How to prevent another Steward-like health care crisis
Following World War II, Winston Churchill admonished his nation, “Never let a good crisis go to waste.” The current crisis of private avarice and regulatory impotence behind the impending closure or sale of Steward Health Care’s nine Massachusetts hospitals — New England Sinai Hospital in Stoughton closed on April 2 — should sound a call for reform. The regulatory safeguards in place have proven woefully insufficient. Perhaps the glare of publicity will fuel a drive for real regulatory oversight.
The need for more stringent oversight does not apply to private equity-owned facilities alone. Indeed, many of the state’s most important nonprofit health care resources have faced rescue from financial ruin in the past decade. The two largest independent multispecialty medical groups in Massachusetts — Reliant with some 500 clinicians and Atrius Health with more than 1,000 — have been acquired by Optum, a for-profit subsidiary of the publicly traded UnitedHealth Group. Steward recently announced its intent to sell its entire physician group (across Massachusetts and eight other states) to Optum.
Between 1980 and 2016, Massachusetts lost 31 hospitals (27 percent), and many of the remaining independent hospitals have merged into large systems, e.g., Beth Israel/Lahey with 13 formerly independent hospitals and Mass General Brigham with 12 formerly independent hospitals. This is a national trend. Financial loss is usually at the root of these closures, and the market leverage to negotiate higher reimbursement rates from insurers is usually the objective of these mergers.
Any solution should apply equally to private equity, publicly traded, and nonprofit health care entities. After all, patients and the public want to prevent the state’s outstanding nonprofit health care resources from facing this dilemma. An ounce of prevention would be worth more than a pound of cure.
How can government protect major health resources so valuable to their communities without unduly burdening hospitals’ finances or impeding innovation and independence? There already exists a model in the strictly regulated insurance industry. Every state’s insurance commissioner is charged with protecting the public’s interest in the financial stability of insurers; in pursuit of this mission, they require insurers to routinely file financial reports and to maintain adequate reserves. Some health insurance regulators go even further in determining allowable premiums and directing payment increases toward such areas of need as primary care.
First, the Legislature should create a public oversight body to review and approve detailed and informative annual financial plans and balance sheets of all hospitals and medical groups over a threshold size. These institutions should be required to file annual, forward-looking financial reports, much as every insurance company does.
This regulatory commission should insist that regulated entities maintain minimum ratios of invested assets (stocks and bonds) to assure continued operations, even in the case of emergencies, and cash on hand to meet 90 days of future shortterm liabilities. Again, this minimum financial accountability is expected and enforced on all insurance companies licensed and operating in Massachusetts
(and in every other state as well).
When insurers fall below minimum financial standards, they can be placed in receivership and their assets managed by or under the guidance of the insurance commissioner. A similar regulation should be set and enforced for major health care facilities.
However, Massachusetts will need something more than discipline for failing hospitals: a bailout fund, built on a small annual surtax on all health care insurance premiums and hospital revenues, matched by public funding, could create an alternative to either closing or selling failing institutions. Because of the limited competition already caused by all of the merger and acquisition activity of the past decades, it is vital to keep key community resources operating independently. Discretion to bail out a failing community resource instead of approving an acquisition or merger will not only reduce the number of such events but also give regulators more leverage in negotiating the terms of acquisition, if necessary, for vital community resources.
Whether such regulatory capacity should be added to the responsibilities of an existing oversight body, such as the Massachusetts Health Policy Commission, which already makes recommendations on major market transactions, or the Public Health Council, which must approve them, is an important detail. If the Legislature decides on a separate commission, it should require coordination among all three entities.
As it is, the upheaval caused by the Steward Health Care Crisis will affect patient care and local economies for years to come. But by protecting the state of health care facilities now, Massachusetts can help prevent a similar situation in the future. Let’s make something of the Steward crisis.