Expert Sees Michigan Health Care Facing Uncertain Future

July 19, 2009
| By Pete Daly |
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One of Michigan's top experts in health care systems business development says the situation facing health care — especially in Michigan — is like knowing there's a change in the weather coming, but no one knows exactly what it will mean.

A. Michael La Penna, founder of The La Penna Group Inc., a Grand Rapids-based health care business consulting firm, said there is a crisis facing Detroit area health care organizations that is directly related to the decline of Michigan's auto industry. The Detroit news media has reported that 2008 was a financially punishing year for many health organizations there, and La Penna said those continuing financial problems will likely have some ripple effect across the entire state health care system.

A second factor, said La Penna, is the fact that there is a new administration in Washington facing a major national recession with what amounts to a mandate from the American people and Congress to do something, and the administration has already declared it will spend hundreds of billions of dollars to stimulate the economy.

"The government is the wild card," said La Penna.

"We have this huge issue of the (federal) government saying they're going to change the system of reimbursement (for health care), but we don't know the timing, we don't know the magnitude, and we don't know the precise way they are going to do it."

He noted that President Obama has met with national representatives of health care provider groups, who promised to work voluntarily on cost and accessibility problems facing American health care. La Penna said the group was "expressing broad general goals and no specificity. That's something to be very concerned about."

"It means we have providers making decisions based on very little information."

The government has already announced stimulus spending programs that will foster use of electronic medical records.

"We don't know what that far-ranging impact will be, but we know there will be many groups now scrambling to implement medical records technology."

We also know the Obama administration wants some type of universal health care coverage, at least for children, he noted. "But again, we don't know the timing. We don't know if it's going to be an impact beyond the uninsured," or if it will involve the insurance companies,” he said.

Among West Michigan residents, La Penna, 60, would probably know, if anyone does.

The firm he founded here in 1987 works mostly with clients on the East Coast and in the Midwest. His extensive experience includes advising an 1,800-member group of physicians involved in the 2005-2007 bankruptcy of Saint Vincent's Catholic Medical Centers of New York, one of the largest American hospital bankruptcies to date. His firm, which employs seven, also works with major corporations setting up their own on-site health care services for employees, such as Toyota, British Petroleum, Time Inc., Quad Graphics, Kohler and Walt Disney World.

A native of Grand Rapids, La Penna earned a bachelor's degree in economics from Western Michigan University, and later a master's degree in business administration from the University of Chicago.

He began his career as an instructor at Kalamazoo Valley Community College; while there, he started the KVCC EMT program, starting with writing a grant to fund it. Later he was offered employment by Borgess Medical Center to direct its emergency medical services and ambulatory care.

Has La Penna ever seen an economic downturn pose as severe a threat to health care throughout the United States as the current recession?

"No," he said. In the past there were "pockets" in the U.S. where the health care system was in grave financial distress, but it was not due to the economy. One was New York a few years ago, when the region abruptly moved to a system of managed health care after many years of business operation with a protected cost structure. That was why Saint Vincent's Catholic Medical Centers went into Chapter 11 bankruptcy that took two years to come out of, although it is recovering now.

"When Detroit has it, it will be because of the economy," said La Penna.

The economy is already causing "a short-term cash crunch in physician practice and in hospitals because they rely on people to make co-pays and deductibles, and to come in with insurance. The uninsured and the underinsured are on the rise," he said.

The recession is causing more Americans to forgo health care expenditures such as treatment or prescriptions — "many things that would have deleterious repercussions (on health) in the long term," he said.

Governments are experiencing funding problems, too, which means government agencies that provide oversight and regulation will have to ease some of that "pressure," said La Penna, which is likely to allow defects to crop up in our health care system "but we don't know where that will crop up, or how or when."

A serious problem with our health care system is "going to first be evident probably in a most profound fashion in Detroit, where the reorganization of the auto industry and auto suppliers will take maybe a billion dollars out of the health care system," said La Penna.

He cited Crain's Detroit Business, which has reported that Oakwood Healthcare, a four-hospital system in Dearborn, posted a total net loss of $76 million in 2008, the largest single year loss in its history. That was driven primarily by investment losses.

Crain's also reported that net income at Henry Ford Health System in Detroit declined 91 percent in 2008, although total revenue increased 6 percent in 2008 over the year before. William Beaumont Hospitals in Royal Oak also posted net losses in 2008.

The lost revenue from the downsizing of the Michigan auto industry will be due to job losses and migration of people out of Michigan, said La Penna. Another wild card is the fact that GM and the UAW have reached an agreement where the union will now be coordinating a health care plan for its retirees, called a VEBA (voluntary employee benefit association).

"This is like a huge experiment that is being carried out in Detroit. We don't know the impact or the effect of it long term," said La Penna.

What happens to health care in Detroit will have an impact on the funds Lansing allocates statewide for health care, Medicaid and other social programs, said La Penna.

"We've learned in West Michigan that any pressure on Detroit has some ripple effect in West Michigan, even if we are not impacted directly," he said.

As far as a crisis in Detroit health care, La Penna said it may already be happening, in some areas.

"No hospital is investing in lower socio-economic and deprived areas," he said. "They are all trying to invest in the outer suburban rings," where people are more likely to have money and insurance.

The Wall Street Journal reported last fall that Ascension Health, America's largest nonprofit hospital system, had closed three of its Detroit hospitals, including the last remaining hospital on Detroit's blighted east side. Meanwhile, it was opening a new $224 million hospital 30 miles away, in one of the region's affluent suburbs.

The WSJ report said nonprofit hospital systems around the country are closing large city hospitals, while investing billions on suburban expansions, at a time when large nonprofit health care organizations had been enjoying some of the most prosperous years in their history. HQ

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