How Froedtert ThedaCare Health laid 'the groundwork' to grow post-merger

Milwaukee-based Froedtert ThedaCare Health launched Jan. 1 as a newly combined, 18-hospital system and has big plans to continue to grow and improve care access and quality across Wisconsin. 

The health system formed when Milwaukee-based Froedtert and Neenah, Wis.-based ThedaCare merged, but much of the groundwork for its future growth was completed before the transaction closed, according to Scott Hawig, chief financial and administrative officer of Froedtert ThedaCare Health. 

"In 2023, we were able to lay the groundwork for two opportunities that are expected to yield more opportunities to provide high-quality care to more Wisconsinites: a combination between Froedtert Health and ThedaCare, and the acquisition of Ascension Health's 50% interest in Network Health," Mr. Hawig told Becker's

On Nov. 1, Froedtert Health fully acquired Network Health, an insurer offering commercial and Medicare plans in 23 Wisconsin counties. 

"The opportunity to acquire 100% ownership of Network Health is consistent with our mission to advance the health of the diverse communities we serve and complements our robust population health strategy," Mr. Hawig said. "Ultimately, it allows us to care for more people in the right place and at the right time."

When the Froedtert ThedaCare Health launched in January, health system leaders immediately began working with the Medical College of Wisconsin to strengthen local healthcare.

"One of our biggest opportunities as a result of the combination is to better predict, prevent and add value to contribute to the health and well-being of the communities we serve," he said. "We are also uniquely positioned to provide exceptional safety, reliability, equity, coordination and access for communities in Wisconsin as a result of this combination," 

The hospital sector has seen an uptick in mergers and acquisitions in the first half of 2024 compared to recent years, a trend that is anticipated to continue as hospitals and health systems seek strategic partners and economies of scale to grow after a tumultuous few years.

"While I expect M&A activity to continue in health care, we pride ourselves on being a partner of choice. Our goal is not to grow for the sake of growth, but rather, to provide more opportunities for people in our state to receive access to high-quality care. It's a responsibility," Mr. Hawig said. "Because of this, we are disciplined in developing partnerships with those who understand the unique needs of the Wisconsin-based communities we serve or seek to serve."

Financial challenges will likely be a driving factor behind many hospital M&As in the coming quarters, and many systems are pursuing economies of scale to secure more leverage with payers during negotiations. 

One widespread pain point for hospitals and health systems is inadequate reimbursement from CMS and commercial payers.

Medicare Advantage, in particular, which provides coverage to more than 51% of the nation's seniors, has received significant criticism from providers. Some providers are pushing back against commercial MA programs or dropping contracts with private plans altogether. 

While Froedtert ThedaCare Health is also experiencing challenges with MA — such as excessive prior authorization denial rates and slow payments — it has set itself up for success and is faring better than most, according to Mr. Hawig. 

"Nationally, the predominant reason cited for health systems terminating Medicare Advantage contracts is the significant increase in payer denials that began during the pandemic. While we've seen payers increase denials on Medicare Advantage contracts, we continue to perform at or above the quality and efficiency requirements of this program," he said. "As a result of our ability to meet these requirements, we have not terminated Medicare Advantage agreements and we continue to work with our payers on appropriate medical policy adherence/coordination."

While hospital margins are gradually improving on average, recent analyses indicate that there are still too many hospitals losing money. 

Mr. Hawig shared some advice for CFOs who are finding it difficult to move their margins back into the black.

"Continue to nurture a strong relationship between operational, clinical and financial leadership, balancing focused execution on daily operations with smart growth. We keep our focus on the most impactful opportunities to improve the health and well-being of everyone we're privileged to serve," he said. "Our unwavering commitment to quality also helps direct our focus on disciplined, smart growth."

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