NJ Physician Magazine November 2015 by NJPhysician Magazine

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Health Care Panel Points to Problematic Priorities as Reasons for High Costs Out-Of-Network Legislation Clears Assembly Committee 11 Hospitals Systems Sue State Over OMNIA Approval

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CONTENTS

Health Care Panel Points to Problematic Priorities as Reason for High Costs

NJ Lawmakers Tackle Those Surprise ‘Out of Network’ Medical Bills

Out-Of-Network Legislation Clears Assembly Committee

11 Hospital Systems Sue State Over OMNIA Approval

St. Peter’s Hospital Takes On OMNIA plan in Court

Atlantic Health to Pay More Than $25 Million to Settle Tax Case with Town of Morristown

Morristown Hospital Tax Settlement Figures to be First of Many in the State

Some Obamacare Co-ops Are Winding Down, But Not Health Republic of NJ

Prime is Winning Bidder for St. Michael’s

New Seton Hall, Hackensack Medical School Approved for Nearly $17 Million in Incentives

Carrier Clinic Holds Ribbon Cutting for $21M Building Renovation

Coordinated Health Opens New Campus as Officials Rip N.J. Legislation November 2015

Healthcare Ptoblems

Health care panel points to problematic priorities as reason for high costs By Anjalee Khemlani, New Jersey apparently doesn't have a “high cost of health care” problem, it has a “poorly constructed health infrastructure” problem. Focusing more on providing high-tech health services and hospital systems, instead of focusing on primary care, is the cause of New Jersey’s poor health care reputation, based on the discussion at a forum on the future of health care hosted by The Atlantic on Wednesday at the New Jersey Performing Arts Center in Newark. In discussing the methods needed to curb the current cost for health care in the state, opposing views on the roles of hospitals came to light. “You don’t have a price problem in New Jersey. Sixty percent of (services) are at or below the national average. You have high utilization,” said David Newman, executive director of the Health Care Cost Institute. “You are getting the highest, most technological care possible.” “The question is, is (high-tech care) resulting in better outcomes?” Newman asked. The institute is, for the first time, providing a look into costs for New Jersey on the online price tool Guru, Newman said, with the exception of information from Blue Cross Blue Shield. Barnabas Health CEO Barry Ostrowsky agreed with the reason for the prices. “We are not overcharging for a poor product,” he said. But Shannon Brownlee, senior vice president at the Lown Institute, said the product itself is the problem, and the focus needs to shifted to primary care, as well as changing the equation for the new value-based services that still looks at price as a factor. The U.S. is the only developed country that still views health care as a privilege rather than a right, which needs to change, according to Brownlee. “We have a massive problem of lack of access in this country,” she said. “Population health is a common good.” Though the idea of health being a right rather than privilege is not a popular rationale in the free market, that attitude change needs to take place, Brownlee said. On the flip side, the U.S. has the lowest in-hospital times around the world, paired with high readmission numbers. “We’ve invested in infrastructure that’s very much technology-based and hospital-based and specialist-based, we have not invested in … primary care,” she said. And the lack of primary care is the reason why most people use emergency care as a first resort, a point used by hospitals in defense of expanding emergency and urgent care services in the state. But that burden on a population with major socioeconomic barriers is creating the vicious cycle of high costs, Brownlee said. Extracting wealth from the highly hospital-based system and giving back to communities is the solution, she said. Raymond Castro, senior policy analyst at New Jersey Policy Perspective, added that part of the issue is a huge disconnect with the role of the state government, saying that, currently, the moves in the industry are light years ahead of policies governing them. "As all the participants agreed, health care options in New Jersey are too costly, and too often unable to deliver solutions that allow patients to return to our community," Paul Matey, senior vice president and general counsel at University Hospital, said. "As a leader in critical care, and a key component of the safety and welfare of the greater Newark region, University Hospital is exploring many of the value-based models discussed in an effort to expand access to quality, affordable health care."

4 New Jersey Physician

N.J. lawmakers tackle those surprise ‘out of network’ medical bills By Susan K. Livio

Doctors and hospitals would be required to disclose whether their services are not covered by a person's insurance network before treatment occurs under the latest version of a proposed bill aimed at curbing "surprise" bills. No longer would consumers learn after elective surgery that their anesthesiologist or other physicians were out of network and they will need to pay more, according to the bill obtained by N.J. Advance Media. Hospital officials and physician office administrators would be legally obligated to explain up front who is covered and not covered, and how much more would a person pay for an out-of-network provider, according to the legislation. "Unless the covered person at the time of the disclosure. . .has knowingly, voluntarily, and specifically selected an out-of-network provider to provide services, the covered person will not incur any out-of-pocket costs in excess of the charges applicable to an in-network procedure," according to the bill. The "Out-of-Network Consumer Protection, Transparency, Cost Containment and Accountability Act" is the latest in a long and unsuccessful attempts to rein in a $1 billion problem that drives up premium costs for all policyholders, according to major insurance carriers in New Jersey.

