Tenet af­fil­i­a­tion with Yale New Haven eases en­try into North­east

Modern Healthcare - - NEWS - By Beth Kutscher

Tenet Health­care Corp.’s part­ner­ship with Yale New Haven Health Sys­tem, New Haven, Conn., sig­nals grow­ing op­por­tu­ni­ties for in­vestor-owned chains in the North­east re­gion, which has been re­luc­tant to wel­come for­profit health­care. But the new af­fil­i­a­tion also high­lights state reg­u­la­tors’ un­ease with for-profit oper­a­tors and other mar­ket-driven changes as providers buy more physi­cian prac­tices and as­sume more fi­nan­cial risk for pa­tient out­comes.

“The re­al­ity of the mar­ket­place is that we are mov­ing to a point of merg­ers and con­sol­i­da­tion,” said An­gela Mat­tie, an as­so­ciate pro­fes­sor of man­age­ment at Quin­nip­iac Univer­sity in Ham­den, Conn. “It’s less about who’s de­liv­er­ing care and more about what the care is and are we de­liv­er­ing the best value pos­si­ble.”

Like many states in New Eng­land and the mid-At­lantic re­gion, Con­necti­cut has tried to limit cor­po­rate in­flu­ence in health­care. Its broad cor­po­rate-prac­tice-of-medicine re­stric­tions on who can em­ploy doc­tors have been a bar­rier for com­pa­nies like Dal­las-based Tenet that are mov­ing to­ward in­te­grated de­liv­ery net­works and risk-based pay­ment.

Dis­cus­sions around a part­ner­ship with Yale New Haven be­gan when Nashville-based Van­guard Health Sys­tems, which Tenet ac­quired last Oc­to­ber, be­gan look­ing at hospi­tal ac­qui­si­tions in Con­necti­cut. Letters of in­tent cur­rently are in place with Water­bury Hospi­tal, Bris­tol Hospi­tal, and the East­ern Con­necti­cut Health Net­work, a two-hospi­tal group with fa­cil­i­ties in Manch­ester and Rockville.

As the in­dus­try moves to­ward nar­row provider net­works and risk-based pay­ments, joint ven­tures and other part­ner­ships will be one way for providers to po­si­tion them­selves in the new op­er­at­ing en­vi­ron­ment, said Keith Pitts, Tenet’s vice chair­man.

Tenet’s part­ner­ship with Yale New

More deals ahead?

“I wouldn’t be that au­da­cious. Some­times a strat­egy can get out ahead of what re­ally needs to be in place.”

—Marna Borgstrom, Pres­i­dent and CEO, Yale New Haven Health Sys­tem

Haven will help cre­ate a health­care de­liv­ery net­work fa­cil­i­tat­ing care co­or­di­na­tion and par­tic­i­pa­tion in val­ue­based pay­ment con­tracts. Yale New Haven will bring the clin­i­cal ex­per­tise and strong ser­vice lines that it is al­ready known for, said Marna Borgstrom, pres­i­dent and CEO of the three-hospi­tal sys­tem. In ad­di­tion, Yale New Haven will hold a mi­nor­ity stake in other hos­pi­tals Tenet ac­quires, in­clud­ing fu­ture deals in the greater North­east re­gion.

For Tenet, the deal pro­vides a way around Con­necti­cut’s broad cor­po­rate-prac­tice-of-medicine law. While many states re­strict cor­po­ra­tions from di­rectly em­ploy­ing physi­cians, most states al­low doc­tors to be em­ployed through a not-for-profit foun­da­tion cre­ated and gov­erned by doc­tors. But in Con­necti­cut, the or­ga­niz­ing en­tity has to be not­for-profit as well, said Trip Pil­grim, se­nior vice pres­i­dent at Tenet. That’s where Yale New Haven comes in. The grow­ing trend of physi­cian em­ploy­ment has been con­tro­ver­sial in Con­necti­cut. In a Novem­ber opin­ion piece in the Hartford Courant, state At­tor­ney Gen­eral Ge­orge Jepsen cau­tioned against a re­peal of the state’s cor­po­rate-prac­tice-of-medicine law.

Even al­low­ing not-for­profit providers to form med­i­cal foun­da­tions has “re­sulted in the ag­gres­sive ac­qui­si­tion of physi­cian prac­tices by non­profit hos­pi­tals,” he wrote. “Hospi­tal-af­fil­i­ated prac­tices can ne­go­ti­ate higher rates than in­de­pen­dent physi­cian prac­tices, charge sep­a­rate ‘fa­cil­ity fees,’ drive out com­pe­ti­tion in par­tic­u­lar mar­kets and pro­vide care in ar­eas where more pa­tients are cov­ered by higher-pay­ing commercial health in­sur­ance poli­cies.”

There also are con­cerns about physi­cian con­sol­i­da­tion and providers tak­ing on greater fi­nan­cial risk, said Ellen An­drews, ex­ec­u­tive di­rec­tor of the Con­necti­cut Health Pol­icy Project. “It’s a real shift in the play­ers and the doc­tor in­cen­tives,” she said. “There’s a lot of anx­i­ety about it and the Leg­is­la­ture is def­i­nitely look­ing at it.”

Tenet still must re­ceive ap­proval for its three Con­necti­cut hospi­tal ac­qui­si­tions. Given there has only been one other for-profit con­ver­sion in Con­necti­cut, “we’d ex­pect the com­ple­tion of this deal to be drawn out into the sec­ond half of 2014,” Deutsche Bank an­a­lyst Dar­ren Lehrich wrote in a re­search note. But if ap­proved, Tenet would be a con­sol­ida­tor in an other­wise frag­mented south­ern New Eng­land mar­ket, he added. Tenet, through Van­guard, al­ready owns three Mas­sachusetts hos­pi­tals.

Tenet isn’t the first pub­licly traded chain to ally with an aca­demic med­i­cal cen­ter to cap­i­tal­ize on an aca­demic or­ga­ni­za­tion’s brand and clin­i­cal ex­per­tise. Last year, Com­mu­nity Health Sys­tems formed such a part­ner­ship with the Cleve­land Clinic—com­bin­ing its op­er­a­tions strength with Cleve­land Clinic’s ex­per­tise in clin­i­cal pro­grams like car­dio­vas­cu­lar care. Joint ac­qui­si­tions also will be part of that deal.

But Borgstrom said Yale New Haven doesn’t nec­es­sar­ily have the same as­pi­ra­tions as its peer Duke Univer­sity Health Sys­tem. The Durham, N.C.based sys­tem formed a joint ven­ture with pub­licly traded LifePoint Hos­pi­tals in 2011 and has been rapidly buy­ing med­i­cal cen­ters not only in North Carolina, but as far away as Michi­gan.

“I wouldn’t be that au­da­cious,” Borgstrom said. “Some­times a strat­egy can get out ahead of what re­ally needs to be in place.”

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