The 10 Biggest Hospital Stories of 2013

2013 was a challenging year for healthcare, and one marked with much uncertainty.

Perhaps the most uncertainty in the industry stemmed from the rollout of the Patient Protection and Affordable Care Act's healthcare exchanges. For months leading up to their launch, health systems worried as they struggled to estimate, and therefore plan for, the number of patients who would enroll in plans offered on the exchanges and reimbursement rates under these plans.

When the exchanges did launch, they launched in the midst of a federal government shutdown. And, the federal exchange website,, experienced weeks of technical difficulties, forcing the Obama administration to delay the start date for imposing penalties on the uninsured by six weeks, at the time this issue went to press.

What other issues impacted hospitals and health systems the most during 2013? Following are 10 of the biggest stories covered in the pages of Becker's Hospital Review throughout the year.

1. Healthcare exchanges launch, with noticeable hiccups
Much of the past year's news coverage concerning the PPACA focused on the state-based insurance exchanges, which opened for enrollment Oct. 1 and allow individuals and small businesses to purchase coverage.

States had the option of running their own exchanges or marketplaces, allowing the federal government to run their exchanges or operating under a federal-state partnership in 2014. Those running their own marketplaces had to submit an exchange blueprint to HHS by December 2012, while those planning to find a middle ground between a state-run and federally facilitated marketplace had until February 2013 to submit their plans, according to the Kaiser Family Foundation. In total, HHS will support or fully run the exchanges in 36 states next year.

Most of the remaining states running their exchanges independently passed legislation to authorize the creation of a health insurance marketplace. The governors of Kentucky, New York and Rhode Island created their marketplaces through executive orders.

Meanwhile, the Obama administration launched outreach efforts, aiming to enroll 7 million people in the exchanges in 2014. These initiatives include navigator and in-person assistance programs to provide informational services for Americans who need help in shopping for and enrolling in plans. HHS distributed $67 million in federal funds to navigator groups.

Additionally, CMS signed agreements with web-based insurer broker firms to help enroll people in the exchanges, and HHS announced it would distribute more than $32.5 million to fund efforts to educate and enroll people living in rural areas.

The exchanges hit some speed bumps shortly after launching. On the same day enrollment began, the government shut down for about two weeks as Congress struggled to compromise on a spending bill. The federal exchange website also experienced glitches such as crashes due to high traffic and dysfunctional drop down tools, but the Obama administration remained steadfast these problems would not jeopardize the Jan. 1 start of the individual mandate.

2. States grapple with the decision of whether to expand Medicaid, impacting uninsured projections for hospitals across the country
In the final months of 2013, states were split over extending Medicaid eligibility under the PPACA, with some embracing the expansion, some rejecting it and others still debating the idea.

The healthcare reform law originally required state governments to expand their Medicaid programs to cover adults earning up to 138 percent of the federal poverty level in 2014. After the Supreme Court ruled in 2012 that Congress cannot penalize states for not participating, the expansion became optional. As of September, 26 states had no plans to move forward with Medicaid expansion, although some of those (for example, New Hampshire) were still weighing their options.

The expansion became the subject of heated debate in many state legislatures after it became optional, with Republican representatives in states such as Pennsylvania and Ohio protesting expansion for reasons ranging from questionable fiscal sustainability to general objections to the PPACA. Some policymakers also expressed concerns about their states' finances if the federal funds for the expansion didn't come through. For states that expand their programs, the federal government has vowed to pay 100 percent of the additional cost to insure the newly eligible beneficiaries for three years, tapering off to 90 percent by 2020.

The issue didn't necessarily split neatly across party lines, with Republican leaders like Michigan Gov. Rick Snyder and Ohio Gov. John Kasich pushing for expansion despite conservative legislators' objections.

Ultimately, safety-net providers in states that don't expand Medicaid will face a double-edged sword of pay cuts, since they will not have an expanded Medicaid patient population to lessen the burden of uncompensated care in addition to Medicare cuts under the PPACA.

3. Healthcare price transparency under scrutiny
In February, journalist Steven Brill turned the healthcare world on its head in his explosive TIME exposé, "Bitter Pill: Why Medical Bills Are Killing Us." The article delved into the high costs of healthcare, the role of chargemasters and how hospitals profit off the lack of transparency throughout the system. It made ripples throughout the country, and it led to American consumers asking a fundamental question: Why are healthcare bills so expensive, and why don't patients know anything about the prices from the onset?

