Professor Mike Lord Adds Perspective to Cone Health Partnership with Carolinas HealthCare

6.13.2012 Article, Faculty News, Healthcare

Reposted from Greensboro News & Record | by Nancy H. McLaughlin and
Donald W. Patterson

GREENSBORO — Tuesday's agreement to turn management of the Cone Health System over to the Charlotte-based Carolinas Health-Care System represents part of a growing national trend where hospitals combine expertise to find health care cost savings.

Officials at both operations call it a strategic move but not a merger.

Experts say the 10-year agreement may herald big changes for Cone in the coming years, but patients won’t see much of a difference.

Cone Health gets the big national purchasing power of a Wal-Mart — not a mom-and-pop shop — and the financial and medical expertise that comes with operating in the second-largest public hospital system in the country.

“There are no assets to be shared. It’s not changing our identity or our name,” said Tim Rice, chief executive officer at Cone Health. “By and large, this will be a behind-the-scenes relationship to make us stronger.”

Mike Lord, a professor of management at Wake Forest University, said health care “prices have topped out. There is more and more pressure to keep health care prices under control or even lower them. It’s just starting. It is beginning to hit every health care provider.”

With $1 billion in revenue, Cone Health operates five hospitals, including Moses Cone in Greensboro and Annie Penn in Reidsville.

A $6 billion entity, Carolinas HealthCare owns, manages or provides services for hospitals in North and South Carolina. In North Carolina, it’s in Columbus, Cleveland, Scotland, Stanly and Wilkes counties.

Health care providers will see even fewer federal dollars, said Dr. Henry Smith, chairman of the Cone Health Board of Trustees.

“That’s going to require physicians, hospitals and health care institutions to work together as opposed to working against each other and wasting resources,” Smith said.

Under the arrangement, Cone Health would remain independently owned, with its rates and policies set by its local governing board. Carolinas HealthCare, which has formed similar partnerships with hospitals for nearly two decades, gets a management fee. The agreement becomes effective Oct. 1.

Smith said Carolinas HealthCare will act as a kind of GPS to help Cone save money by guiding it in the right direction.

"We still own the car; we are still driving the car," Smith said. "We haven’t given up any control."

Cone Health, whose $200 million North Tower at Cone Hospital is the biggest current health care construction project east of the Mississippi, is a good-sized regional system. It has not been served notice of any regulatory infractions that would put it on probation or require it to go under anyone else’s control, according to state records.

No layoffs or “back office consolidations” are planned, Rice said, but Cone’s five senior leaders, including Rice, would go on the Carolinas Health-Care payroll. Rice and the others, including the chief quality control officer, would remain in Greensboro with the same duties.

“We really need to be part of the same organization,” said Russ Guerin, Carolinas HealthCare executive vice president for business development and planning. “Our two organizations will be working very closely together in virtually all areas of business, so we will be sharing lots of confidential information.”

Rice called it a legal requirement.

“Our loyalties are to Cone Health,” Rice said. “Our priorities are local.”

The agreement will not change the relationship that Triad-area doctors have with Cone Health or the relationships with local vendors for services, Rice said.

“We always try to buy local whenever we can,” he said. “Where we will see cost savings is more on a national level — who we buy our heart valves from.”

Carolinas HealthCare got unwanted attention earlier this year when the state NAACP and other groups called on the not-for-profit group to change the system’s practice of placing liens on the primary residences of patients who cannot pay their bills.

“We are concerned that Carolinas HealthCare is going to bring their practice of lawsuits and liens to desperate patients and their families in the Triad,” said MaryBe McMillan, secretary-treasurer of the state AFL-CIO. “This isn’t the same kind of situation where people charge up a massive credit card bill on luxury items. They don’t have a choice. They need this care.”

Cone Health is not tied to policies at Carolinas HealthCare, according to Rice and Smith, the board chairman.

Cone Health writes off millions for indigent care, Rice said, but already collects on debts that people can pay. The approach, Rice said, is more lenient.

“Our approach to our patients and how we treat our community is going to remain the same,” Smith said.

Don Taylor, an associate professor of public policy at Duke University, said the agreement between Cone and Carolinas continues another trend in North Carolina that dates back more than two decades.

“In 1990, insurance companies had most of the power,” said Taylor, who focuses on health policy and health economics. “In 2012, the large health systems have the power. There’s been a shift. The notion is the larger the better.”

This change has occurred as larger systems have “gobbled up” smaller ones, Taylor said. There’s a great deal of uncertainty as to how the agreement will work out, he said.

“It’s not clear to me the difference between a management services agreement and a merger,” he said. “A management services agreement may be easier to undo. If the top five employees of Cone are employees of Carolinas, that starts to sound like a merger in practice. (But) I am not sure the patient will see a big difference.”

If the agreement does produce the desired results, Taylor said he expects to see Cone and Carolinas draw closer together.

“In five years, I think you will see a very different health care organization,” said Lord, the Wake Forest management professor.

Lord also said there could be more health care consolidation in the state.

"But bigger is not always better," he said. "We found that out from banks."

The agreement won’t change the pending merger between Cone Health and Alamance Regional Medical Center, Rice said. That’s expected to be completed by late summer.