Lawmakers have said they intend to pass the so-called "out-of-network" bill before the legislative session ends in January. An Assembly hearing is scheduled on Monday, said Assembly Craig Coughlin, (D-Middlesex), one of the sponsors. "The bill strikes a balance but in the end it meets the shared goals of protecting consumers form extraordinary billing," said Sen. Joseph Vitale (D-Middlesex), who is also a sponsor. The last version of the bill hit a snag in the spring. Instead of moving ahead, lawmakers shelved the proposal and started over. This latest version, also sponsored by Assemblymen Gary Schaer (D-Passaic) and Troy Singleton (D-Burlington) retained the old bill's creation of an independent arbitration process to decide billing disputes between insurance companies and health care providers and protect consumers. At the request of hospital executives and physicians, the arbitration process will require that a peer review panel made up of doctors with expertise in the related speciality study the bill in dispute, Coughlin said. The panel would make a recommendation determining whether the billed amount is fair. The arbitrator must consider the recommendation in reaching a ruling, he said. No matter will go to arbitration that is less than $1,000, the legislation said. Coughlin said the bill was rewritten based on the input from insurance companies, hospitals and doctors. "Whether they embrace it or not, we have done everything we can to address (their concerns) and maintain this as a consumer bill," he said. Binding arbitration assures "no insurer will be stingy and no provider will overcharge," Vitale added. "Anything beyond reason, November 2015

the party will most likely lose in arbitration." The bill pertains to elective and non-emergency procedures only. State law says patients and insurance companies can only be charged the in-network rate for emergency care. Hospitals and physicians would be expected to post on their websites or provide a written copy of which insurance carriers they accept, according to the bill. Prior to scheduling a non-emergency procedure, patients must be told if the professional they intend to use is out-of-network and disclose the estimated cost of services upon request. In addition, that physician must provide the name and address of any other specialists who will be involved in their care so the consumer may find out their network status, the bill said. Insurance company executives have demanded a solution to the out-of-network problem, arguing that a handful of hospitals and specialists refuse who refuse to join a network and charge exorbitant fees for their services. In an op-ed in The Star-Ledger, Horizon CEO Robert Marino said because New Jersey does not regulate what OON hospitals and doctors can charge for their services, the business model of these few drive up premiums for everyone. New Jersey hospitals – particularly its growing for-profit sector – is known as one of the most expensive in the nation based on out-of-network price list released by the U.S. Centers for Medicare and Medicaid Services. Medical providers and hospitals argue insurance companies are at the root of the problem because their reimbursements are so meager. The Medical Society of New Jersey has criticized earlier attempts by the legislature to address the out-of-network issue, saying it punishes all doctors for the bad practices of the few. Mishael Azam, the Medical Society's chief operating officer, said Tuesday she is concerned about the issue particularly in light of Horizon's recent announcement it would offer the OMNIA plans that give consumers a 15 percent discount. Horizon can offer the savings because it has negotiated cheaper rates with half of New Jersey's hospitals. "Especially now with OMNIA, we see that carriers do not meet network adequacy requirements and offer unfair contracts to physicians (with) poor payment and poor terms," Azam said. "We need to address those in network problems rather than vilifying the small number of doctors who are out of network because of the offensive behavior of carriers."

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Out-of-network legislation clears Assembly committee By Anjalee Khemlani

