCA in 2002).  The company has not participated in the post-reform feeding frenzy, continuing a long-standing and admirable tradition of refusing to overpay for assets. For the moment, owning 160 hospitals is plenty.

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Profits, Quality, and U.S. Hospitals

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By Ashish Jha, MD

The recent articles in the New York Times about the Hospital Corporation of America (HCA) have once again raised important questions about the role of for-profit hospitals in the U.S. healthcare system.  For-profits make up about 20% of all hospitals and many of them are part of large chains (such as HCA). Critics of for-profit hospitals have argued that these institutions sacrifice good patient care in their search for better financial returns.  Supporters argue that there is little evidence that their behavior differs substantially from non-profit institutions or that their care is meaningfully worse.

To me, this is essentially an empirical question. Yet, I read the through the articles, I was struck by the dearth of data provided on the quality of care at these hospitals.  Based on the comments that followed the stories, it was clear that many readers came away thinking that these hospitals had sacrificed quality in order to maximize profits.  Here, I thought an ounce of evidence might be helpful.

Measuring quality:

There is no perfect way to measure the quality of a hospital.  However, the science of quality measurement has made huge progress over the past decade.  There is increasing consensus around a set of metrics, many of which are now publicly reported by the government and even are part of pay-for-performance schemes.  While one can criticize every one of these metrics as imperfect, taken together, they paint a relatively good, broad picture of the quality of care in an institution.  We focused on five metrics with widespread acceptance:

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Let’s Do the Numbers

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By Paul Levy

Julie Creswell and Reed Abelson offer a story in the New York Times about the HCA for-profit hospital system, noting “A giant hospital chain is blazing a profit trail.”  The HCA story and similar ones about other hospital chains financed by private equity force us to consider how a such firms can achieve a return on equity that satisfies investors.

The answer is that they cannot, if we think about running the business on a long-term basis.  What makes it work is extracting cash and the exit strategy, the heart and soul of private equity.

As Warren Buffett might say, let’s keep this simple.  A for-profit hospital system has the following disadvantages vis-a-vis a non-profit hospital system:  (1) Its finances are a mixture of equity and taxable debt, both of which are more expensive than the nontaxable debt of a non-profit; (2) it pays taxes–federal and state income tax, property tax, and sales tax–on which the non-profit is exempt; and (3) it is an unattractive vehicle for charitable donations, compared to the tax-advantages offered donors of non-profits.

These are hefty financial advantages for non-profits, which nonetheless are fortunate if they are able to earn an operating margin of 3%.  Admittedly, that’s 3% of revenues, not a 3% return on capital.

An equity investor in a for-profit doesn’t care about margin, strictly speaking, but rather is focused on the rate of return of his or her investment.  But let’s stick with the operating margin just for a moment, and let’s just accept that a 3% margin would not generate the kind of equity return demanded by the market place:  You pick the hurdle rate:  15%, 20%, 25%, more?  It doesn’t matter.  A three percent margin just doesn’t get you there.

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So Much For “Everyone Can Get Care In An Emergency Room”

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By Aaron Carroll

We’ve long argued this meme isn’t true. But now it’s explicitly false:

Last year, about 80,000 emergency-room patients at hospitals owned by HCA, the nation’s largest for-profit hospital chain, left without treatment after being told they would have to first pay $150 because they did not have a true emergency.

Led by the Nashville-based HCA, a growing number of hospitals have implemented the pay-first policy in an effort to divert patients with routine illnesses from the ER after they undergo a federally required screening. At least half of all hospitals nationwide now charge upfront ER fees, said Rick Gundling, vice president of the Healthcare Financial Management Association, which represents health-care finance executives.

So sure you can get non-emergent care in an ED – if you pay for it out of pocket. Please understand I’m not saying that all care should be free. I’m saying that the emergency department is no different than a physician’s office. If you have insurance, or can pay for care yourself, you get it. Otherwise, you don’t. No matter where you are.

Why is this happening?
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