Dartmouth-Hitchcock Continues to Expand Reach as Rural Additions Help It Grow

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  • Dartmouth-Hitchcock CEO James Weinstein speaks about his book "Unraveled: Prescriptions to Repair a Broken Healthcare System" during an interview at his office at Dartmouth-Hitchcock Medical Center in Lebanon, N.H., on May 18, 2016. (Valley News- Sarah Priestap) Copyright Valley News. May not be reprinted or used online without permission. Send requests to permission@vnews.com.

Valley News Staff Writer
Published: 9/11/2016 12:13:14 AM

Lebanon — As the dominant medical provider in the Upper Valley with an annual $1.6 billion budget, Dartmouth-Hitchcock is all but certain to play a decisive role in the evolution of health care here.

But its aspirations stretch further and higher. In a May interview, Chief Executive James Weinstein described the organization that he has led for nearly five years as “a major health system that’s trying to change the world.”

D-H is seeking to build as “a whole new economy with ... new jobs, new ways, new careers,” Weinstein said.

“It’s a big effort, and it will take 10 to 20 years at least,” he added. “But somebody’s got to start on a path.”

Actually, a lot of somebodies. Although it announced on Friday the imminent lay-offs of between 3 and 5 percent of its workforce, D-H will still have in the neighborhood of 9,000 employees after its downsizing. The health care system treats more than 350,000 patients in its hospital and clinics annually and is the only academic medical center in a state with 1.3 million residents.

In that role, D-H and its flagship facility, the 396-bed Mary Hitchcock Memorial Hospital, interacts with other hospitals in New Hampshire, Vermont and nearby states.

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Sometimes they compete. Sometimes they collaborate — most notably in a series of affiliation deals D-H has forged in recent years that give it the final say on major strategic and financial decisions as well as management and governance at other hospitals.

Academic medical centers use relationships with smaller hospitals to manage costs and increase patient numbers, according to a recent article in Healthcare Financial Management magazine. Formal ties help the academic centers attract patients who need specialized or advanced care, and allow beds in smaller hospitals to be more fully utilized by patients with less acute needs, the magazine said.

Proponents of increased collaboration, including hospital mergers and consolidation, see it as a step toward the more efficient delivery of health care and achieving such overriding goals as better quality of care, lower costs and a healthier population.

But regulators in New Hampshire and Massachusetts have stepped in to block some deals, arguing that formal ties between previously autonomous institutions would diminish competition and result in higher costs and fewer choices for consumers.

Others might concern themselves about the financial implications of these arrangements and speculate about D-H’s overall strategy, but Weinstein disputes any suggestion that such factors are driving these decisions.

“What I’m trying to do for the communities we serve is create (a) sustainable health system,” he said.

The measures of success aren’t just financial, said Weinstein: “Money is always, I think, an evil partner in sustainability.”

In its tax filings and promotional materials that tout its commitment to achieving “sustainability,” D-H emphasizes its efforts to change the ways health care is paid for, so that cost-cutting, population health and high-quality services get rewarded.

D-H’s sphere of influence has grown in recent years through its affiliation with Mt. Ascutney Hospital and Health Center in Windsor, New London Hospital, Cheshire Medical Center in Keene, N.H., and Alice Peck Day Memorial Hospital, which sits just five miles away from Dartmouth-Hitchcock Medical Center’s Lebanon campus.

Other hospitals in or near the D-H orbit, including some not much smaller than D-H itself, are located in more heavily populated areas including New Hampshire’s biggest cities, Manchester and Nashua. D-H dropped its bid to acquire one large Manchester hospital in 2011 after state regulators opposed it, but recently announced the resumption of discussions with another.

But even as D-H’s influence in its home state and northern New England grows, it no longer can claim to be the biggest kid on the block. That distinction belongs to Partners HealthCare, a Boston-based, Harvard-affiliated health system that has roughly seven times the annual revenue of D-H. Some recent moves that have built Partners’ presence in New Hampshire have come in the wake of actions by Massachusetts regulators to block Partners’ home-state expansion.

