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How Hospital Affiliations Will Transform the Marketplace
Published Thursday, November 30, 2017

Doctors performing surgery at Dartmouth-Hitchcock Medical Center. Courtesy photo.

Officials with the Elliot Health System in Manchester and Southern NH Health System in Nashua were looking for ways to improve. Each wanted to increase access to health care and cut costs. It turns out, that search led them to each other.

Earlier this year, Elliot and Southern NH Health System signed a Letter of Intent to explore forming a regional system. “By coming together, we are in a much better position to serve our respective communities more effectively, more cost effectively and provide better access going forward,” says Michael S. Rose, president and CEO for Southern NH Health.

Doug Dean, president and CEO of Elliot Hospital, and Mike Rose, president and CEO of Southern NH Health System. Courtesy of Elliot Hospital.

The national health-care landscape is changing more rapidly and more profoundly than ever before, says Steve Ahnen, president of the NH Hospital Association. In order to thrive in this sort of changing—if not turbulent—environment, Ahnen says hospitals and health systems are implementing a range of strategies, including partnerships and alliances with other health care systems.

“That Elliot Hospital and Southern New Hampshire Health are entering affiliation conversations is a reflection of the evolving and dynamic health-care market in New England and of both organizations’ mission of serving the needs of their patients through a stronger network of quality care,” Ahnen says.

They aren’t the only ones: North Country hospitals—Androscoggin Valley Hospital in Berlin, Littleton Regional Healthcare, Upper Connecticut Valley Hospital in Colebrook and Weeks Medical Center in Lancaster—joined together in 2016 to form North Country Healthcare. Wentworth Douglass Hospital in Dover recently formalized its longstanding relationship with Massachusetts General Hospital. Catholic Medical Center in Manchester is now working with Monadnock Community Hospital in Peterborough. And Memorial Hospital in North Conway is in talks to potentially unite with MaineHealth.

This trend, which began about 10 years ago in NH, appears to be here to stay and is reshaping the health-care landscape.

Affiliations vs. Mergers
But not all affiliations are the same, cautions Stephen J. Leblanc, chief administrative officer at Dartmouth-Hitchcock Medical Center in Lebanon. And he should know. Over the past several years, Dartmouth has formed affiliations with Alice Peck Day Memorial Hospital in Lebanon, Cheshire Medical Center/Dartmouth-Hitchcock in Keene, Mt. Ascutney Hospital and Health Center in Windsor, Vt., New London Hospital and, most recently, Visiting Nurse and Hospice for Vermont and NH in White River Junction, Vt.

An aerial view of Dartmouth-Hitchcock Medical Center. Courtesy photo.

Leblanc explains that while some affiliations are looser than others, most, generally speaking, involve two or more organizations coming together to form a sort of regional system. Leblanc points out that these couplings are not mergers, though people often confuse the two.

“Under a merger you typically have one organization that goes away and becomes the other, or they both go away to become something new,” Leblanc says. “In health care, we have a parent/subsidiary model. Both entities that are coming together retain their identity, but they are under a common parent organization that has certain powers.”

Those powers, he explains, may include rights to approve budgets, strategic affiliations or alliances, or borrowing money, among other things.

Steve Norton, former executive director of the NH Center for Public Policy Studies in Concord, says health care affiliations in NH typically fall into two categories. One set of affiliations, Norton says, is primarily about financial viability. This is where small hospitals, typically in areas of declining population and significant demographic changes, are looking to stay afloat by connecting with another hospital.

An example of this, he says, was the merger between Lakes Region General Hospital in Laconia and Franklin Regional Hospital in 2002, which became LRG-Healthcare, an umbrella for the two hospitals and 22 provider and network affiliate services. Another example would be North Country Healthcare. This affiliation, says Warren K. West, CEO of North Country Healthcare, has not only allowed these hospitals to remain open, but to offer specialized services such as general surgery and orthopedics in places that never would have been possible before the partnership.

“We’ve enhanced our OB [obstetric]services, we’ve enhanced our orthopedic services, we have cardiology services up there now; those are the major initiatives,” West says, using Upper Connecticut Valley Hospital in Colebrook as an example. “We are working on more. For instance, every time the system hires a physician, we don’t necessarily hire them site specific; we hire them to realize that they are going to be in multiple sites to continue to serve our communities.”

The result of this North Country affiliation, so far, is a 1,400-employee integrated regional health-care network that, West argues, makes the whole organization more competitive. And, he adds, that’s because the system now takes advantage of economies of scale with group purchasing and shared services.

The first six months of operation resulted in $4 million in savings just from securing lower rates on malpractice, liability and employee health insurance, payroll fees, group purchasing and laundry services, West adds.

