Bob Herman

Internal fight brewing at Tenet Healthcare

LM Otero / AP

Two board members of Tenet Healthcare who both work at the hedge fund Glenview Capital Management have resigned due to "irreconcilable differences regarding significant matters impacting Tenet and its stakeholders," according to a letter they wrote.

Why it matters: This could be the beginning of a huge fight between Tenet, a $20 billion for-profit chain of hospitals and outpatient surgery centers, and Glenview, an activist fund that owns 18% of Tenet and is run by billionaire Larry Robbins. The board resignations trigger the end of a so-called standstill agreement, meaning Glenview can take more aggressive measures to turn Tenet around.

History lesson: There's some déjà vu here. Glenview got into a nasty fight with executives of Health Management Associates, another for-profit hospital company that was eventually sold to Community Health Systems — a deal that Robbins and Glenview supported and a deal that has brought CHS to its knees.


UnitedHealth CEO Hemsley stepping down

AP file photo

UnitedHealth Group CEO Stephen Hemsley is stepping down from his role Sept. 1. David Wichmann, president of UnitedHealth, will take over as CEO. Hemsley will still hold some sway over the health care conglomerate as executive board chairman.

Why it matters: It's the changing of the guard at one of the largest health care companies in the country. Wichmann has been viewed as the ultimate successor to Hemsley, who has been CEO since 2006.

UnitedHealth's heft: Under Hemsley — one of the highest-paid health care CEOs in the country — UnitedHealth has grown into a dominant health insurer with its share of issues, including Medicare lawsuits and a full-scale exit of the Affordable Care Act exchanges. But it's more than just an insurance company. It also owns a pharmacy benefit manager, a data consulting firm and even physician practices and surgery centers. The company has its fingerprints on almost every corner of the health care system.


More teenagers are dying from drug overdoses

New, sobering statistics from the Centers for Disease Control and Prevention: After seven years of mostly declining drug overdose death rates among people aged 15-19, the rate ticked back up in 2015 to 3.7 deaths per 100,000 people.

Opioids — especially heroin — are by far the leading cause of drug deaths for teenagers. Overdose deaths due to synthetic opioids like fentanyl more than doubled among teenagers from 2014 to 2015.

Why it matters: The opioid epidemic isn't just affecting prime-age working adults. It's also taking the lives of more high schoolers who are too young to vote.

Data: Centers for Disease Control and Prevention; Chart: Chris Canipe / Axios

Medicare cancels mandatory payment experiments

Molly Riley / AP

The Centers for Medicare and Medicaid Services unveiled a proposal Tuesday that would cancel some mandatory bundled payments, which are experiments where hospitals and doctors are paid fixed amounts for certain surgeries and procedures. The Affordable Care Act created an agency to carry out bundled payments and other projects.

The rule would eliminate Medicare bundled payments to hospitals for heart attacks, bypass surgery, hip fractures, and femur fractures. The federal government also scaled back its bundled payment program for hip and knee replacements by proposing to trim the number of mandatory geographic areas in half.

Context: This was expected, as we detailed in Monday's Vitals. But the gravity is not diminished. Hospitals weren't thrilled about the mandatory nature of the pilot programs, yet some health policy experts have viewed bundled payments as worthwhile experiments that could temper Medicare costs.


Chinese investor ups stake in Community Health Systems

David Goldman / AP

Tianqiao Chen, a Chinese online gaming magnate, has increased his ownership interest in for-profit hospital operator Community Health Systems, according to a Securities and Exchange Commission filing. Chen now owns more than 22% of CHS, up from 13.7% previously, and has invested $257 million.

What it means: Chen became an activist investor this past March, and his latest large investment could signal changes at the struggling hospital company. CHS' stock price was down 7% by mid-afternoon trading Tuesday following our report on the collapse of CHS.


Cincinnati files opioid lawsuit against drug distributors

Rich Pedroncelli / AP

The city of Cincinnati is suing the three largest prescription drug distributors — AmerisourceBergen, Cardinal Health and McKesson — alleging the companies violated federal law by failing to report suspicious orders of opioids like hydrocodone and oxycodone and are "responsible for the volume of prescription opioids plaguing our community."

Why it matters: Counties and cities in Ohio have aggressively gone after opioid manufacturers and drug distributors, although those companies have argued they are not behind the country's opioid epidemic. Cincinnati marks at least the ninth such lawsuit from an Ohio county or city since July, according to an Axios review of legal filings.

The big picture: The Financial Times reports a "tidal wave" of opioid-related lawsuits from other states, cities and counties across the country.


The collapse of Community Health Systems

Just three years ago, Community Health Systems was the largest for-profit operator of hospitals with more than 200 facilities scattered in rural and suburban areas with growing populations. Now, the company is hemorrhaging money, sitting atop a mountain of debt and teetering on the edge of bankruptcy — all major reasons why CHS has lost almost 90% of its market value.

