Sutter Fairfield Surgery Center LLC

Nearly two dozen House and Senate Democrats are pressing for the Centers for Medicare & Medicaid Services to drop 10 organizations off the ACO REACH payment model due to concerns of previous fraud allegations. Nearly two dozen House and Senate Democrats are pressing the Biden administration to remove 10 organizations with documented fraud and waste from the controversial ACO REACH payment model that starts next year.   The letter, released by a collection of 21 House and Senate lawmakers last week, is the latest scrutiny to befall the alternative payment model, which aims to give physician groups a pathway to take on high financial risk and get savings in exchange for meeting spending and quality targets.  “The ability of organizations with known histories of fraud and abuse to take part in the program increases the risks for Medicare beneficiaries and raises concerns that [Centers for Medicare & Medicaid Services (CMS)] screening procedures for participants are inadequate, putting taxpayer dollars at risk,” according to the letter sent to CMS on Dec. 8. The lawmakers cite a review conducted by the Physicians for a National Health Program (PNHP), an organization that advocates for single-payer healthcare, that explored the 99 entities participating in the Direct Contracting Model, the predecessor to ACO REACH. The 10 organizations dinged by the analysis were also accepted into ACO REACH, which starts its first performance period Jan. 1 and will have more than 200 entrants.  The new voluntary model offers full or partially capitated payments to physicians if they agree to meet certain spending and quality metrics. The Center for Medicare and Medicaid Innovation (CMMI) transitioned Direct Contracting into ACO REACH after concerns from progressive lawmakers surrounding the role of private equity. “We have long been concerned about ensuring this model does not give corporate profiteers yet another opportunity to take a chunk out of traditional Medicare,” the letter said.  The lawmakers, led by Sen. Elizabeth Warren, D-Massachusetts, and Rep. Pramila Jayapal, D-Washington, singled out 10 participants that have a history of fraud and abuse in the Medicare program. Warren and Jayapal (the head of the House Progressive Caucus) have previously raised concerns about Medicare Advantage (MA) plans that use tools such as upcoding to make patients appear sicker than they are to inflate risk scores and get higher payments. One of the participants the PNHP singled out is a subsidiary of Sutter Health, which reached a $90 million federal settlement over allegations of mischarging MA and submitting unsupported diagnosis codes to get higher payments from Medicare. Another organization singled out was Cigna for an ongoing lawsuit filed by the Justice Department over alleged MA overpayments. Major insurers Centene and Humana have also been highlighted in the analysis surrounding allegations of duplicative Veterans Affairs claims. According to an audit by the Department of Health and Human Services inspector general in April 2021, a Humana Inc. health plan for seniors in Florida improperly collected nearly $200 million in 2015 by overstating how sick some patients were. The lawmakers asked CMS a series of questions about the methods the agency is using to screen ACO REACH participants. It also wants to know what protections it will employ to clamp down on fraud and abuse. CMS told Fierce Healthcare that it has received the letter from the lawmakers and will respond accordingly.  Advocates for ACO REACH have previously countered that the model is vital toward putting Medicare “on a more sustainable financial path and improve patient care,” according to a statement from the National Association of ACOs.  The group, which represents ACOs, added in a fact sheet that most participants in ACO REACH have a history of participating in value-based care programs and a “long track record of upholding solid, quality patient care.” CMMI introduced the ACO REACH model earlier this year with some changes that appeared to address progressives’ initial concerns with Direct Contracting. These include a requirement that an ACO REACH model must have 75% of its governing board be made up of providers compared with 25% under Direct Contracting. Another key change is the requirement for participants to create and implement a health equity plan that would identify gaps in care and strategies to mitigate them.  But concerns among PNHP and progressive lawmakers have continued even after the overhaul.  “We think the model is misguided and it is designed in such a way that it is an invitation to fraud,” said Stephen Kemble, M.D., a PNHP board member, in an interview with Fierce Healthcare.  The progressives’ concerns come amid heightened scrutiny from Capitol Hill over MA. Sen. Ron Wyden, D-Oregon, has pressed plans over aggressive MA marketing tactics in response to an increase in complaints.

“Volumes are stabilizing to a new normal and inpatient volumes may not return to pre-pandemic levels,” Trinity Health leadership warned in its most recent quarterly filing. Revenue growth from Trinity Health’s recent MercyOne acquisition wasn’t enough to outpace volume struggles and rising expenses during the Catholic health giant’s first fiscal quarter of 2023. Thursday, the 88-hospital system reported a $146.3 million operating loss (-2.9% operating margin) and a $565 million net loss for the quarter ended Sept. 30, 2022. The organization had notched a $106.3 million operating gain and a $378.8 million net profit at this time last year. Revenue grew 0.7% year over year to $5 billion during the quarter, though that tally includes $126.2 million in new operating revenue resulting from the MercyOne buyout that closed Sept. 1. Without that, Trinity would have seen a 1.8% decline in revenue from the prior year’s first quarter. Same-facility net patient service revenue dipped 0.3% year over year “primarily due to same-facility decreased volume and unfavorable shift in payer mix,” the system wrote in its filing. Other same-facility revenues in the opening three months declined by $77 million due to a combination of reduced gain share revenue, 340B program pharmacy revenue and equity earnings from unconsolidated affiliates. Trinity saw year-over-year volume declines across most same-facility volume metrics, including discharges, ER visits, patient days, observation cases and outpatient visits. While some of those numbers were impacted by staffing shortages that constrained capacity, Trinity said it’s also contending with a bigger picture shift in demand for care services. “Volumes are stabilizing to a new normal and inpatient volumes may not return to pre-pandemic levels,” the system wrote. “The majority of the corporation’s revenue is comprised of outpatient and other non-patient revenue, and we continue to diversify our business segments as shifts from inpatient care to ambulatory, home health and digital telehealth care continue across the industry.” Trinity’s total operating expenses increased 5.9% year over year to $5.2 billion, or 3.2% to $5 billion when excluding the MercyOne acquisition. This included a 5.3% increase in the system’s salary, wage and employee benefit costs (minus MercyOne) despite a 1.4% decrease in full-time equivalents. However, the organization called out a $1 million decline in contract labor costs since last year that it attributed to increased use of its internal staffing agency as well as expense reductions across supplies, purchased services and depreciation and amortization. The quarter also included a $128.7 million gain on Trinity’s sale of a 50% equity interest in Gateway Health Plan. On the nonoperating side, $369.5 million in investment losses dragged the system’s total nonoperating items to a $404.6 million loss. Trinity’s total assets dropped 1.1% since the early summer to $30.8 billion, driven largely by a $1.27 million reduction in unrestricted cash and investments from the MercyOne purchase, investment losses and Medicare cash advance repayments. The system now has 211 days of cash on hand. Trinity’s $146 million operating loss puts it in the lower tier of major nonprofit health systems’ recent performances—just behind Bon Secours Mercy Health’s $141 million loss but ahead of Providence’s $164 million loss. The quarter also had a handful of strong earnings as Baylor Scott & White, Sutter Health and Mayo Clinic led the pack with operating gains of $257 million, $244 million and $157 million, respectively.

