In The Headlines

Hospitals Struggle to Survive in an Era of Hyper Cost-cutting

The two gleaming operating rooms in this Kingston, New York, hospital still look brand-new seven years after being built for $5 million: They’ve never seen one patient, and never will. With an occupancy rate of just over 50%, the 150-bed hospital, its surgery center, and an emergency department renovated in 2011 for $6 million will be closed and retrofitted into what its new owner calls a “medical village” of outpatient services such as physical therapy and behavioral health services.

The story of the 123-year-old facility, located in a small town about 100 miles north of New York City, is repeating itself nationwide. Hospitals have been disappearing as government pressure to drive down costs moved care to standalone units, doctors’ offices, and even patient homes. All kinds of services are moving outside hospitals such as hip and knee replacements, heart valve repairs, even childbirth. Mt. Sinai Health System in New York City, which is closing an 856-bed hospital to reopen at the same site as a 70-bed facility, has a program that provides hospital-level care in the homes of patients for conditions such as congestive heart failure and cellulitis infections.

The driving forces behind the change are the payers of hospital bills—insurers and the government—seeking to cut costly hospital admissions through a mix of reimbursement restrictions and incentives. The Medicare program for the elderly is the biggest payer for medical services in the country, but lowering the costs of the Medicaid program for the poor, which is jointly funded by the federal government and states, is also a major focus. Some states—including New York, Texas, and California—are so eager to reduce their Medicaid bills that they grant hospital systems millions of dollars to redesign care in ways that cut the need for beds. One of the beneficiaries is Westchester Medical Center Health Network, which bought the former Kingston hospital in March. The nonprofit system is eligible for more than $360 million from New York State’s $8 billion program to reduce Medicaid admissions 25% over five years. About $89 million will be used to transform the Kingston facility and transfer some of its current services into another nearby affiliate.

Large for-profit chains such as HCA Holdings Inc. and Tenet Healthcare Corp. have taken measures to adapt. HCA has focused its operations in urban areas, where populations are higher and demand for high-margin services is greater, while Tenet has aggressively moved into outpatient care as they expand Conifer, its health management services unit. Hospital valuations are now near five-year lows on concerns that funding for the law’s public exchanges may be revoked, increasing bad debt expense and cutting earnings, according to Bloomberg Intelligence. Tenet and HCA declined to comment.

In the so-called medical village planned inside the former Kingston hospital, Westchester Medical has already mapped out areas for patient education and occupational and physical therapy. Behavioral and nutritional services, senior services such as respite care, perhaps even art therapy may be added in the future—anything that could help keep patients, especially those in the low income category, from ending up in the emergency room. “We’re gambling on better outcomes,” said Marsha Casey, executive vice president of the Westchester Medical network. “Too many people are admitted because they aren’t enrolled in good primary care and prevention programs, and it will cost all of us a lot less if we start caring for them well.” Meanwhile, at MidHudson Regional Hospital, another Westchester Medical affiliate in Poughkeepsie 20 miles down the river, mental health social workers work in the emergency room along with a “mobile crisis” unit that counsels patients outside the hospital. MidHudson is working with Duchess County on the plan to care for patients outside the emergency room, and has received some county funding.

The U.S. is the most expensive country in the world for hospital care, which accounts for about a third of the $3 trillion in annual health-care spending in the country, according to the Centers for Medicare and Medicaid Services. With prices for an overnight stay that dwarf charges in other nations, systems are under unprecedented pressure to cut expenses. Rural facilities, which typically have lower margins, are the most vulnerable, and their closures have a societal impact—forcing patients to travel to get emergency care. More than 600 rural hospitals are at risk of closing because of their finances and, at current closure rates, more than a quarter of them will shut down in less than 10 years, according to the National Rural Healthcare Association, which tracks the number.

Related health services also suffer when a hospital shuts down, said Mark Holmes, director of the North Carolina Rural Health Research Program, a nonprofit academic research center. “The hospital is the nexus of the health system,” he said. “If it leaves town, the physicians who attend there are going to leave too.” In an equation that repeatedly subtracts beds, hospital leaders are struggling to understand where they fit in, said Mark Wager, president of Heritage Medical Systems, which operates physician groups in New York, Arizona, and California. “If you just built a new cardio center based on previous incidence rates, well, the model just blew up,” he said. “If my hospital isn’t one that does well, will it go away? It might need to.”

Citations

1. http://bloom.bg/2iPeMYI – Bloomberg
2. http://bit.ly/1oDkI9n – Nonprofit Quarterly

Samsung and Qualcomm Battle for the Connected Car Market

At CES last week, tech giants like Microsoft, Intel, and Nvidia showed off their latest plans for the fast-growing connected car market. Worldwide sales of connected car products is expected to increase almost fourfold between 2015 and 2020, according to a report by PwC’s Strategy&, adding more than $149 billion in revenues in the passenger car segment alone. Some of the biggest bets have been by Samsung and Qualcomm. Both invested record amounts for a ticket into the connected car market late last year.

