ProHealth Care determined to remain independent system
ProHealth Care is taking a different path amid the successive waves of mergers and affiliations among health systems in Wisconsin and throughout the country — and at least for now, that is unlikely to change.
“We are committed to remaining independent,” said Susan Edwards, the health system’s chief executive officer. “We are very strong, and we are growing.”
That commitment makes ProHealth, which includes Waukesha Memorial Hospital and Oconomowoc Memorial Hospital, an island of sorts among much larger competitors:
❚ Aurora Health Care, Wisconsin’s largest health system, merged Sunday with Advocate Health, the largest system in Illinois, to create the country’s 10th-largest nonprofit health system.
❚ Wheaton Franciscan Healthcare’s operations in southeastern Wisconsin are now part of Ascension Health, the country’s largest nonprofit health system.
❚ United Hospital System in Kenosha is affiliated with Froedtert Health and
the Medical College of Wisconsin and operates under the name Froedtert South.
However, ProHealth is not without its strengths.
It retains a strong position in a lucrative suburban market, despite losing some market share to Aurora and Froedtert Health in recent years. It operates Waukesha Memorial, the third-largest hospital in the Milwaukee area. And it is not small.
The health system had revenue of $765.3 million and employed 2,990 people full time and 1,706 part time in its fiscal year that ended Sept. 30.
ProHealth also has posted solid numbers.
The health system had an operating profit of $45.9 million — a 6% margin — in its 2017 fiscal year. And it reported net income, which includes investment gains on its reserves, of $117.8 million.
It also had $768.8 million in unrestricted cash and investments as of Sept. 30.
“We can continue to meet the needs of this community,” Edwards said.
Location a strength
ProHealth has the advantage of operating in a relatively affluent market.
Its hospitals in Waukesha and Oconomowoc generated only 3.9% of their revenue from patients covered by Medicaid programs in its 2017 fiscal year — down from 8.1% in 2015.
The rates that Medicaid pays hospitals and doctors generally cover only a fraction of the cost of providing care, and the percentage of patients covered by Medicaid can determine whether a hospital makes or loses money.
ProHealth’s cost of providing charity care — $4.9 million in the 2017 fiscal year, down from $6.4 million in 2015 — also is relatively small.
“They have a great market,” said Suzie Desai, a credit analyst with S&P Global Ratings.
ProHealth also has strong ties to independent physician practices, which still have a strong presence in the Waukesha area.
ProHealth Solutions — the health system’s accountable care organization, which contracts with government and commercial health plans — has 252 independent physicians, in addition to 231 physicians employed by ProHealth.
The independent physicians use ProHealth’s Epic system for electronic health records through a lease arrangement. That ties them to the health system. But it also creates a virtual integrated system, giving physicians access to a patient’s medical records and enabling ProHealth Solutions to track quality and other performance measures.
Skeptics contend that it is only a matter of time before ProHealth merges with another health system.
But by one estimate, there still are more than 250 stand-alone health systems, with one or two hospitals, in the country, and they are not about to disappear, despite the burst of mergers in recent years.
“They are not an endangered species,” said David Gregory, health care consulting practice leader at Baker Tilly Virchow Krause.
Depending on their competition, services and demographics, small systems can survive.
“I wouldn’t necessarily count out small systems with some specialized services,” Gregory said.
Efficiency is key
Size can bestow competitive advantages, such as economies of scale for administrative tasks, negotiating contracts with health insurers and drawing on the advances in information technology, such as analytics.
But, so far at least, the move to change the way doctors and hospitals are paid has been slow.
“Things move very slow in health care,” said Desai, the S&P analyst.
Implementing changes is easier in a smaller organization than in a larger system.
“We can make changes quicker,” Edwards said.
ProHealth has worked to become more efficient, spending heavily on consultants in recent years.
It spent $23.5 million on its so-called Transformation Project but estimates that the initiative, largely completed in its 2014 fiscal year, would generate recurring savings of $23 million a year.
ProHealth now is working with another consulting firm on a similar initiative.
However, without question, the smaller system faces challenges.
Oconomowoc Memorial, which faces strong competition from Aurora Medical Center in Summit, had an operating loss of $1.2 million in fiscal 2017.
ProHealth plans to add more operating rooms at Oconomowoc Memorial and focus on orthopedic procedures, one of the most profitable service lines.
Selective advantages
But overall, ProHealth has held its own despite increased competition from Aurora and Froedtert Health.
Like all health systems, ProHealth has seen a sharp drop in inpatient admissions as more procedures no longer require a hospital stay.
ProHealth spent roughly $70 million to build a new cancer center that opened in Pewaukee in 2015, and it has seen strong growth in cancer care, one of the most profitable service lines.
Medical oncology visits, for example, increased to 42,549 in its last fiscal year, up from 27,171 in the 2012 fiscal year.
The center also has hospital rates that are higher than those paid to freestanding cancer centers.
Meanwhile, ProHealth has maintained its market share in cardiovascular care, another profitable service line, performing 57,314 procedures in its most recent fiscal year, compared with 52,376 five years earlier.
For several years, it had contracted with Indiana University Health to help run its cardiovascular program, paying the health system a total of $2.3 million in its 2014 and 2015 fiscal years.
ProHealth did not renew the three-year agreement but instead hired several of the people who worked for IU Health.
The partnership enabled it to offer new services, such as transcatheter aortic valve replacement, a procedure that uses a catheter inserted through an artery, usually in a patient’s groin, to implant a new valve.
Waukesha Memorial also has done well in ratings on quality. The Centers for Medicare and Medicaid Services gives it an overall rating of five stars, based on 57 quality measures.
And ProHealth has partnered with physician practices to profit from the trend for more procedures to be done in ambulatory surgical centers. For example:
❚ It owns 50% of the Lake County Endoscopy Center in Oconomowoc, with the balance owned by Mayfair Digestive Health Center.
❚ It owns 49% of the Orthopaedic Surgery Center in Waukesha, with the balance owned by Orthopedic Associates of Wisconsin.
❚ It owns 51% the ProHealth Care Moreland Surgery Center, with the balance owned by Aligned Physicians, a multi-specialty practice.
ProHealth also owns 49% of a 40-bed rehabilitation hospital in Waukesha, opened in 2008, in partnership with Kindred Healthcare.
It now is installing its system for electronic health records in the hospital.
Gregory of Baker Tilly said that so-called postacute care has become increasingly important for smaller health systems, particularly if Medicare continues to move to bundled payments that pay a fixed cost for an entire episode of care.
Other operations also contribute to ProHealth’s bottom line.
Empathia, which provides behavioral health care, had a $1.7 million operating profit in the 2017 fiscal year. And ProHealth Regency Senior Communities, which operates senior housing, primarily independent and assisted living, in New Berlin, Brookfield and Muskego, had an operating profit of $4 million.
ProHealth is in the midst of a $20 million project to double the number of apartments at its campus in New Berlin.
Edwards, who began chief executive in 2010, is proud of the difficult work that ProHealth has done to lower its costs, of its measured growth and of its integration with physicians in its accountable care organization.
She and ProHealth’s board are well aware of the consolidation trend in the industry. But, at least for now, they believe that remaining independent is in the health system’s best interests.
“We live and work here, and we make decisions to provide services that really meet the needs of this community,” Edwards said. “We don’t have someone out of Texas making decisions.”