On the ground at J.P. Morgan's Health Conference

The J.P. Morgan Healthcare Conference kicked off in San Francisco on Monday. Updates can be found here throughout the conference with daily observations and news from finance reporter Tara Bannow. In addition, look for Tara's reporter's notebooks in our Modern Healthcare A.M. newsletter, additional news stories on ModernHealthcare.com or on Twitter @TaraBannow and @modrnhealthcr.

More J.P. Morgan Healthcare Conference coverage:

Tuesday, Jan. 8

Providence St. Joseph Health says it's a market dominator

Venkat Bhamidipati, CFO of Providence St. Joseph Health, said that the Renton, Wash.-based system is No. 1 or 2 in acute care in the many of the markets it serves.

The system had the largest acute-care market share in its Alaska region, or 35%, as of 2017, according to the health system's slides. It also dominated the markets it served in Northern California and Texas at that time, with 36% and 38% market shares, respectively. The health system is No. 2 in the Southern California region it serves, in which it has 24% of market share. Southern California represents 30% of Providence St. Joseph Health's operating revenue. It's also No. 2 in its Oregon region, where it has a 30% market share. Oregon represents 21% of the health system's operating revenue.

"I think we're pretty well-positioned to take full advantage of market needs and community needs that we see," he said.

Bhamidipati also pointed out that population growth averaged 1% in the areas Providence St. Joseph Health served from 2010 to 2017, compared with 0.7% nationwide. Per-capita income is also higher in those regions, as well as income growth, he said.

CVS-Aetna to bear fruit soonCVS Health CEO Larry Merlo told investors Tuesday the company expects to start to see benefits from the newly finalized Aetna merger in the first quarter of 2019. The companies have created a combined purchasing organization to ensure goods and services fetch "the most effective prices," from which they expect to derive benefits, along with perks from formulary and plan design changes, in the first half of 2019, he said. Merlo said CVS expects to see medical cost savings toward the end of the year, and promised to update investors on the company's next earnings call in February. The company emphasized in its presentation that it is "one company" and U.S. District Judge Richard Leon's continuing review will not affect their timeline.

Tenet talks Conifer's future

Tenet Healthcare CEO Ron Rittenmeyer emphasized in an interview with Modern Healthcare Tuesday afternoon that he is just as interested in selling the company's revenue cycle subsidiary, Conifer Health Solutions, as he was from the start. In his presentation that morning at the J.P. Morgan Healthcare Conference, Rittenmeyer told investors he believes Conifer is well-positioned for revenue growth "under Tenet's ownership or under a different ownership structure." He acknowledged that while some feel it's taking too long, "we are actively engaged and are working diligently to find an answer. Regardless, we will continue to focus on growth and improvement in Conifer with the same vigor as in 2018."

Rittenmeyer emphasized Conifer's 33% adjusted earnings before interest, taxes, depreciation and amortization growth on a normalized basis in 2018, and said Tenet raised its EBITDA expectations for the subsidiary by $80 million since December 2017. Tenet's hospitals, by contrast, grew their adjusted EBITDA by 2% on a normalized basis in 2018, compared with 11% in Tenet's ambulatory segment.

Tenet's slides said the company would consider a sale, merger or spin-out that would be tax-free to shareholders.

Rittenmeyer declined to say in the interview what types of potential buyers he's speaking with, but confirmed talks are ongoing. Since Tenet will remain a customer, Rittenmeyer said he's determined to find the right buyer.

"It's got to work for Tenet as much as the buyer," he said. "This is like getting a divorce but still living together the rest of our lives. They collect my money."

Rittenmeyer also announced during the presentation that Tenet had transitioned 20% of its corporate leaders and 35% of its hospital leaders in 2018. The majority of those departures were involuntary and based on performance, although Rittenmeyer said some were mutually agreed upon.

"We've spent a lot of time this year analyzing our leadership and determined we need stronger, better equipped leaders," Rittenmeyer told Modern Healthcare. "Better training, development programs, bringing people up from lower ranks."

Rittenmeyer said he also wants to bring in new people who will challenge the status quo.

"That's really what I'm after," he said.

Ascension's stellar year

Ascension CFO Anthony Speranzo told investors Tuesday morning that the health system saw $10.5 billion in total operating revenue in the first five months of its fiscal 2019, which is 12% higher than the same period in fiscal 2018. Most of that increase is because of the acquisition of Presence Health, he said.

Last year, Ascension took a number of steps to improve its cost structure and productivity. Consolidating nonclinical departments into a single structure is expected to save $82 million in fiscal 2019 alone, Speranzo said.

Ascension's investment in Chicago-based R1 RCM has returned over $500 million in value to the organization, Speranzo said. The system added Ascension Medical Group to the platform last year.

Mayo's big plans for big ideas

Mayo Clinic CFO Dennis Dahlen told investors Tuesday morning that the first phase of the health system's Destination Medical Center campus in Rochester will include developing a co-lab called Discovery Square One, designed to maximize collaboration between biotech companies, clinicians and scientists.

