Days after the Supreme Court affirmed most elements of the Affordable Care Act, four Valley area health care providers announced deals to merge or affiliate, confirming that the changes ushered in by the Act will only intensify in the months ahead. Providence Health & Services Southern California, the Valley’s largest hospital system, announced it has joined forces with Facey Medical Group and the Facey Medical Foundation, greatly expanding the size of the Providence physician network and preparing Providence for the influx of patients anticipated under the Act. “This helps us achieve a vertical integration of our health delivery system,” said Michael Hunn, CEO of Providence in Southern California. The same day, on July 2, Dignity Health, parent to Northridge Hospital Medical Center and Glendale Memorial Hospital, announced an agreement to buy Valencia-based U.S. HealthWorks, the nation’s largest independent operator of occupational medicine and urgent care centers. Though the moves were in the works for months prior to the Supreme Court decision on June 28, both decisions stem from the same need: to greatly expand access to care under health care reform, especially primary care, and to deliver more efficient, cost-effective care. “Joining forces with a big hospital system …will be the headline of the week in the months to come,” said Dylan Roby, director of the Health Economics and Evaluation Research Program at the UCLA Center for Health Policy Research. “As more health care shifts to an ambulatory care setting, it is becoming more important for hospitals to have a robust outpatient network.” Providence-Facey align Behind the Providence decision is a desire to provide cost-effective, coordinated care to the growing number of people who are expected to come into the health care system under health care reform, which goes into effect in 2014. To be able to reduce the cost of care, Providence and other hospitals believe they have to be financially aligned with physicians to reduce costs by eliminating duplicate services, unnecessary hospitalizations and costly emergency room admissions and readmissions. Financial alignment today often means employment by a hospital foundation. “It is the only way we are going to get health care costs down,” Hunn said. The Facey deal may also make Providence a more attractive partner to insurance companies, which are increasingly restricting their networks to providers able to offer not only inpatient services but an expansive primary care network. By aligning with doctors, Providence also will be able to participate in insurance contracts that offer bundled payments and capitation. Such contracts represent a significant risk for health care providers, and it is not at all assured that doctors and hospitals will be able to drive down costs and make money on such contracts. In fact, integrated networks failed to reduce costs in the 1990s and hospitals abandoned the idea after losing a tremendous amount of money, Roby said. The response was to limit and restrict care. The hope is that this time around — with better data, electronic medical records, evidence-based practice and improved physician compensation metrics — integrated health care systems will work better. The deal will bring Facey’s 10 medical centers and 160 doctors under the Providence umbrella, though the organization with a long history of serving the Valley will retain its name. Facey’s doctors retain the right to refer their 170,000 patients anywhere they want, but as Providence installs its electronic medical record system at Facey practices, it will be much easier and cost-effective for Facey doctors to refer patients to Providence than to unaffiliated hospitals. Providence will hold six seats on Facey’s 11-member board of directors while Facey doctors will maintain five, giving Providence a controlling stake in Facey. Bill Gil, CEO of the Facey Medical Foundation, will retain leadership of the foundation and will also take on leadership of the current Providence Medical Institute, a physician foundation whose doctors serve the South Bay area and includes the physicians of the Providence Medical Group and Affiliates in Medical Specialties, a group of doctors who recently joined Providence from the West Hills area. In exchange for ceding final control to Providence — which will now be the Facey board’s corporate sponsor — Providence will help fund Facey’s expansion. “As we expand in the San Fernando and Santa Clarita valleys, we will be doing it in collaboration with Providence,” Gil said. He said it was Providence that sought out the affiliation with Facey. “We did not negotiate with anyone else,” Gil said. “This was not about who would offer more. It was about choosing the right partner.” Dignity Health-U.S. HealthWorks deal The move is most likely to hurt hospitals to which Facey doctors currently refer patients, including Northridge and Henry Mayo Newhall Memorial Hospital. Northridge may stand to gain, however, from the decision by its parent, Dignity Health, to purchase Valencia-based U.S. HealthWorks. Like the Providence-Facey deal, the Dignity deal was also in the works prior to the Supreme Court decision, but was in all likelihood driven by a similar need to drive down health care costs, said Roby. U.S. HealthWorks’ main business is occupational medicine, but in recent months, it has made a strategic move into the urgent care business. Dignity could use those urgent care centers to redirect expensive emergency room visits to a less costly setting, Roby said. The San Francisco-based health care organization, formerly Catholic Healthcare West, said the acquisition would extend its mission into new care settings to deliver “quality care more efficiently.” It also said the acquisition reflects organization’s vision to become a national, integrated delivery network by 2020. With 800 medical providers and 172 locations in 16 states, Dignity could use the U.S. HealthWorks locations to expand its primary care network, said Dignity CFO Michael Blaszyk. “One of our goals is to have a national presence,” he said. “This moves us across the coast. It also helps from the standpoint of being able to manage populations of people and provide more primary care access points.” But Blaszyk said U.S. HealthWorks’ core business of occupational health also was very attractive. “Our primary goal was to be a part of a rapidly growing company,” he said. Backed by private equity partners Alteris Capital Partners LLC and Three Arch Partners, and with financing provided by GE Capital, U.S. HealthWorks went on an acquisition kick in recent years, buying more than 40 independently-owned practices in the last two years, rolling up what was a fragmented industry. Now those partners can effectively cash out. Blaszyk would not reveal the purchase price, but he said Dignity paid a “fair multiple” for the business that is expected to have $400 million in revenue in 2012. U.S. HealthWorks CEO Daniel Crowley, a longtime managed care executive, will stay on as CEO of what will become a for-profit subsidiary of Dignity. Crowley said Dignity has agreed to fund the continued expansion of HealthWorks and while the focus now is on acquiring urgent care centers, the company has not ruled out expanding into more primary care services, which like all hospitals, Dignity will need to adapt to health care reform. “This allows us to expand our health care ministry into 16 states,” Dignity CEO Lloyd H. Dean said in a statement. “And it strengthens our ability to deliver the integrated, quality care that people expect and deserve.”
Health Care Firms Unite