D-H and Partners, which includes Massachusetts General Hospital and Brigham and Women’s Hospital in Boston, are both systems built around academic medical centers, to whom size is critical.

“To fully support their threefold mission of teaching, research, and specialized clinical care, academic medical centers need access to larger populations than do other hospitals,” a 2014 report from the Healthcare Financial Management Association concluded.

Facing the need to assemble a population base of up to 3 million, the report added, “academic medical centers are pursuing a variety of acquisition and affiliation strategies.”

And for better or worse, residents of the Upper Valley will have a ringside seat.

Past and Future Growth

Mary Hitchcock Memorial Hospital opened adjacent to the Hanover campus of Dartmouth College in 1893. The physician organization that evolved into the Dartmouth-Hitchcock Clinic was established 34 years later. The hospital and clinic now operate as an integrated organization that flies the D-H banner over its headquarters on its Lebanon campus.

D-H also comprises clinics in Manchester, Concord, Nashua, Keene and Bennington, Vt., and is affiliated with the four smaller hospitals in New London, Windsor, Keene and Lebanon through the holding company Dartmouth-Hitchcock Health. Radio advertisements proclaim “30 locations in northern New England,” accounting for smaller operations that offer more limited services.

And D-H continues to grow. Weinstein recently wrote that the health system he leads has “begun building the network of affiliates necessary to create a sustainable health system ... with enough population and patients within that population, to sustain one of the few truly rural academic medical centers in this country.”

A 2014 report from the Healthcare Financial Management Association spelled out the advantages that come with size. Bigger systems can operate on a larger and more efficient scale in such areas as purchasing and billing, offer a wider range of clinical services, eliminate duplicate services and unnecessary beds, and spread out the risk that is assumed under new payment arrangements, the report said.

But it appears that D-H still has some work to do to become large enough to support its aspirations, according to John Eresian, a retired hospital executive and consultant in Exeter, N.H. “Their catchment area of 400,000 (residents) is not growing,” he said. “That’s why they need these feeder hospitals.”

Weinstein said the health system he leads looks differently at growth and arrangements with other hospitals. “The economics that drives certain organizations to want to collaborate are different than the motivations that drive us,” he said.

But that doesn’t mean that D-H is standing pat, Weinstein said: “We’re changing the whole marketplace here, creating a different structure with our affiliations (and) network, trying to move away from fee-for-service as fast as we can, trying to create what I call a sustainable health system.”

The phase-out of fee-for-service, which ties revenue to the volume of tests performed and services rendered, is an aim widely embraced by health care providers and policy makers. Weinstein helped promote that goal in his previous job as head of the Dartmouth Institute for Health Policy and Clinical Practice, the college-affiliated organization that researches health care delivery and performance.

The institute’s analysts believe fee-for-service provides a perverse incentive to drive up health care spending, and instead support “value-based payment” mechanisms that tie revenue to the size and health of the population cared for, so that profits, or margins, rise with general health and providers get rewarded for avoiding needless tests and services.

But translating value-based payment into actual policies has proved difficult, in part, according to Eresian, “nobody seems to know what that means.”

That has put D-H in a bind, Eresian said. It has been “a driving force for years in health care thinking but (its leaders) haven’t been able to implement a regional health care system for New Hampshire,” he said. “They can’t seem to implement what they talk about.”

Targeting Manchester

Manchester, according to a 2012 report by a consultant to the New Hampshire Insurance Department, is “the vortex of competition” among New Hampshire hospitals. The principal competitors are two large hospitals — Catholic Medical Center and Elliot Hospital — that sit just three miles apart but whose affiliated doctors, according to the report, rarely send patients to their rival facility.

The strategic importance that Manchester holds for D-H was spelled out in another report issued two years earlier, this by the Charitable Trusts Unit of the state Attorney General’s office. D-H had sought approval for what it called an affiliation and the attorney general termed an “acquisition transaction” that would have given D-H control of Catholic Medical Center, the operator of a 330-bed hospital that is the largest in the city and second largest — after D-H’s Mary Hitchcock Memorial Hospital — in the state. D-H “recognized that they needed to bring their services to New Hampshire’s most populous area, the Southern region, and they could accomplish this goal by affiliating with one of the two hospitals located in Manchester,” the attorney general said.