“By the end of the year, we’ll have a common payroll, benefits, pension plan and a centralized system and coordinated, standardized care,” he says. The next step, West continues, is to bring community health clinics such as Ammonoosuc Community Health Services in Littleton, Coos County Health Services in Berlin and Indian Spring in Colebrook loosely into the fold.

“Our goal there is to build a clinically integrated network with these community health centers and our hospitals in order to have better coordination of care throughout the region,” West says.

When the affiliation is not about the very survival of a hospital, it typically falls into a second category aimed at improving the financial and patient management capabilities of all involved, Norton says. This sort of affiliation tends to connect large hospitals and health systems with smaller, community hospitals to the benefit of both. Those affiliations tend to expand the reach of both hospitals into markets they may not otherwise have accessed, allowing both to offer more specialty care due to the larger population base and, for the smaller of the group, access to capital.

For example, the proposed affiliation between Elliot and Southern NH Health would allow Elliot to expand its footprint, Norton says.

Likewise, the recent affiliation between Wentworth Douglass and Wentworth Health Partners—which is essentially Mass General Hospital—is, according to Norton, “Partners purchasing a route up I-95 and access to a patient base.”

“That affiliation/merger might be the start of a whole series of consolidations, and those are about combining local community base care, with tertiary care, with quaternary care,” Norton says, referring to levels of specialized medical care. (Tertiary care is specialized, consultative care. Quaternary care is an extension of tertiary care referring to even more advanced levels of medicine that are highly specialized, not widely accessed and can be experimental in some cases.)

Similarly, Catholic Medical Center in Manchester has spent the past four years expanding its footprint through strategic partnerships. Most recently, CMC joined forces with Huggins Hospital in Wolfeboro and Monadnock Community Hospital in Peterborough to create GraniteOne Health System. CMC also has a long-standing affiliation with Mass General Hospital and a less formal partnership with Dartmouth-Hitchcock Medical Center that allows Dartmouth to offer some services at CMC’s Manchester campus. These partnerships allow CMC to broaden the geographical scope of its cardiovascular services.

Reorganizing Care
These affiliations can also include a shifting of care. Leblanc says, take two hospitals looking to affiliate and each has cardiology services. These services are important because they financially support other services those hospitals provide that lose money such as emergency departments and intensive care units.

“They are dependent on these service lines,” Leblanc says. “But if you’re integrated through an affiliation, you can say, ‘let’s have one service line’ because you’re really sharing the dollars in an integrated system across both organizations.”

That also might mean a particular surgery a patient could have undergone at their community hospital is now done at a different hospital some distance away.

Leblanc points to Dartmouth’s affiliation with Cheshire Medical in Keene to explain why that is. “If you think about the area that we serve up here in Lebanon, we’ve got a rural population that’s aging, it’s basically not growing, so if you look around at the different hospitals, we have to figure out how do we work together to rationally provide services to meet the need of that population,” he says. “It doesn’t make sense to do a lot of replication of services.”

Dartmouth found while its inpatient beds were full, other hospitals within its system, like Cheshire, were seeing a decline in patients over time because they were going to Lebanon for their inpatient care, Leblanc says. So Dartmouth began investing in technology and expertise at those other hospitals to keep more patients local and alleviate pressure on Dartmouth-Hitchcock, he says.

“So a lot of what we were trying to do is create the integration so we could think of ourselves as a system where we could try to get the patients the right level of care for the right patient,” Leblanc says.
The result is smaller hospitals have been able to grow the average number of patients they can care for by expanding their capabilities to treat more acute cases. This frees up beds at Dartmouth-Hitchcock so it has capacity to treat patients who still exceed the capabilities of these smaller hospitals, Leblanc says.

“So you don’t need to compete and then create redundancies in the market,” Leblanc adds. “ You can actually right size and, in many cases, you can say, ‘well if we only have one service maybe we can then bring in and expand that service by bringing in certain subspecialties that one hospital alone didn’t have enough patients to serve’.”

Managing Costs
These affiliations can also help hospitals in the system manage total cost of care. Over the past decade, Leblanc says, there has been a move away from the “fee for service” payment model to health care providers being responsible for the total annual cost of care for patients as well as meeting specific quality measures.

“Medicare is doing this; commercial insurance is doing this,” he explains, adding the total cost of care for that patient is attributed to the primary care provider. If the total cost of care exceeds the cost contract, a hospital may have to pay the insurance company money because they exceeded the cost target. If a hospital comes in below the cost target, they could receive a bonus payment, which is linked to meeting certain quality measures.

But even as payment models change, health systems can create seamless and integrated care across providers, Leblanc says. “The more you can begin to manage that care,” he says, “the more you can begin to say, ‘okay, this patient will be better served in this location with these sets of services.’ So that integration and coordination of care is important from a quality standpoint but also a cost standpoint.”