Then, in March, Catalyst for Payment Reform and the Health Care Incentives Improvement Institute released a report that quantified how a majority of states have failed to enact comprehensive healthcare price transparency laws. The two groups graded each state on whether healthcare pricing information is available, how accessible it is and the scope of information available. Overall, 29 states received an "F" grade, and seven states received "D" grades.

Since then, price transparency within the healthcare sector has become a major part of reform, catching hospitals in the crosshairs. For example, CMS released troves of data on the 100 most frequently billed inpatient charges and 30 most common outpatient charges, finding that hospitals prices varied wildly from market to market. This led some states, like North Carolina and Arizona, to enact laws requiring hospitals to post chargemaster prices of their most common procedures. And while this does improve transparency, chargemaster data rarely reflects the true costs to a payer or patient, further complicating matters. As employers continue to shift patients to high-deductible health plans, the demand for price transparency is expected to grow since patients will have to shoulder a larger portion of their healthcare costs.

4. Hospital and health system layoffs abound
2013 appears to have been the year of the layoff in healthcare. Almost every week, major hospitals and health systems nationwide announced they were cutting anywhere from dozens to hundreds of positions from their workforce. According to global outplacement consultancy firm Challenger, Gray & Christmas, healthcare organizations cut a total of 41,085 jobs through September 2013 through layoffs and other means.

Hospitals and health systems that resorted to layoffs this year generally cited one or a few of the following as reasons cuts were necessary: lower reimbursements from Medicare and Medicaid, lower inpatient volumes or an overall drive to improve organizational efficiency.

Several industry-wide forces contribute to those revenue-reducing factors, including states' decisions to not expand Medicaid coverage, leaving hospitals in those states with a larger uninsured population to care for; the federal sequester's 2 percent cut to Medicare reimbursement, which took a bite out of hospitals' bottom lines; quality improvement initiatives, which generally reduce the number of hospital admissions as patients seek care in outpatient settings; and uncertainty surrounding the implementation of the federal healthcare reform law.

Even though several hospitals and health systems have laid off employees and cut down the size of their workforces, the healthcare industry still grew in 2013 — albeit slower than in 2012. According to the Bureau of Labor Statistics, healthcare has added an average of 19,000 jobs per month this year through September — compared to an average of 27,000 per month last year.

5. Hospital operator mega-mergers significantly alter for-profit, nonprofit hospital market
One of the most consistent healthcare trends over the past several years has been increased consolidation and M&A activity. But in 2013, consolidation hit a new level as many transactions resulted in new super-sized healthcare corporations.

Two of the biggest deals came on the for-profit side. In October, Dallas-based Tenet Healthcare Corp. officially acquired Vanguard Health Systems in a deal valued at $4.3 billion. Tenet now operates 77 acute-care hospitals and stands as the second-largest for-profit hospital chain in terms of revenue and third-largest in number of hospitals owned. Not to be outdone, Franklin, Tenn.-based Community Health Systems was in the process of buying Naples, Fla.-based Health Management Associates for $7.6 billion at the time this went to print. If approved, the deal would make CHS the largest for-profit hospital operator with 206 acute-care hospitals across 29 states.

The nonprofit side had its fair share of massive transactions, as well. Livonia, Mich.-based Trinity Health and Newtown Square, Pa.-based Catholic Health East merged in May to create the country's second-largest Catholic health system. Baylor Health Care System in Dallas and Scott & White Healthcare in Temple, Texas, joined forces to create the largest nonprofit health system in Texas. The Mount Sinai Health System is now the largest health system in New York City after The Mount Sinai Medical Center and Continuum Health Partners merged. And after roughly two years, Pennsylvania-based health insurer Highmark finally created its own health system, Allegheny Health Network, after it finally acquired its primary piece, West Penn Allegheny Health System, also in Pittsburgh.

Although there likely won't be as many mega-deals in the near future, there should still be a consistent flow of M&A activity as standalone hospitals continue to join larger health systems.

6. FTC Scrutiny of consolidation continues, but mergers move forward undeterred
As healthcare consolidation continues, so does the Federal Trade Commission's examination of merger and acquisition deals to ensure they won't negatively impact competition.