D-H believed “that the development of a regional integrated health care delivery system, which will be enhanced by the addition of the (Catholic Medical Center), will enable it to establish an accountable care organization in the greater Manchester area,” the report said.

An accountable care organization is a form of population-based payment that Medicare has introduced as an alternative to fee-for-service.

Manchester has about 110,000 people, or one in 12 of all New Hampshire residents, and is in Hillsborough County, which has about 30 percent of the state’s population.

Partners recently announced a “clinical affiliation” between its Mass General Hospital and Catholic Medical Center, thus moving into an opening left after 2011 when D-H dropped its own bid for Catholic. D-H, which has clinics in Manchester and Nashua but controls no hospitals in either city, ended its pursuit of Catholic after the attorney general concluded that the deal might affect the charitable mission for which Catholic was established.

D-H’s courtship of Catholic came after D-H’s leaders talked with their counterparts at Elliot, the state’s third-largest hospital and Catholic’s cross-town rival, and “concluded that the parties did not share a common vision for the nature or scope of an affiliation,” the attorney general said.

Partners has also run into home-state resistance to its expansion plans. Its most recent moves followed a Massachusetts Superior Court judge’s refusal, in 2015, to sign off on a consent decree between the state Attorney General and Partners that would have allowed Partners to add three community hospitals to what was already Massachusetts’ largest health system.

That door shut on Partners only after it had completed its 2013 acquisition of Cooley-Dickinson Hospital, a Northampton, Mass., facility. That same year, Cooley-Dickinson exited from the Dartmouth-Hitchcock Obligation Group, an arrangement in which D-H and Cooley-Dickinson backed each other’s debt securities in order to ease and lower the cost of bond sales.

Other Partners’ moves in New Hampshire include a 2012 clinical affiliation between Mass General and Southern New Hampshire Health System in Nashua and its announcement, in May, of a deal to acquire Wentworth-Douglass Hospital in Dover. That transaction still awaits regulatory approval.

Asked about the impact of Partners’ growth in New Hampshire on D-H, Weinstein dismissed the query as “the wrong question.”

“The question is, ‘Does it affect the patients and people of New Hampshire?’ ” he said. “I don’t know. I hope it helps the people of New Hampshire.”

Meanwhile, D-H again dipped its toe in the Manchester market, when in May it resumed talks with Elliot Hospital.

“Elliot remains in active and ongoing negotiations with Dartmouth-Hitchcock,” Elliot spokeswoman Susanna Fier said Friday. D-H spokesman Rick Adams confirmed that “discussions with Elliot Health System are continuing.”

Both D-H and Partners have faced financial headwinds recently. D-H posted negative operating margins during its two most recent fiscal years, including a $23 million loss on operating revenue of $361 million in its core hospital and clinic, in the quarter that ended June 30. D-H management attributed the most recent deficit to revenue projection errors and problems in back office operations makeovers.

In that same quarter, Partners posted a $33 million operating loss on revenue of $3.2 billion. One-time items that eroded the bottom line included losses on insurance and leasing deals and spending to implement new back office systems and to prepare for a nurses’ strike that was threatened but averted, Partners said in a release.

Both health care systems have more than enough financial strength to absorb a little bottom-line slippage. D-H’s last audited financial statement showed net assets just north of $600 million, while Partners had more than $6 billion.

So expect more moves on northern New England’s health care provider chessboard.

“Hospitals and health systems in New Hampshire are working with a variety of other hospitals, stakeholders, insurers and others to reshape the health care landscape by striving to become even more integrated, aligned, efficient and accessible to the patients and communities they serve,” said Vanessa Stafford, spokeswoman for the New Hampshire Hospital Association.