Another advantage of integrated affiliations is the potential for smaller hospitals to improve their ability to borrow funds to support capital needs because they are borrowing as part of a larger system, Leblanc explains.

Do Affiliations Work?
While these affiliations are about cost savings for the hospitals and better quality of care, does that come to fruition?

“That’s always the question,” Norton says, “and the answer is most of the literature suggests that up until the most recent consolidations, there is little evidence that it lowers the cost of care nor materially impacts the quality. However, this next set of mergers that are happening—across state borders, across markets—is really about merging these really high end services with these community-based systems, they might.”

Norton asserts that there is some evidence that consolidations are affecting  quality and cost. And that’s because, he says, those original sets of mergers were bringing together competitors who had been fighting for the same piece of the pie.

“These next set of consolidations seem to be reorganizing health care and shifting where people go to get that care and maybe potentially coordinating the care better in that system,” Norton says.

That said, some patients aren’t always happy with the changes an affiliation can bring, particularly if it means having to drive further away for a specialty service that was once available down the street. But, Norton argues, maybe that’s not what’s important.

“This is not about convenience and, really, I’d have to say that the most important question is what is the actual impact on the quality of services? Everyone understands the desire to have access to services in a very easy way. Well, what if those are not being provided in the highest quality setting?” he says. “I’ve certainly heard anecdotally people upset about having to travel large distances to get care, but you know, they might be getting improved care.”

But quality of care may not matter if you can’t get to it. These affiliations could  affect rural, elderly and needy patients for whom lack of transportation, public or private, could be an issue. Norton acknowledges the challenge but notes that this is not a NH problem but one that is affecting rural communities everywhere.

“You just can’t get some services that you used to be able to get,” Norton says. “And so I think that continues. Coos County is anticipated to see continued declines in population, and there will continue to be consolidation, and people are going to move to where health care is. You can see that with schools now. This is not about heath care per se, but the transformation of rural areas across the United States.”

Norton says there may be further consolidation in Southern NH as well, as the proposed affiliation between Elliot and Southern NH Health and the formalized relationship between Wentworth-Douglass and Mass General Hospital could increase pressure on other area hospitals. “You are going to have a couple other community hospitals that are isolated, protected from that competition—one is Concord and one is Exeter.

Even those communities are going to have a difficult time as the costs of their systems go up or their ability to provide high quality, high-end care is limiting.”

On the other hand, many hospitals are nonprofits and, as such, are governed by community boards. If the boards are doing their fiduciary duty, Norton says, they are making decisions that are in the best interest of the public trust that they represent.

For example, even though Elliot Hospital operates behavioral health services at a loss, both Elliot Hospital CEO Doug Dean and SNHH CEO Michael Rose are adamant about continuing to provide those critical services to their communities. These were things they both say they considered before signing a letter of intent.

“The individuals that lead Southern, the board and leadership team, are really extraordinary people, and that has really motivated us as an organization to see this as a wonderful partnership moving forward,” says Dean. “Both hospitals will maintain their identities; they’re both very committed to being very individualized in that we will both maintain our own medical staffs and our own individual boards, and we will make sure that we remain faithful to the unique interests of Nashua and Manchester. But in the long term, we hope that we will be able to afford a greater profile of services.”

Another check in place on these affiliations is the Attorney General’s Office, which, Norton says, asks questions about price, competition, community benefit and whether the new affiliated entity will provide sufficient community benefit. “It’s a public process,” he adds.

In fact, in 2010, it was the NH Attorney General’s office that denied an affiliation between Catholic Medical Center and Dartmouth-Hitchcock, arguing the combined  hospitals would limit competition and possibly dismantle the nonprofit missions of both facilities.

Leblanc says, in general, regulators are concerned whether affiliations will create a monopoly or something close to a monopoly, giving a single entity too much presence in a given market. “Their concern is that those two entities could have clout in the marketplace to negotiate with commercial insurers higher payments,” Leblanc says. “So their concern is when the two organizations come together and are no longer competing, they can get together or go to an Anthem, or a Harvard or Cigna and say, ‘we’re so big, you need us now, you’ve got to pay us more.’ ... And there are cases in the country where people have done that and I think put a bad name on this.”

While there are risks to affiliations, Leblanc argues the benefits outweigh the risks. “Regulators will say, ‘Alright we’re willing to consider that, but show us all the good things you’re going to do that are going to outweigh the risk,’” Leblanc says. “Regulators and even the federal government is starting to understand that integrated care is better—you can improve quality of care and lower costs.”

In the end, the merits of these affiliations and the potential for monopolies are still playing out. Norton, for one, is cautiously optimistic. “Is it a good thing? Is it a bad thing? I think each community is best suited to answer that question. I have to believe that these organizations and their boards are operating with the best interests of their community at heart.”

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