How Certificate of Need Complicates WellStar’s Next Move regarding Atlanta Medical Center

My apologies for being away for a bit. It has been much longer than I had planned since our last
visit, but I hope to catch up a little bit if you will allow me. It has been an eventful few weeks, so
I trust that has kept you somewhat occupied. However, it is time for you to put your thinking
caps back on because this story just seems to be getting more and more interesting.

I realize that within the last three installments, I have made some pretty bold assertions about things surrounding the closing of Atlanta Medical Center by WellStar. I would point out I did back those up with facts and figures from self-reported information from WellStar and other assertions made beyond those have proven out as the days have passed.

While I understand that here in the blog universe we somewhat play inside baseball, outsiders do look in from time to time. I find it interesting that WellStar has done nothing to push back on what we have
discussed here. Do they totally discount us and what we have said or do they have no valid rebuttal? I think the latter is true since they have contradicted themselves a couple times already .

Back in May, there was an announcement that many of us likely missed or if we saw it, we probably didn’t think much about it. This past week though, the announcement of a merger between Advocate Aurora Health and Atrium Health made back in May was announced as having been completed. The new combined entity will be known as Advocate Health and will serve over 6 million patients annually. It is now the 5th largest not for profit healthcare entity in the country with $27 billion in revenue, 1,000 care sites, 67 hospitals, 21,000 doctors, 42,000 nurses and 145,000 total employees. It will be based in Charlotte (where Atrium was based) with a strong presence in Chicago and Milwaukee (the homes of Advocate Aurora) and anchored with its relationship with Wake Forest University School of Medicine.

Okay Grumpy Old Man, why should I care? Oh, you will be made to care.

A little history lesson. The Atrium folks have been busy during the pandemic and not just taking care of people, they have been taking care of business too.

Navicent Health in Macon became Atrium Health Navicent in 2021. Floyd Health System in Rome became Atrium Health Floyd in 2021 as well. Are you paying attention here? You better be.

An out of state, not for profit healthcare entity has been growing a huge presence in our state over the last couple of years. You will note its growth has been happening in the second-tier metro areas north and south of Atlanta. Navicent (Macon) included 50 total facilities in the middle Georgia area with 5 acute care hospitals while the Floyd (Rome) included 3 hospitals in Georgia and Alabama with 20 primary care offices. Included in the Floyd deal was also a promise of $650 million additional investment over the next 10 years. Both of these deals are anchored by a very large dominant hospital in each market.

The Kaiser Family Foundation had a recent brief that noted a wide body of research shows consolidation in healthcare leads to higher prices for private insurance. As big as Atrium was on its own, now we have Advocate Health becoming an even larger entity overall and will be dictating for all practical purposes what healthcare costs in two large service areas of our state from out of state offices.

Okay Grumpy, what does this have to do with AMC and WellStar???

Well, I have had a little business experience over the years and have always known in order to sell an asset, you need to make it as attractive as possible. It doesn’t take a rocket scientist to realize AMC and AMC South were not the most attractive hospital properties for numerous reasons. Older neglected facilities with little capital investments made over the last several decades and a payor mix that wasn’t the best in the world even though marginally profitable just to name a couple. But the real estate, ah the real estate. Granted, AMC South may not be a peach of a location these days, but AMC downtown certainly is in quite arguably one of the hottest developing real estate locations in the City.

Just food for thought. Remember I have eluded in previous posts that closing AMC was more of a real state move than anything else.

Okay, for those of you in the cheap seats still trying to figure out what is going on down on the field, let me start connecting the dots.

I have thought for some time that WellStar was working to make a deal with someone else for a merger. The AMC moves along with growing reserves to well over $2 billion have positioned WellStar to be a very attractive merger partner. The only real question is, are they the instigator or the willing subject? I venture to say they will be the willing subject of an advance by Advocate Health in fairly short order. Many conversations this week have seemed to point in this direction. You know the drill; one mention and you think “that would be interesting” but you hear it from several unrelated sources and you have to start taking it seriously.

Enter good ole Certificate of Need (CON) stage right.

Circle back to making an asset attractive for purchase. With AMC going off line on November 1st of this year, there are now 470 less licensed beds in the metro area at that facility alone. I have already mentioned consolidation causing prices to rise, but add reduced access to beds and you continue to make that asset attractive.

Mark my words, WellStar will make a play to also move the Level 1 Trauma designation to one of their other facilities. That designation is too lucrative to just let fall by the wayside – think teaching component and federal dollars that follow those residency slots just to name one benefit.

Those 470 CON licensed beds are gone unless AMC has someone to step in and open it back up within the next 11 months (not going to happen). Remember, over 200 of these beds have been offline for several years already and I am not counting beds that went offline when AMC South was closed. The scarcer a resource is, the more valuable the remainder becomes.

Well Grumpy, all someone has to do is open another facility somewhere you say? Not so fast there Grasshopper. The only way that can happen in Georgia today is with a CON for the new beds. There are a handful of unbuilt licensed beds out there currently but they are being built out. Otherwise, no other beds are on the horizon and frankly no one is willing to try because all understand that under our arcane CON laws, it would be years and millions of dollars down the drain for basically a 50/50 chance of getting any size CON.

Millions of dollars that would not treat the first patient but would only line the pockets of a select group of very specialized lawyers in Atlanta. In case you didn’t know it, there is a whole cottage industry around CON here in Georgia that fights no holds barred to protect the CON franchise. Lawyers, organizations and
individuals who don’t mind throwing out thinly veiled threats toward those who might dare have the notion to change or eliminate CON.

CON was mandated originally by the federal government in the 1970’s on states as a condition of participating in Medicaid. It was erroneously thought by limiting the number of beds and services in states that costs would be controlled and kept low. The thinking was over use of services would happen if access was too broad. A quaint thought but 100% backward reasoning. In just a few short years of implementing the mandate, the feds backed away and actually encouraged states to eliminate CON. In many states, including Georgia, CON had become ingrained in the healthcare system and it was quickly realized it created and protected monopolies. If you have the monopoly (CON), you are a happy camper, if not you are a loser in so many ways. People will go to great lengths to protect monopolies if you haven’t noticed.

The dollars spent annually to protect CON from any changes is simply amazing. The number of lobbyists and governmental affairs specialists the Georgia Hospital Association and The Alliance of Community Hospitals hire in any given year is staggering. Especially in a year when there is a mention the General Assembly may look at CON. They have been very effective in their carpet-bombing methods. Nothing and I mean NOTHING can move the needle because they have wrongfully convinced their membership that any change will put their hospital out of business.

Our small rural hospital brethren have been thoroughly convinced should CON go away, the next day someone would come to town and cherry pick all of their paying customers and leave them with only indigent, Medicaid and Medicare to help pay the bills. The struggle they are already in with what they currently have as a payor base should be enough to help them realize this threat is not real. In fact, CON keeps them from adding lines that would help them survive because of the expense and difficulty of the application process. Heaven forbid they apply and then have another facility object to their application and make it even more expensive.

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