Regarding your cover story on mergers and acquisitions on the rise ("An offer they can't refuse," July 12, p. 6): I was involved in mergers and acquisitions at a Catholic health system for several years, including the sale of a Catholic hospital in Los Angeles to a small, for-profit company. To your article, I add the following observations:
* Hospital deals undertaken for purposes of cutting losses, improving capital, increasing cash on hand or consolidating business strategies improve the position of the seller, but the advantages are unclear for the acquirer, no matter what kind of firm is helping it.
* Deals undertaken to consolidate services for the community, to prune lower-quality services or to assure basic services are neutral in themselves but usually indicate a loss to the seller, with unclear but potentially positive outcomes for the acquirer.
* Mergers or sales undertaken at the behest of stakeholders, especially shareholders, are usually initiated for those purposes in the first point above, be they for-profit or not-for-profit facilities.
* Deals undertaken at the behest of the community, including significant businesses, politicians and other community leaders, generally follow the patterns in point 2.
* Acquisitions, when the objectives are those listed in point 1, are notably risks undertaken for the purpose of increasing stakeholder wealth, but have little to do with the quality of services delivered to the community.
* Acquisitions focused on the community have a better chance of success, since the acquirer is anticipating improvements, including service improvements.
An increase in mergers and acquisitions is symptomatic of the real problems in health systems. Reporting of M&A activity in itself tells healthcare professionals nothing. Getting to the primary diagnosis is everything.
Mission and ethics
Mercy Health System of Oklahoma
Hired nurses, bigger profits
Your recent special report concerning return on investment becoming a top priority for hospitals ("Planning for day after tomorrow," June 28, p. 48) offers insight into a very important planning and business concept. As capital becomes more difficult to access, hospitals need to rely on profitable operations to fund future growth. This commitment, if successful, will ultimately improve the fundamental balance sheet indicators that will help to re-access the capital markets.
Hospitals' largest operating cost is labor, accounting for about 50% to 60% of expenses. Specifically, nurses represent the bulk of this expense category and therefore the greatest potential opportunity. Most hospitals, because of the nursing shortage, use alternatives such as overtime and/or agencies to supplement their nursing staff. These alternatives can cost the hospital from 60% to more than twice what a staff registered nurse costs. Like found money, a simple return-on-investment calculation may help to uncover cost reduction opportunities.
To illustrate, assume that an agency nurse costs $55 per hour while a staff RN (with benefits) costs $30 per hour. If you base hours per year at 2,080, you can calculate the excess spending per hour at $25, or $52,000 per year. If you use 30 agency RNs for a year, you would have excess spending of $1.56 million.
A decision to hire staff nurses would improve operating margins, improve the health of the balance sheet and help with access to capital.
Marco Colosi Jr.
Vice president of finance
East Petersburg, Pa.
CONtrary view on Fla. law ...
I strongly disagree with David Burda's editorial harshly condemning Florida for its bold and intelligent decision to ban specialty hospitals ("Raining on competition," July 12, p. 20). He also uses the bad judgment of a few decisionmakers in Illinois regulation to condemn all certificate-of-need programs nationwide, then ends with: "Give competition a chance."
Give me a break.
First, it has been well-documented that specialty (aka "boutique") hospitals generally are investor-owned, profit-motivated, limited-care centers which often cripple community-focused hospitals and health centers. The federal government recognized this last year when it established an 18-month payment moratorium so that states could individually study this more closely themselves. Florida did, and acted decisively to protect the public's interest. This is good government at work.
Second, major businesses such as the Big Three automakers have shown in recent well-researched studies that healthcare in CON states in less expensive, of higher quality and allows for better access to care than in unregulated states. Unfortunately, human error and special interests are always present and must be dealt with. In CON, this can best be accomplished by good planning and prohibiting ex parte contact, a technique long ago successfully adopted by our court systems.
If the CON decisionmakers are changed in Illinois (or any state with similar problems) and proper adjustments made to the review process, then the "ship" of public interest can be saved, and healthcare better delivered. Let's not sink the public-input process because of the mistakes of a few.
Third, the usual benefits of competition are almost unachievable in healthcare under current conditions. The advertised perception is that comparative consumer shopping will achieve greater value in healthcare service selection. Yet, the harsh reality is that the consumer is seldom told the price of the service, does not have the tools to assess quality, and has provider-selection decisions made by employers and/or the government.
Instead of endless debate, contentious finger-pointing and mindless criticism, we should strengthen our public oversight ship with better price and performance information in our hold, educated and motivated planners to navigate our path ahead, and objective, honest, unapproachable decisionmakers to steer the helm. Give public guidance a chance.
Missouri Certificate of Need Program
... Fla. has specialty hospitals
I think your editorial was on point in mentioning that the Florida law may hurt competition, but the statement that "Florida currently doesn't have any specialty hospitals" is incorrect. There's H. Lee Moffitt Cancer Center & Research Institute in Tampa; Bascom Palmer Eye Institute-Anne Bates Leach Eye Hospital in Miami and perhaps others.
I also found a listing for a new heart hospital in Brevard County set to open in 2005.
The law may mean no new specialty hospitals so the ones that exist will have a franchise.
J. Craig Honaman
H&H Consulting Partners