Data:; Chart: Andrew Witherspoon / Axios

"I think the company has a nontrivial chance of defaulting," said one CHS investor who asked to be unnamed because of the sensitivity of the issue. Tomi Galin, a CHS spokeswoman, did not make any company officials available for an interview, but said the company is confident it will have "a stronger core group of hospitals that are better positioned for long-term growth."

Why it matters: CHS sits in a massive hole after a string of missteps, according to industry insiders. And it's not likely to get better for CHS, or the local communities that rely on a CHS facility, as more people get treated in lower-cost outpatient centers instead of the hospital.

The collapse: It began in 2013 and continued into January 2014. That's when CHS completed its acquisition of Health Management Associates, a for-profit hospital chain that had a slew of financial and legal problems. The deal was worth $7.6 billion, including debt, and made CHS the largest for-profit hospital company by number of facilities.

"That was the death knell," a health care investment banker said. "HMA was a troubled company, and (CHS) thought bigger would be better."

Here's what has happened at CHS since then:

  • A market cap that crumbled from roughly $7.5 billion in 2015 to less than $800 million today.
  • Net losses of almost $1.9 billion from the start of 2016 through the second quarter of this year.
  • A ballooning debt load totaling $14.7 billion as of June 30.
  • Larry Robbins, a prominent hedge fund manager, dumped his entire portfolio of CHS stock. Paul Singer of Elliott Management did the same earlier this year.
  • A fire sale of 30 hospitals to get cash to pay down debt.
  • Some of those sold hospitals were HMA remnants, while others were considered CHS' better, more profitable hospitals. "It's almost like they're burning the furniture," the banker said. An investor said CHS was "selling off the fine china" to meet debt payments.
  • A completed spin-off of Quorum Health that, in essence, threw many struggling rural hospitals off CHS' books. Quorum isn't faring well either.
  • High amounts of uncompensated care. CHS owns many hospitals in the South, and most of those states did not expand Medicaid under the Affordable Care Act. That means CHS has absorbed more uncompensated care than hospitals in Medicaid expansion states.

Looking ahead: CHS plans on divesting even more hospitals, executives said during their latest earnings call. They likely will be profitable hospitals, as buyers won't touch money-losing inpatient facilities with dwindling admissions.

But large debt payments are due in 2019 through 2022. Short-term cash from transactions appears to be a bandage, and a subsequently smaller profit base won't solve the big debt picture, making bankruptcy a real possibility, an investor said.

Galin, the CHS spokeswoman, said the money from the hospital sales "are being used to reduce our debt" and that "cash flow generation remains strong."

Leadership questions: Many CHS executives have retired or left in the past two years, including longtime CFO Larry Cash. Wayne Smith, the CEO of the hospital chain since 1997, remains in his position. Smith is one of the highest earners among hospital executives and reaped more than $1 million in bonuses alone the past two years even though CHS' stock price tanked.

Numerous sources would not go on the record to talk about CHS. One hospital industry analyst said this when asked how Smith still had his job despite the company's problems: "Your question is very valid."


Google to buy disease monitoring startup

Marcio Jose Sanchez / AP

Google is acquiring Senosis Health, a startup that makes apps to measure lung function, hemoglobin and newborn jaundice, according to GeekWire.

Look ahead: Technology giants are increasingly stepping into the health care industry, but most of the movement is on the consumer side. Senosis could be folded into Google's sister company, Verily Life Sciences, and builds on the interest of turning smartphones into personal health diagnostic tools.


Anthem's ACA exit moves into Virginia

Michael Conroy / AP

Anthem is withdrawing almost all of its individual Affordable Care Act health plans in Virginia, the company said Friday. However, all counties in the state will still have an ACA insurance option because Optima Health, an insurer owned by hospital system Sentara Healthcare, is expanding.
Why it matters: Anthem continues its piecemeal retreat from the ACA exchanges. The Blue Cross Blue Shield brand has now substantially left the marketplaces in California, Georgia, Indiana, Nevada, Ohio and Wisconsin. However, Anthem is keeping a minimal presence off the exchanges in those states, in case it decides to come back.

Update: This story has been updated to note that Optima’s expansion will save Virginia from having counties with no insurance options. An earlier version of this story raised the possibility that Anthem’s exit could have expanded the number of U.S. counties without ACA insurers.


Envision faces lawsuit for allegedly hiding billing practices

Jason Redmond / AP

Investors have filed a class-action lawsuit against Envision Healthcare, alleging the company and its emergency room outsourcing business EmCare did not disclose that EmCare overcharged patients and sent out surprise medical bills. The company's "revenues were likely to be unsustainable after the foregoing conduct came to light," according to the complaint.

Surprise billing occurs when patients go to a hospital in their insurance network but are treated by doctors who are out-of-network. The lawsuit cites a July New York Times story that featured a study showing out-of-network emergency room bills and use of high-paying medical codes increased after hospitals hired Envision and EmCare. An Envision spokeswoman said the company does not comment on pending litigation.

Why it matters: The lawsuit is a direct response to research and newspaper coverage about billing practices that have plagued the health care system for years — practices that lawmakers and policy experts agree should be fixed.