Maine news, sports, weather from Portland Press Herald / Maine Sunday Telegram, Portland, Maine

August 22, 2012

Mercy Hospital's tax status not critical to its mission

By Jessica Hall jhall@pressherald.com
Staff Writer

PORTLAND – The potential sale of Mercy Health System and formation of Maine's first for-profit hospital chain could produce benefits including improved technology and a wider array of services, experts said Tuesday, but the new focus on profits would warrant some caution.

"With a for-profit buyer, some people have an extra level of concern that this will lead to bad things. But that is anecdotal," said Ashish Jha, associate professor of health policy and management at the Harvard School of Public Health. "It's not about for-profit or not-for-profit. We see good and bad behavior across the spectrum."

Mercy Health System, which includes Mercy Hospital in Portland, said Monday that it may be acquired by Steward Health Care System LLC, which owns 10 hospitals in Massachusetts. Terms of the potential deal, which could take six months to complete, were not disclosed.

Steward, a company that's just two years old, is owned by Cerberus Capital Management, best known for buying Chrysler, which was later bailed out by the federal government.

Cerberus also owns the NewPage paper mill in Rumford. NewPage Corp. filed for Chapter 11 bankruptcy protection last year.

The potential sale is part of a wave of hospital acquisitions by for-profit chains, which have been motivated by signs of stabilization in the economy, the expected influx of millions more insured Americans as a result of Affordable Care Act, and the aging population, analysts said.

In Massachusetts, Steward has invested heavily in information technology, including remote monitoring centers to check on patients in several hospitals from one location.

It also has forged partnerships with elite teaching facilities such as Massachusetts General Hospital so patients have access to specialized care if needed, said Amitabh Chandra, professor of public policy at Harvard University's John F. Kennedy School of Government.

Steward also has negotiated better rates with insurers, he said.

Some for-profit hospital chains have tried to increase revenue by billing more aggressively and maximizing their insurance reimbursements. Steward appears to have good relationships with the insurance industry, however.

Two health insurance carriers that have subscribers in both Maine and Massachusetts -- Harvard Pilgrim Health Care and Aetna -- said they would welcome Steward's expansion with Mercy.

The company also has invested in its hospitals through new emergency rooms and waiting rooms, struck and honored contracts with various unions at the hospitals and maintained the hospitals as viable employers, said Amy Whitcomb Slemmer, executive director of Health Care For All, a consumer advocacy group that closely monitored Steward's acquisitions in Massachusetts.

Steward, however, hasn't operated long enough to have reported data on its quality of patient care and patient experiences. That information will likely be reported in the next six to 12 months, experts said.

Overall, quality-of-care reports on for-profit chains vary.

"They do worse on patient experience, better on processes measures, and somewhat worse on mortality and readmission rates," Jha wrote in a recent blog called "An Ounce of Evidence."

"My takeaway is that although which hospital you go to has a profound impact on whether you live or die, whether the hospital is "for-profit" or "not for profit" has very little to do with it," Jha wrote. "What really matters is leadership, focus on quality, and a dedication to improvement."

For-profits make up about 20 percent of all U.S. hospitals. Many of them are part of large chains, such as Hospital Corp. of America. Bain Capital, the private equity firm co-founded by presumptive Republican presidential nominee Mitt Romney, owns HCA, which has scored well on quality reports.

A private equity firm's investment in a hospital chain puts extra pressure on profitability, but that's not necessarily a bad thing, experts said.

"Markets are incredibly disciplining forces," Chandra said. "I would like all of private equity to get more involved in health care -- it gets people asking: Is it working? Should we be investing differently? Should we have fewer doctors and more nurses? What's the right mix?"

Chandra said, "As long as we're measuring outcomes and quality, the focus on costs isn't bad."

A private equity firm's investors may demand return of as much as 20 to 25 percent over the three to five years of the investment, said Vicki Bryan, an analyst with GimmeCredit.

In 2010, U.S. community hospitals posted a 7.2 percent profit margin on $730.9 billion in net revenue, according to the American Hospital Association. That was up from a 5 percent margin in 2009.

Margins for the largest for-profit chains average 13 percent to 15 percent, Bryan said.

"You have to remember this is a profit center," she said. "It has to justify results to its equity holders."

 

-- Staff Writer John Richardson contributed to this report.

 

Staff Writer Jessica Hall can be contacted at 791-6316 or at:

jhall@mainetoday.com

 

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