"It's designed to equip and support inspiring innovators from design to exit," Dahlen said.

The Destination Medical Center is a $5.6 billion project that's envisioned to serve as an anchor for the medical center and research in Rochester. Mayo expects to spend $908 million over the next three to five years on ongoing construction projects related to patient care, research and educational facilities throughout the country.

Mayo's operating margin was 6.4% in the first three quarters of 2018, which Dahlen said coincided with go-lives of its Epic EHR system at its Rochester, Minn., Jacksonville, Fla., and Phoenix campuses. Mayo recorded about $180 million in Epic implementation expenses in 2018, he said.

Dr. Clark Otley, Mayo's medical director, said that 41% of Mayo Ventures' disclosures have ultimately been commercialized, resulting in $700 million returned to the health system. As a not-for-profit organization, "all of that money goes back to clinical practice, research and education functions," he said.

Monday, Jan. 7

The government shutdown hits deals

Kent Thiry, CEO of the dialysis provider DaVita, told a breakout session audience on Monday evening that the company is working to close on the sale of its medical group to UnitedHealth Group in the first quarter of 2019. He said the federal government shutdown could complicate the deal.

"We couldn't guarantee that even if the government wasn't shut down," he said, "but we and the buyer are both working toward that goal with same intensity if not more."

Last month, DaVita announced it had agreed to lower the price on its medical group, DaVita Medical Holdings, to $4.34 billion, from $4.9 billion.

Kaiser has $100 billion in its sights

Kaiser Permanente CEO Bernard Tyson told the audience at the J.P. Morgan Healthcare Conference Monday morning that the health system's revenue was nearly $73 billion in 2018 and shaping up to hit $80 billion this year. Kaiser is "clearly on the trajectory" to becoming a $100 billion company, and plans to do so organically, he said. "That's the path that we're on," Tyson said.

Last year, more than 10% of the hip surgeries performed by Kaiser were performed on an outpatient basis. That was about 2,700 of 23,500 procedures, Tyson said.

"That is the future and it's here now," he said.

CHI-Dignity merger to close soon

Lloyd Dean, currently the CEO of Dignity Health said that leadership at Dignity and Catholic Health Initatives plan to close on CommonSpirit Health within the next few weeks. "Aligning ministries of this size certainly has complexity and we're working to get it done." Although Dignity and CHI presented together as CommonSpirit, Dean clarified they are still formally two separate organizations.

Dean said size is not the driver of the union, which he said will touch one in every four Americans once it's completed. Rather, Dean said by combining the organizations' expertise, resources and best practices with additional skills and capabilities, "We have an opportunity to impact healthcare in a way that certainly we could not do independently."

Insurers look to managed care

Ken Burdick, CEO of WellCare Health Plans, said in a breakout session that his company is talking with regulators and elected officials in "literally every state" about the benefits of moving more of their population into a managed Medicaid setting. The company is championing Medicaid expansion in Florida and other states, as well as adding new categories of eligibility. "Costs are just getting prohibitive so they're looking for solutions," he said. "I'm convinced managed Medicaid is the solution as opposed to cutting people off of the roles."

While other payers have been quickly buying up physician groups, Burdick said that's not how WellCare plans to deploy its capital. Rather, he said the company can achieve effective, long-term partnerships through aligned incentive arrangements.

Moving toward 'one Intermountain'

Intermountain CEO Dr. Marc Harrison said the innovation that's most important to his health system is its work around supply chain, the move toward "one Intermountain." "We've really shifted from becoming a holding company to an operating company."

Intermountain is working to harmonize clinical quality across the enterprise. One way is through its virtual hospital, which now provides more than 40 services. "This is not a revenue maximization strategy. This is a human maximization strategy." Intermountain plans to study keeping patients truly well using two geographic regions in Utah. The study, which began Jan. 1, will last three years.

Bert Zimmerli, Intermountain's CFO, said Intermountain reduced its individual exchange health plan pricing for 2019 by 2.7%. "Some might say we left money on the table, but we do believe that's the right thing to do."

Intermountain, which has 95% of its assets in cash and investments, is also focused on nontraditional growth through Intermountain Ventures. Intermountain now has four spinoff companies, Zimmerli said.

Debt consolidation savings after a merger

Advocate Aurora Health consolidated its debt portfolio under a single indenture under its merger nine months ago, which health system Co-CEO Nick Turkal said will generate $301 million in cash flow savings in the first five years of the union.

The system's operating margin of 4.3% in the third quarter of 2018 and $383 million in operating income was similar year-over-year to the third quarter of 2017, according to Chief Financial Officer Dominic Nakis.

Operating cash flow margin was 10.7%, or $1.2 billion, in 2017, and 9.7%, or $869 million, in the first three quarters of 2018. Headwinds include cost increases in labor and pharmaceuticals, as well as a payer mix shift toward Medicare and patients with high-deductible health plans.

"These are the industry headwinds that we do all face," Nakis said. The new health system has $18 billion in total assets, 262 days cash on hand, 27 hospitals and more than 500 sites of care.

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