Why one independent hospital decided to explore going bigger

Every year, Lawrence + Memorial Hospital CEO Bruce Cummings does what he calls a “back of the envelope” calculation.

Should the New London hospital remain independent, with a series of partnerships with the Yale New Haven Health System in clinical fields such as radiation oncology, neonatology and angioplasty? Or would it make more sense to join the Yale New Haven system as an outright member?

“My thinking began to evolve last year as I looked out on the horizon and just saw just extraordinary changes,” Cummings said. Those include federal policies that aim to change how care is delivered and paid for, new state regulations, hospital taxes and Medicaid cuts, as well as growing demands for capital.

That process eventually led to Cummings’ announcement last week that L+M Healthcare, the hospital’s parent company, is in talks that could lead it to join the Yale New Haven Health System, which already includes Bridgeport, Greenwich and Yale-New Haven hospitals.

The two sides have not yet reached an agreement, but if they do, they could begin seeking approval from their boards and state and federal regulators sometime this summer.

If that happens, it would make L+M the latest example of a trend in which hospitals join larger organizations — something that has come later to Connecticut than many other states, and which has drawn concerns from some Connecticut lawmakers, unions and community groups, even as hospital officials say it could be critical to their organizations’ survival.

Nearly half of Connecticut’s 29 acute-care hospitals remain independent, but many are considering joining larger organizations or other ways to adapt to a health care landscape increasingly viewed as favoring big systems.

Cummings said he put it this way to his organization’s board in February: Given the direction of federal policy, “We don’t have the bandwith, we don’t have the resources. These are all things that come from being part of a larger system.”

While some hospitals have contemplated multiple potential partners, including out-of-state for-profit companies, L+M’s process has been focused on the Yale New Haven system. Cummings said it made sense because they already have clinical partnerships, and many of L+M’s doctors trained at Yale-New Haven Hospital and refer heavily to Yale providers. Issuing a request for proposals to seek a broader group of partners could have risked unwinding those connections, he said.

“Our board just said, ‘Yale New Haven is the obvious choice, and so let’s reach out to them,’” he said.

New ways of paying for care

What are the changes on the horizon that prompted Cummings’ calculations to change?

Among them are the changing ways health care is delivered and paid for. In the current system, providers largely get compensated through a “fee-for-service” method — getting paid for each patient visit, procedure or test. That’s widely viewed as rewarding those that do more, whether it helps to keep patients healthy or not. Such models provide little financial incentive or funding for medical practices or hospitals to invest in things that could keep patients healthy or out of the hospital, such as care coordinators or staff dedicated to helping patients handle chronic illnesses like diabetes.

Both the federal government — which has major leverage in the health care system through Medicare payment policies — and private insurance companies have been trying to develop different models. One, created as part of the federal health law, is known as an accountable care organization, in which groups of health care providers work together to manage the care of a group of patients. The model still relies largely on fee-for-service payments, but a portion of the providers’ compensation is also tied to their ability to meet care quality measures and control costs.

The early accountable care organization payment models largely gave providers a chance to earn more by meeting those goals, but the models are expected to evolve toward putting a portion of providers’ pay “at risk,” meaning that they could lose money if they don’t meet the quality and cost marks.

Earlier this year, the U.S. Department of Health and Human Services announced a goal of having 30 percent of fee-for-service Medicare payments in accountable care organizations or other alternative payment models by the end of 2016, and 50 percent by the end of 2018.

Underlying the new models is a push for health care providers to take a more active role in patients’ health and to work with other types of providers, rather than simply delivering a discrete service when they visit. It could require, for example, making sure diabetic patients have their blood sugar under control, that patients receive recommended cancer screenings, or that a patient leaving the hospital has the right follow-up home care in place.

It could also mean major changes for hospitals; if these models work, the theory goes, fewer patients will spend time in the hospital, and hospitals could have fewer inpatients.

Hospital officials anticipate that at some point, health care providers will take on more financial risk for the cost of patients’ care, making it important to have a large base of patients to spread out the risk in the same way insurance companies do.

On its own, L+M doesn’t have the analytical infrastructure or resources for that sort of model, Cummings said.

“We’re too small to be an accountable care organization,” he said. “If we wait too long, there may not be an option for us. And so that more than anything else is what drove our decision.”

Yale New Haven Health System spokesman Vin Petrini said very few of the organization’s current contracts use alternative payment models, but he said it’s clear that’s where the industry is heading. He described it as building a system to keep patients healthy, “as opposed to a sick-care system.”

Critics of big health systems

The Yale New Haven system is big by Connecticut standards, with the most inpatient beds in the state. But Petrini noted that compared to health systems in other parts of the country that operate dozens of hospitals in multiple states, it’s “at best a small to moderate-size” health system.”

Still, the recent push in Connecticut toward larger health systems has drawn concern from some lawmakers and others, who warn that it has the potential to lead to higher prices for care as hospital groups gain leverage in negotiations with insurance companies and buy up medical practices, which can command higher prices when part of a hospital.

A major health care bill that passed the General Assembly this year, inspired in part by legislators’ worries about the growth of large health systems, includes new regulatory requirements for changes in hospital ownership involving large health systems.

Cummings said the decision to pursue an affiliation with the Yale system was independent of that legislation, but he noted that it seemed to run counter to federal policies.

“At a federal level, there is this headlong rush, which can be found in markets everywhere across the country, toward greater integration,” he said. “Connecticut at the state level seems to be either moving in a different direction or simply is not really attuned to what’s happening with federal policy.”

Hospital officials have also been lobbying heavily against the state budget the House and Senate passed June 3, which includes increased taxes on hospitals and cuts to their Medicaid payments.

Was that a factor in the decision to consider joining the Yale system?

“We would be pursuing this anyway, but it’s fair to say it was definitely a factor when we said, ‘This is one more reason we can’t continue alone’,” Cummings said.

Is a partnership necessary?

Unlike most partnership talks that are announced, in this case, L+M and the Yale system have yet to reach an agreement or sign a letter of intent to move forward.

Cummings said announcing the talks will allow for input from doctors, hospital employees, unions, donors and others. Next week, there will be two open forums for employees. Cummings also plans to meet with union leaders.

Matt O’Connor, a spokesman for AFT Connecticut, which represents about 1,600 workers at the hospital, said the union expects to be part of the process.

“The workforce at the hospital really sees themselves as the voice of the community, to ensure access to quality patient care, and that’s their charge, regardless of whether these talks continue or don’t,” he said.

In the past, the union has clashed with the hospital over efforts to move services off the main campus, and O’Connor said the union will raise concerns if that’s likely to occur as part of any deal with Yale.

Another topic of discussion will be whether the hospital needs to be part of a larger organization.

“We do expect to talk about the specifics of whether bigger is better,” O’Connor said.

“It’s really hard to say that bigger is better. It sometimes is and it sometimes isn’t, and it really is a question of, does bigger translate to better quality patient outcomes?” he added. “And so that’s the kind of discussion that we’re anticipating going forward.”