The highly anticipated state Assembly bills to address surprise out-of-network hospital bills are one step closer to becoming law, despite some remaining concerns for both payers and providers. The two bills, sponsored by Assembly Democrats Craig Coughlin (D-Woodbridge), Gary S. Schaer (D-Passaic), Troy Singleton (D-Mount Laurel), Pamela Lampitt (D-Voorhees) and Grace Spencer (D-Newark), cleared the Financial Institutions and Insurance Committee on Monday. Originally introduced this year as a single bill, the two new pieces of legislation cover changes in the administrative process for hospitals during non-emergency procedures, as well as creating a new transparency tool to determine what providers are charging for care — known as the Health Price Index. If enacted, the out-of-network bill would rely on the state Department of Banking and Insurance to find an organization to collect and maintain the Health Price Index. The out-of-network bill, which is similar to a bill making its way through the Senate, is raising concerns about the increased burden on health care professionals, while the creation of a new price tool is likely to increase the already too-high-cost of insurance plans. The New Jersey Business and Industry Association supported the out-of-network bill, but has some concerns about the HPI. “NJBIA continues to oppose creation of an HPI,” said Mary Beaumont, vice president for health and legal affairs. “Surcharges on health insurers and benefits plans will ultimately increase health care costs for New Jersey employers. Furthermore, it’s duplicative. Existing sources collect and provide in-network and out-of-network cost information from physicians, hospitals, health care facilities and insurers.” Similar opposition can also be seen for the administrative burden on doctors from the out-of-network bill. “Placing the responsibility on doctors to know the details of every single health insurance plan would be an administrative nightmare, leaving them with less time to spend with patients. I would think that it would be the insurance companies that can best inform patients about their benefits. Doctors should simply have to describe their services and then request that patients check with their insurance plan administrators to determine coverage and costs,” said David Santoriello, a health care public relations consultant in Summit. But the bills’ sponsor believes the physicians and health care professionals within the health system should be responsible for tracking the insurance information. Laws already exist for emergency situations to be treated as in-network, so elective procedures are typically where surprise bills appear. “If they were given the choice between continuing with medical care that ultimately would lead to substantial out-of-pocket costs and considering other options that carry a lower price tag, the vast majority of reasonable New Jersey residents certainly would choose the latter. The problem, at present, is that they don’t have that choice,” said Schaer. Sen. Joseph Vitale, who heads the health committee and reviewed a similar bill, applauded the Assembly bill. “Along with my Assembly counterparts sponsoring the bill, I am now confident that we have a piece of legislation that will advance through both houses before the end of this legislative session,” Vitale (D-Woodbridge) said in a statement. “People are being forced to choose between paying off medical bills that they never expected to receive or paying their necessary everyday expenses like rent, mortgage and food. It’s not a fair choice to have to make. New Jersey consumers need to know what they’re getting into, before non-emergent out-of-network medical services are provided, so they can make informed choices rather than being arm-wrestled into damaging debt.” The bills call for the following to be implemented by health care facilities: • Disclose whether the facility is in- or out-of-network. • Advise the patient to check with the doctor arranging the services to determine whether or not the doctor is in- or out-ofnetwork. • Advise the patient if a change in network status has occurred between the time the appointment was made and the time of the procedure. • Advise that the patient contact his or her insurance carrier for further consultation regarding costs. • Make publicly available a list of standard charges for the items and services it provides • Follow a binding arbitration process to allow consumers a chance to fight surprise bills • Publish online the names, mailing addresses and telephone numbers of physicians working at the facility and hospital-based physician groups with which it has contracted to provide services, including anesthesiology, pathology and radiology. The New Jersey Association of Health Plans released a statement supporting various aspects of the bill, but stated concerns with November 2015

the peer review process, cost sharing for emergency services and the $1,000 threshold for arbitration — all of which were urged by hospitals and health care providers. “We believe that the peer review process will add cost and prove to be of limited utility, as it is not likely to provide information not already available to the disputing parties. We are also concerned about our experience with peer-review process, as we have seen that providers are reluctant to challenge their peers. As a result, we do not support the proposal,” NJAHP said in the statement. “While we continue to have concerns about a number of elements of the bill, especially the network audit section, which we see as redundant of existing regulatory requirements, overall, we are supportive of the bill. Consumers, labor organizations, businesses, the State Health Benefits Program and other payers will benefit from the bill’s transparency measures and cost containment measures. It is time to put a stop to surprise bills for consumers and reign in the predatory price gouging practices by certain provider.”