Labor, inflationary and payer mix struggles hit harder for some nonprofit health system giants than others during the quarter ended Sept. 30. The result was operating margins ranging anywhere from −5.1% to 7.7%. Motley earnings numbers from more than a dozen major nonprofit health systems show third-quarter operating incomes landing on both sides of zero, though issues such as labor shortages, limited volume recovery and worsening payer mix look to be a constant across much of the sector. Baylor Scott & White led the pack with a $257 million operating income for the period ended Sept. 30, 2022, though it was closely followed by Sutter Health’s $244 million. https://public.flourish.studio/visualisation/11916808/ Baylor is among the outlier systems whose financials have been holding strong through the last few years, and the quarter’s 7.7% operating margin represents a slight improvement over the 7.4% of its 2022 fiscal year (ended June 30). It attributed the quarter’s 5.6% year-over-year (YoY) increase in consolidated total operating revenue to a blend of premium revenue increases, higher surgical volumes and favorable service mix that “returned to and/or exceeded pre-COVID levels.” Sutter’s operations have been back and forth this year with a $91 million Q1 gain and a $51 million Q2 loss before the most recent quarter’s $244 million. Though it’s still well behind its numbers from last year, the organization's leadership highlighted the quarter’s relatively flat salaries and progress toward long-term financial resiliency. “Significant challenges remain, including inflationary pressures, supply chain uncertainties, increased labor costs and staffing shortages, and rising drug prices,” a spokesperson said regarding the numbers. “Our priorities include preparing for seismic infrastructure updates, reinvesting in our communities and supporting our clinicians in service to our mission.” Topping the other end of the spectrum was Bon Secours Mercy Health and Providence’s respective $141 million and $164 million operating losses—though the latter’s could be viewed as an improvement in light of the $934 million it was down during the prior two quarters. Both of those systems highlighted a continuation of the inflationary and labor trends that had increased their expenses during the year’s earlier quarters. Providence, for instance, noted an additional $526 million of agency and overtime expenses during the past nine months in comparison to 2021. Bon Secours Mercy said in its filing that the economic pressures offset improvements to patient volumes that had “approached historical pre-pandemic levels.” Other operating results of note included: UPMC, whose health services division logged a $103 million operating loss but was buoyed by the integrated system’s insurance services division; Intermountain Healthcare, which is fresh off a merger that helped boost its revenue by 28% and its expenses by 35%; and Advocate Aurora Health, which inched closer to its own pending merger with a narrow 0.2% operating margin. Regardless of how they stuck the landing, virtually every system reported feeling the continued impact of labor shortages. Banner Health was among that list, reporting a 7% YoY increase in year-to-date contract labor costs and noting that understaffing in certain locations negatively impacted capacity and patient volumes. The reports also suggest some heterogeneity across the patient volume metrics of different markets as demand for non-COVID care continued to recover. Several systems noted their surgical or elective volumes have yet to return to pre-pandemic levels, and some highlighted worsened case mixes that limited year-over-year revenue growth. Similar to earlier quarters, across-the-board non-operating losses weighed heavily on the organizations’ bottom lines. Nearly every system posted a nine-figure investment loss during the quarter, though a nearly $1.7 billion net investment loss at Kaiser Permanente easily took the cake. The investment losses led to 11 of the 13 nonprofits to notch a negative net income during the three months ended Sept. 30. See below for a breakdown of the numbers (and note that for systems reporting year-to-date results, third quarter numbers represent the difference between nine-month and six-month totals).   Nonprofit Health Systems' Q3 Earnings ($ millions)   Total Operating Revenues Total Operating Expenses Operating Income Net Income Kaiser Permanente 24,253 24,328 -75 -1,550 CommonSpirit Health 9,011 8,988 23 -397 Providence 6,866 7,031 -164 -612 UPMC 6,376 6,449 114 -260 Mayo Clinic 4,117 3,960 157 -312 Sutter Health 3,985 3,741 244 103 AdventHealth 3,971 3,910 60 -305 Intermountain Healthcare 3,685 3,685 0 -582 Advocate Aurora Health 3,657 3,649 8 -311 Baylor Scott & White 3,335 3,078 257 135 Banner Health 3,069 3,096 -26 -198 Bon Secours Mercy Health 2,768 2,909 -141 -328 SSM Health 2,330 2,403 -73 -93