Some moves are underway in Vermont. In its most recent tax return, D-H described its efforts to grow accountable care organizations for Medicare recipients in New Hampshire and Vermont as “a key element in its work to improve population health and move to new payment models.” D-H’s Vermont ACO effort is a joint undertaking that includes all 14 Vermont hospitals, including the University of Vermont Medical Center.

Tiny Neighbors

In a bygone era, the residents of large towns and small cities in northern New England formed and sustained their own small hospitals.

As recently as 1948, there were 44 hospitals around New Hampshire, according to a history compiled by the state nursing association. Today there are 26 general care hospitals.

That reflects a nationwide trend.

“Smaller community hospitals are in a tight spot,” Robert DeMichiei, chief financial officer of the University of Pittsburgh Medical Center, said in a recent roundtable sponsored by the Healthcare Financial Management Association. “They can’t go it alone, but they likely don’t have the rich reserves they need to” take on the risks associated with payment reform, he added.

DeMichiei noted the resulting vulnerability of small hospitals, which would likely feel “pushed to affiliate or integrate with larger systems.”

A 2014 report on competition in the New Hampshire health care market sponsored by the Robert Wood Johnson and California HealthCare foundations noted that some small hospitals were in the position of “having to merge to stay in business or having to close altogether.”

The report noted some critics’ suggestions that rural areas didn’t need small hospitals and that “ ‘we could turn some of the hospitals in the northern part of the state into helicopter landing pads’ to transport patients to larger hospitals in the south.”

In the Upper Valley, small hospitals depend on D-H’s large Lebanon hospital and its affiliated doctors, as well as some other large hospitals in the region, to offer a range of care and services and high-level care facilities.

That has created pressure to cooperate, said Stafford, the spokeswoman for the New Hampshire Hospital Association. “It is now common for organizations to be exploring ways to align to strategically grow and enhance services for patients,” she said. “It’s critical for hospitals to be proactive on growth strategies, to consider a partnership, or even multiple partnerships, that (will) enable them to stay ahead of market challenges and serve their communities well into the future.”

Those efforts have borne fruit locally, in the form of D-H affiliation deals done with New London Hospital in October 2013, Mt. Ascutney Hospital in July 2014, Cheshire Medical Center in March 2015 and Alice Peck Day this past March.

While D-H, in its public pronouncements, has generally downplayed the level of control it assumed through the affiliation deals, a January article in HealthLeaders magazine included a quote from Stephen LeBlanc, D-H’s executive vice president for enterprise strategy design, that described his organization’s ties to smaller affiliates as “really a parent-subsidiary model” and “not quite a merger.”

New London Hospital’s affiliation with D-H gave the smaller facility preferred access to high-level care and specialists at D-H and led to a dramatic improvement in the 25-bed hospital’s daily inpatient census, to nearly 20 from under 10, LeBlanc said.

Bruce King, the chief executive of New London Hospital, told the same magazine that the link-up to D-H had been the main driver of a 7.5 percent annual increase in service volume at the smaller hospital, which in turn had accounted for much of a 10 percent increase in revenue.

But whatever benefits accrue to D-H from these arrangements, there are also costs, including taking heat for making unwelcome changes. That’s what happened earlier this year when New London Hospital weighed the future of, and eventually decided to close, the William P Clough Center, a 56-bed nursing home.

Fay Bronstein, the wife of a patient at Clough, placed responsibility for the decision to close that facility on the doorstep of D-H. “It’s a corporate institutional decision that ignores the public interest,” she said. “It’s not something you would expect to see in the Upper Valley.”

But Weinstein said that D-H did not make the call on Clough: “The nursing home decision ... was a local decision by their board and by their community and not by us.”

To affiliate with D-H, smaller hospitals cede final say over major financial and strategic decisions and in the choice of their top executives and in the membership of their governing bodies.

But the affiliations aren’t driven by economics, according to Weinstein. “There isn’t an affiliation we’ve made that’s based on money,” he said. “And frankly, most of the systems we’re affiliating with aren’t rich systems.”