The FTC filed suit in April 2011 to block Albany, Ga.-based Phoebe Putney's acquisition — through an arranged lease with the Hospital Authority of Albany-Dougherty County — of Palmyra Medical Center, later known as Phoebe North, also in Albany. The case made it to the Supreme Court in March 2012, after the $195 million acquisition had been consummated. In February, Justice Sonia Sotomayor delivered the court's opinion, which sided with the FTC.

The FTC, Hospital Authority and Phoebe Putney agreed to a settlement in August, under which the Hospital Authority and Phoebe Putney are required to give the FTC notice of all future transactions that involve hospitals, outpatient facilities or physician practice groups, and are also barred from opposing potential competitors' certificate of need applications for acute-care hospitals in a six-county area. Phoebe Putney will not have to sell Palmyra, as Georgia's certificate of need laws complicate this traditional remedy, which is typically the FTC's preferred method to restore competition.

Hospital activity in Idaho also caught the FTC's attention this year. In March 2012, Boise, Idaho-based St. Luke's Health System's acquisition of the 44-physician Saltzer Medical Group in Nampa, Idaho, caught the attention of the FTC, which filed an antitrust suit to block the deal. According to the complaint, the acquisition of Saltzer would leave St. Luke's with a 60 percent market share and enough bargaining leverage with healthcare plans to raise prices in the region. A district court judge allowed the merger to close late last year.

The FTC later merged its suit with similar lawsuits filed by St. Luke's Boise-based competitors, Saint Alphonsus Health System and Treasure Valley Hospital, and the trial began in September 2013. At press time, testimony in the case had ended and a verdict was pending.  

7. HIPAA omnibus rule becomes effective, organizations on high alert
Throughout 2013, hospital and health system IT executives have been reviewing and ensuring compliance under the HIPAA Omnibus rule. Originally released Jan. 17, the rule expands and clarifies existing HIPAA requirements in accordance with the HITECH Act, and represents the most sweeping changes to HIPAA since it was enacted in 1996.

Key changes in the omnibus rule include patients' right to an electronic copy of their medical record, new limits on how patient information can be used for marketing purposes, a revised breach notification standard based on risk of compromised information rather than risk of harm, and the option for patients to request procedures be kept confidential from their insurance carriers if they pay out of pocket for them.

HIPAA violations have been vigorously enforced — the omnibus rule increases the maximum penalty per violation to $1.5 million, and so far this year Affinity Health, WellPoint, Walgreens and others have paid more than $1 million to settle alleged HIPAA violations.

The final rule officially went into effect March 16, but healthcare providers were more concerned with the compliance deadline of Sept. 23, 2013.  

The HIPAA compliance deadline loomed large as healthcare organizations are also preparing for the ICD-10 transition and meaningful use stage 2, both scheduled for 2014. In light of these conflicting priorities and what many in the industry see as a rushed timeline, the Health Information Management Systems Society, the American Hospital Association, the College of Healthcare Information Management Executives, the Medical Group Management Association and 17 U.S. senators all called for more time for healthcare organizations to attest to meaningful use stage 2.

The proposals have all called for a six month to one year extension to allow both vendors and hospitals the time to implement the next stage correctly. HHS has not yet responded to the calls for an extension.

8. Pioneer ACO first-year results draw questions about future of ACOs
Medicare's Pioneer Accountable Care Organization program started 2013 with 32 participants, but it closes the year with just 23.

In July, CMS reveled how its original 32 Pioneer ACOs performed in 2012, their first performance year. Results were mixed: While all 32 Pioneers improved quality and patient satisfaction scores in 2012, just 13 achieved enough savings to share in them with Medicare. Overall, those 13 ACOs achieved $76 million in shared savings.

Shortly after the release of the less-than-encouraging first-year results, nine of the original 32 Pioneers — more than a quarter of participants — dropped out of the program. Seven of the nine ACOs that exited the program opted to join the Medicare Shared Savings Program, an ACO program with no downside risk, and two decided to leave Medicare's ACO programs completely. At the time this went to print, just 23 Pioneer ACOs remained.

Several experts agree that, given the ambitious nature of the Pioneer program and the complexity of accountable care, the first-year results were not a surprise, and the Pioneer program, as well as other accountable care initiatives, have merit. Others question the future of the model given the mixed results.