In October, Qualcomm announced it would acquire semiconductor manufacturer NXP for about $38 billion—the biggest chip deal in history. With NXP’s broad portfolio of automotive microcontrollers and processors, the deal makes Qualcomm the world’s largest automotive chipmaker. Less than a month later, Samsung Electronics said it was buying Tier 1 auto supplier Harman for around $8 billion—the tech giant’s largest acquisition ever. Harman is the top in-vehicle infotainment solution provider, and with Samsung’s support and expertise in electronic parts and applications, the auto-parts supplier will be able to offer end-to-end solutions for connected cars.

The two companies will have different approaches to the market, however, with the South Korean conglomerate selling automotive chips through Harman’s products, whereas the San Diego-based semiconductor company will sell chips to Tier 1 connected car suppliers. Between the two, Qualcomm has a better shot at automotive-chip glory. Not only does it have a wider range of offerings, but Qualcomm won’t have any clashes when selling its chips to Tier 1 suppliers, except with Samsung’s Harman. In fact, Qualcomm is expected to have the largest market share in the automotive chip market. “With revenue estimates exceeding $1 billion per annum, Qualcomm (with the NXP acquisition) will move firmly into the number one market share position for application-specific infotainment and telematics products,” said Richard Robinson, director of global automotive practice at Strategy Analytics.

Harman and NXP will also eventually compete in the race for self-driving car (SDC) solutions as both companies have experience in advanced driver assistance system (ADAS). Currently, NXP and Nvidia are the two frontrunners in SDC mobile computer platforms, which is required for carmakers to build and test SDCs. Ian Riches, director of global automotive practice also at Strategy Analytics, believes NXP’s existing platform (called BlueBox) can be improved by adopting Qualcomm’s high performance application processors.

Harman, however, has made much less progress. “Harman has been trying to extend its product offerings from infotainment/telematics into the ADAS space for some time now, but this is a long-term project,” said Riches. “Samsung, too, is far more of a ‘wannabe’ than an ‘incumbent’ in this space, aside from its relatively new Smart Machines Group and recent news of a chip deal with Tesla.” Besides trailing behind rivals, Samsung and Harman also face road bumps from carmakers. “The challenge for those trying to provide system-level solutions is that the carmakers themselves are increasingly taking on more of the development work and IP creation,” adds Riches. “Where they are looking for help, it is often to small Silicon Valley/Israeli startups, not other large corporations.”

There is one area where the two companies can work together in the connected car space. Qualcomm is the world’s largest 4G LTE modem maker and will likely be the leader for the upcoming 5G, which Samsung may need to rely on. The new wireless technology will be crucial for cellular vehicle-to-everything technologies, which industry experts believe will boost safety in fully autonomous driving. “Although both companies have the funds to be successful, I believe Qualcomm will have a leadership position in the development of 5G,” says Len Jelinek, senior director of semiconductor manufacturing at IHS. “Samsung may view this as a partnership in that it could be major hardware provider and therefore by working with Qualcomm actually capture a strong position in the overall wireless market without having to spend the R&D on the wireless solution.”

But they will need to cooperate with other companies, too. Unlike in the smartphone market, where Samsung and Qualcomm are the biggest players, there are many other major players involved in the global supply chains of the automotive market. Samsung and Qualcomm will have limited influence in the connected car market—even with their record acquisitions. Both may need cross-industry alliances with incumbent players, rather than a partnership with one another. For example, Intel, the world largest chipmaker, recently created a team together with leading ADAS supplier Mobileye and Delphi, one of the largest suppliers for automotive parts, to develop SDC solutions. The connected car market is set to be the next battleground for tech companies, but it won’t be an all-out war. The ones that can figure out how to cooperate and compete—whether it is Samsung, Qualcomm, or another company—will be the companies that drive this space forward.

Citations

1. http://bit.ly/2jzBFQG – Forbes
2. http://pwc.to/1HNq1Iu – PwC Strategy&

The Good News Is . . .

• Americans stepped up their auto buying and holiday shopping in December, reflecting a boost in confidence and a solid increase in hourly pay. The Commerce Department says retail sales rose a seasonally adjusted 0.6%, following a small 0.2% gain in November. Auto sales jumped 2.4% in December, the biggest gain since April. Gas station sales rose 2%%, largely reflecting higher prices.

