Hospital firm withstands challenges
As Western Connecticut Health Network begins a new era as Nuvance Heath, its newly attached New York counterpart is fresh off a 2017 fiscal year having strengthened its financial base with across-the-board improvements, though absorbing a hit last year after declines in the stock market and a settlement over its previous billing practices under Medicare and Medicaid programs.
Entering April, state regulators approved the creation of Nuvance Health from the merger of Danbury-based WCHN and Health Quest Systems, creating a seven-hospital network serving some 1.5 million people in western Connecticut and the lower Hudson River valley.
Danbury-based WCHN announced the framework of an agreement a year ago with its fellow nonprofit Health Quest. Dr. John Murphy is CEO of Nuvance, having led WCHN’s predecessor organization since its 2010 formation from the merger of Danbury Hospital and New Milford Hospital and adding Norwalk Hospital in 2013.
Added to that group are four Health Quest institutions led by Robert Friedberg, now Nuvance’s No. 2 executive in the role of organizational president. Those include Sharon Hospital in Litchfield County, as well as the New York institutions Vassar Brothers Medical Center in Poughkeepsie, Putnam Hospital Center in Carmel, and Northern Dutchess Hospital in Rhinebeck.
Big gain amid federal scrutiny
As WCHN explored a combination in advance of a March 2018 merger announcement, Health Quest was putting together a strong year financial profile during Friedberg’s first year as CEO following the 2016 retirement of Luke McGuinness.
In 2017, Health Quest reported excess revenue over expenses — representing profits for an entity operated on a nonprofit basis — of $113 million, an increase of 39 percent from the year before to push its net assets to $665 million.
A significant portion of that gain was due to a bond issue to finance construction of a new patient building at Vassar Brothers Medical Center, Friedberg told Hearst Connecticut Media, but he said the hospital group’s annual operating margins have been running well above industry averages, at about 6 percent.
“If you look at 2014 (through) 2018, each year has been a better performance than the year before,” Friedberg said.
Stock market gains played a part in the 2017 gains, which Friedberg said will not be the case for 2018 when the final figures are released. And after a trio of employees blew the whistle on billing practices at Putnam Hospital Center between 2009 and 2015, last July the U.S. Department of Justice levied a $14.7 million penalty on Health Quest, which also agreed to pay nearly $900,000 to New York as part of a joint settlement.
It was among the larger settlements last year by a hospital group related to the False Claims Act, with DOJ reporting the largest being the $260 million Health Management Associates incurred last September for overbilling, prior to its 2014 sale to the largest for-profit hospital operator in the country.
As a result of the settlement, Health Quest entered into a corporate integrity agreement with the federal Department of Health and Human Services, putting it under HHS oversight for five years. As part of the agreement, Health Quest hired a chief compliance officer and arranged training for its board of directors on their responsibilities with regard to compliance.
WCHN saw its own revenue-expense gap narrow for its 2017 fiscal year ending in September that year, which were off 22 percent to $47.6 million. The hospital system nevertheless reported a $139 million boost in its own net assets due to year-over-year changes on a line item for pension obligations, giving it net assets of $883 million on the eve of reaching the Health Quest merger agreement.
In winning state approval in New York and Connecticut, WCHN and Health Quest indicated there would be no major changes in staffing in creating Nuvance — the merged entity launched with about 12,000 employees — and that any savings from operating as a unified organization would be plowed back into patient care.
In approving the deal, the Connecticut Office of Health Strategy set several conditions to which Nuvance must adhere, including caps on costs pegged to the consumer price index that measures inflation, the first time the state has ever made such a requirement.
Under the Connecticut agreement, Nuvance must expand its use of alternative payment models designed to provide incentives for physicians to lower costs and improve outcomes for the treatments they recommend, with the hospital system having 2,600 physicians.
And Nuvance also agreed to increase funding 1 percent annually for a community benefit program.
Nuvance has yet to list a new website, with WCHN and Health Quest continuing to maintain their respective websites with information displayed prominently on the new entity’s formation.
Includes prior reporting by Rob Ryser.
Alex.Soule@scni.com; 203-842-2545; @casoulman