Indeed, Pioneer ACOs' results have not curbed ACO formation in the slightest. Commercial ACO formation continued to grow throughout 2013 through payers like Aetna, Cigna, UnitedHealthcare and Blue Cross Blue Shield affiliates. The Medicare Shared Savings Program also added 106 ACOs before the Pioneer results were released, in January 2013.  

The Pioneer program rolls on, as 2014 is the remaining participants' third, and perhaps final, performance year. Pioneers signed a three-year contract with CMS for the program, but have an option to extend the agreement an additional two years based on performance.

9. Financial impact of readmissions penalties hits hospitals
CMS' 2013 fiscal year, which began Oct. 1, 2012 and spanned through the end of September, marked the first year hospitals experienced reduced reimbursements for excessive preventable readmissions. For FY 2013, CMS cut Medicare payments by up to a maximum of 1 percent for 2,213 hospitals with high readmission rates for heart attack, heart failure and pneumonia.

During the second round of penalties, which began Oct. 1 of this year for CMS' fiscal year 2014, CMS exacted Medicare reimbursement penalties upon 2,225 hospitals in 49 states. The maximum penalty for fiscal year 2014 is a 2 percent reduction in Medicare reimbursement.  

According to Kaiser Health News, the average penalty for fiscal year 2014 is 0.38 percent, down from 0.42 percent from fiscal year 2013. The penalty calculation process was refined for fiscal year 2014, and planned readmissions will no longer be factored into readmissions rates.

One of the resulting controversies from the readmissions penalty process is the confirmation of a prediction from a January Journal of the American Medical Association study, which said safety-net hospitals would be disproportionately fined once penalties were released. This was indeed the case: 77 percent of safety-net hospitals were fined, and CMS stated it had no plans to adjust penalties for socio-economic status of patient populations, having already factored in the poorer health of low-income patients. This leaves hospitals scrambling to integrate care and identify low-hanging fruit for readmissions reduction and population health management improvements as quickly as possible.

For fiscal year 2015, CMS will increase the maximum penalty rate to 3 percent of Medicare reimbursement. CMS is also investigating adding more readmissions conditions, including hip and knee replacements and chronic lung disease.

10. Push to outpatient sites of care, growth of retail clinics
Another important 2013 trend: Hospitals are increasingly investing in outpatient sites of care, including urgent care clinics, as they prepare for population health management. Rather than feeling threatened by retail clinics, hospitals have overwhelmingly decided to follow the example of major retail brands such as Walmart, Walgreens and CVS in finding ways to provide affordable, quick and convenient care, and hospitals are increasingly partnering with these retailers to coordinate care.

A June report from Accenture predicted the doubling of retail clinics from 1,400 to 2,800 locations nationwide in the next three years. Walgreens in particular has been a bellwether for the process. This year alone the company expanded its retail clinic brand to cover chronic conditions, made partnerships with Orlando Health and Atlanta-based WellStar, among others, and has rebranded its "Take Care Clinic" to "Healthcare Clinic," making its primary care provision goals even more explicit. Americans don't shy from using retail clinics instead of hospitals or traditional physician offices. A JAMA Pediatrics study found 25 percent of parents use retail clinics over pediatricians for their children.

A bonus to this approach: Investing in outpatient care lowers both readmissions and inappropriate emergency department utilization through improved population health and increased public access to primary care. An April report in Scientific American confirmed this linkage in a case study on a CVS-University of California Los Angeles partnership, in which direct integration of the two entities lowered readmission rates at UCLA hospitals.

Whether hospitals opt mostly to partner and integrate with retail clinics or to set out on outpatient endeavors of their own remains to be seen. However, it seems clear that outpatient care is a new staple for healthcare systems' success in its quest to provide quality care from the get-go. Whether they achieve it, rather than how they achieve it, seems to be more important in determining hospitals' adaptability to the changing market, especially as the newly insured are set to flood the already-scarce primary care market beginning in January 2014.

More Articles on Healthcare in 2013:

Physician-Hospital Alignment in 2013: 17 Trends
Moody's: Nonprofit Hospitals Still Face Gloomy Outlook in 2014
Becker's CEO Roundtable 2013: 12 Leaders on the Biggest Healthcare Challenges Today

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