Some are money losers. For example, D-H’s most recent audited financial statement for the fiscal year that ended June 30, 2015, showed a systemwide operating loss of $9.3 million.

That included a $112,000 operating profit at New London and a pair of $1.5 million operating losses at Cheshire and Mt. Ascutney.

Mt. Ascutney lost $424,000 from operations in fiscal 2016 and expects to post a $1.2 million operating loss in the current fiscal year, Chief Financial Officer David Sanville recently said in filings with the Green Mountain Care Board, the Vermont panel that oversees hospital budgets and health insurance rates. The most recent deficit will be erased through receipt of a $1.2 million “ ‘system allocation’ payment” from D-H, Sanville said.

Eresian said such subsidies lead to “a no-win situation in the long run. After a few years, it’s unsustainable.”

Chief Executive Maria Ryan of Cottage Hospital in Woodsville said that she believes that financial pressures and unrealistic aspirations may have driven a number of small hospitals to seek a formal bond with D-H.

“By affiliating with such a large organization there could be potentially some cost savings,” Ryan said. “Just having that Dartmouth name can help recruit physicians and other things. So there’s a lot of reasons why some people want to affiliate.”

But there are limits, she added. “Small hospitals ... can’t offer everything to every patient anymore,” she said. “And I think that’s what some of the hospitals that are affiliating with Dartmouth are going to come to the realization: if you’re all tumbling over, you’re going to pull Dartmouth down too.”

So Cottage will travel a separate road, she said. “We like to be nimble. I do a lot of business with a lot of people.”

Cottage has service-sharing and other arrangements with D-H, Catholic Medical Center in Manchester and Maine Medical Center in Portland as well as with several of its small neighbors in the northern reaches of Vermont and New Hampshire, Ryan said. “We have the ability to pick the best in brand for everything that fits us.”

And getting hitched to D-H? “Affiliation is not in our future,” Ryan said.

But at Valley Regional Hospital in Claremont, wedding bells will ring, eventually, according to Chief Executive Peter Wright.

Valley Regional posted a $2.4 million operating loss in 2014 and will report a larger loss for fiscal 2015, he said. “Our issues are about volume,” he said.

Valley Regional’s financial challenges are also fueled by its so-called payer mix — more than three out of five patients at Valley are covered by Medicaid or Medicare, which reimburse at lower rates than commercial insurance — and by the financial margins attached to particular services. For example, diagnostic work by laboratories or using X-rays and surgery tend to be high-margin, or profitable, service areas, he said.

But the 124-year-old hospital will survive, Wright said. “Since I got here, and I am sure it pre-dated that, we hear this rumor perpetually in the community that, ‘Oh, Valley is going to close, Valley is closing,’ ” he said. “I just wanted to set the record real straight that Valley is not closing. We’ve certainly have had some financial struggles but we weathered that storm.”

Wright, who since 2013 has led Valley Regional while employed by D-H, which has a management services contract with the Claremont hospital, noted that “a very strong partnership” between Valley Regional and D-H would provide a good foundation for a more formal relationship in the future.

Currently, D-H has contracts to provide the Claremont hospital with the part-time services of a general surgeon, obstetrician, gynecologist, urologist, oncologist and cardiologist, according to Wright. That enables Valley Regional to offer services in profitable areas where the small hospital lacks the demand to employ a doctor full-time, he said.

Meanwhile, he added, affiliation discussions have gone on for a while. “We have determined that today it’s not right for either organization,” he said. “What they need and what we need overlaps but is not completely synchronous.”

But he expects that to change in the future. “I think an affiliation with Dartmouth-Hitchcock would be very advantageous to Valley, to Dartmouth, most importantly, to the community, when the time is right,” Wright said. “We haven’t figured out what all the elements should be, and so the time isn’t right.”

The key, he added, is to complete “a process of understanding what our community needs. What do we really have to have?”

“Until we figure that out, I don’t think that we’re going to be ready.”

Rick Jurgens can be reached at rjurgens@vnews.com or 603-727-3229.


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