• JP Morgan Chase & Co., a global banking services firm, reported earnings of $1.71 per share, an increase of 30.0% over year-earlier earnings of $1.32 per share. The firm’s earnings topped the consensus estimate of analysts by $0.14. The company reported revenues of $24.3 billion, an increase of 2.0%. Management attributed the results to double-digit growth in deposits and record credit card sales.

• UnitedHealth Group, one of the largest and most diversified health insurance companies in the United States, said that it planned to buy Surgical Care Affiliates, a chain of outpatient surgery centers, for $2.3 billion. The acquisition marks the latest step in the company’s evolution from a traditional insurer to a diversified health services company. UnitedHealth’s Optum unit offers a range of health care services to hospitals, doctors and other insurers, but it also provides medical care directly to patients through primary care practices and urgent care centers. The company plans to combine the surgery centers with those businesses. Insurers are aggressively experimenting with new ways to pay doctors and hospitals to reward them for delivering better care at lower prices. Many doctors are scrambling to join health systems and insurers to avoid being left behind. Surgical Care Affiliates, based in Deerfield IL, is a public company that operates 205 surgical facilities, including specialized hospitals, in partnership with surgeons in 30 states.

Citations

1. http://bit.ly/L7q3Tc – US Dept. of Commerce
2. http://cnb.cx/1gct3xa – CNBC
3. http://bit.ly/2jeHFAY – JP Morgan Chase & Co.
4. http://nyti.ms/2jUNCDV – NY Times Dealbook

Planning Tips

Tips for Protecting Your Estate Against Unplanned Succession

When you are drawing up a Will, the assumption is typically that you will be the first to die; your assets distributed to a spouse, children, grandchildren and other loved ones. But accidents and crimes can claim several lives at once. Without proper preparation, those kinds of situations could snarl your estate plan, potentially reducing the value of assets you bequeath or putting them in the hands of people you never intended to receive them. Below are some tips to help you avoid those situations. Be sure to consult with your financial and legal advisors to determine the best way to protect your estate and ensure its assets go to the intended recipients.

Simultaneous death clause – When two parties with intertwined estates die in the same event or accident, it is not always possible to determine who died first. That can lead to some confusion over who gets what; for example, in a married couple that each named the other as the primary beneficiary. So-called simultaneous death clauses specify which person should be deemed to have died first, which can be an important consideration for estate taxes and the ultimate direction of the bequests. Without that language, your estate might be subject to the Uniform Simultaneous Death Act that some states have adopted. That sets out that if two or more people die within 120 hours of one another and no other will or document has planned for that situation, each is considered to have predeceased the other.

Survivorship deferrals – You should specify in your will that “all bequests are subject to the condition that the legatee survive me” by a particular period of time. Depending on the laws in your home state, you may be able to set a term of up to several months. The net effect of such a clause is that if an intended heir dies shortly after you do, the asset passes as if that person had died before you, he said. It goes directly to your contingent beneficiary instead. That could help curtail the financial consequence of an asset being included in two estates in rapid succession, like estate taxes or a second round of probate expenses, and help you better direct where an asset ends up.

Have contingent beneficiaries – Insurance policies and qualified retirement plans, among other assets, pass automatically to the named beneficiary on that account, regardless of what your will dictates. Name a primary and a contingent beneficiary on such accounts, and keep those up to date. Be cautious about naming your estate as a contingent beneficiary. That could have unintended consequences. For example, an IRA that passes to your estate could be liquidated immediately for distribution, eliminating the tax advantage of having a younger relative inherit it. It may be better to have an asset pass to a trust that could distribute income to beneficiaries.

Asset retitling – Consider how jointly owned assets are titled. Couples often opt for “joint tenancy with right of survivorship” or “tenancy by the entirety” to avoid probate, but that can be problematic in simultaneous death cases. Say, for example, that spouses in a second marriage—each with adult children from prior relationships—die in a car accident. Their jointly owned house ends up in the estate of whichever spouse was deemed to have died second, effectively cutting out the first-to-die spouse’s kids from inheriting a share of that asset. Re-titling such assets as “tenants in common” allows the interest of each co-owner to pass according to your Will. That brings back into play any simultaneous death clause or survivorship provisions.

Property distribution – Decide how your estate will be distributed if a beneficiary with children dies before you do. Dividing an estate “per stirpes” means each of that deceased beneficiary’s heirs will split his or her share. Other wording might limit inheritance only to named beneficiaries in a particular class (meaning you would effectively shut out a deceased child’s children), or split the share by person (so if your two children predecease you, your five grandkids could divide the estate five ways).

Citations

1. http://bit.ly/2jUR5lL – Nolo.com
2. http://bit.ly/2jmGnnK – Morningstar Advisor
3. http://cnb.cx/2jyUN4l – CNBC
4. http://bit.ly/2jNWDKK – Financial Web
5. http://bit.ly/2jzHxJy – Dummies.com