11 hospital systems sue state over OMNIA approval Eleven New Jersey hospital systems are going to court to challenge the state's approval of Horizon Blue Cross Blue Shield of New Jersey's controversial new OMNIA insurance plan. The lawsuit aims to challenge the lack of adequate coverage, as well as the danger to safety-net hospitals if the OMNIA plan succeeds in driving market share away from urban hospitals. The lawsuit was filed on behalf of Capital Health Regional Medical Center, CentraState Medical Center, Holy Name Medical Center, JFK Medical Center, Kennedy Health, Our Lady of Lourdes, St. Francis Medical Center, St. Luke’s Warren Hospital, Trinitas Regional Medical Center, Valley Health System and Virtua Health. The tiered OMNIA network, which was announced in September, gives members greater savings at partner hospitals (mostly suburban systems) known as Tier 1, compared with regular, in-network hospitals (including urban systems), which were labeled Tier 2. Tier 2 hospitals feel spurned by the state’s largest insurer and believe the state’s Department of Banking and Insurance should not have approved the new plan. The lawsuit is being led by Steven Goldman, a former commissioner of the state DOBI — the same department being sued. “The problem is not with tiered networks. (The problem is) execution of the idea and methodology of implementation (of the tiered network),” Goldman said in a conference call with media Thursday morning. DOBI has approved a plan that doesn’t meet geographic requirements and does not meet the needs of having access to a Level 1 and 2 trauma center, Goldman said. He echoed earlier comments by state Sen. Nia Gill stating that DOBI violated its own regulations. A joint Senate committee hearing in October, led by commerce and health committee chairs Gill (D-Montclair) and Sen. Joseph Vitale (D-Woodbridge) revealed that DOBI did indeed find minor issues with the plan before approval Sept. 18. Gill and Vitale said, in a joint statement after the hearing, that DOBI “may have violated state law and its own regulations by approving the tiered plans even though they did not meet established requirements.” The Department of Banking and Insurance, tasked with regulatory oversight of fully funded insurance plans such as OMNIA, allowed Horizon to obtain approval despite not meeting adequacy rules for Burlington County — the largest area county in the state and the only one without a Tier 1 or OMNIA partner hospital. Acting DOBI Commissioner Peter Hartt said that, prior to approval of the tiered product, officials were aware Horizon’s Tier 1 presence in Burlington County was just shy of the required 90 percent, at 88 percent. Hartt explained that Horizon committed to take action that would rectify the problem, which was treating obstetric services as Tier 1 within Burlington County. “DOBI allowed Horizon to dictate to it how it would meet adequacy rules. That’s a very dangerous way, in terms of regulatory power, even for the narrow jurisdiction they (DOBI) have. So there is a failure of the regulatory agency to follow the very rules that are in place,” Gill said after the hearing on Oct. 5. DOBI approved a plan that doesn’t meet the minimum requirement for geographic adequacy, as well as puts patients who travel to hospitals by foot in danger of not having those hospitals in urban areas, Goldman said. Even though the plan is a commercial one, the potential to drive market share to suburban hospitals will lower the volume of paying customers and, as a result, Medicaid and Medicare members in urban areas could lose their nearest hospital, Goldman said. The lawsuit asks for a reply from DOBI by Nov. 30 to stall the plan’s rollout, and, if not, the hospital systems will file through the appellate court for a stay.

10 New Jersey Physician

St. Peter’s hospital takes on OMNIA plan in court By Anjalee Khemlani

St. Peter's University Hospital took the state's largest insurer, Horizon Blue Cross Blue Shield of New Jersey, to court over the hospital's alleged wrongful exclusion from the top tier of a new health plan. St. Peter's filed a lawsuit in Middlesex County Superior Court asking for access to the criteria Horizon used for determining the OMNIA Health Alliance’s tiers and a stoppage of plan marketing for five days. Judge Frank Ciuffani said he believed the hearing was in the public interest to determine if the criteria were arbitrary, and whether or not there was a breach of contract between Horizon and St. Peter's. He added that St. Peter's deserves an opportunity to determine if it was wrongfully excluded and actually qualifies for the top tier. However, he would not issue an injunction on the plan. "We appreciate the court's decision to deny St. Peter's University Hospital's attempt to stop Horizon Blue Cross Blue Shield of New Jersey from offering the new lower-cost OMNIA health plans to consumers," Horizon said in a statement. "The court's decision ensures more affordable health insurance options will be available to New Jersey consumers, including the projected 40,000 currently uninsured who will be able to afford OMNIA health plans in 2016." The hospital's attorneys said Horizon's contract states that it is eligible for any new plans Horizon creates, and that Horizon is in charge of determining criteria. The OMNIA plan includes six health systems and a physicians group, as well as an additional eight hospital systems in the socalled Tier 1. Some hospitals excluded from the top tier, as well as lawmakers and others, have expressed concerns about the effects of the ranking system and how it was determined. Horizon attorneys said that while St. Peter's is asking for an injunction on OMNIA, it also wants to be a part of the plan, so it does not have an issue with the actual plan, but rather is bitter at being left out of the top tier. "It is unfortunate that St. Peter’s, one of our longstanding network hospitals, would choose litigation instead of conversation on how we can work together to provide those we both serve with access to lower cost health care," Horizon said in its statement. "Horizon will vigorously defend its ability to offer the people of New Jersey innovative low cost health insurance options.” St. Peter's said it met with Horizon last week to discuss being a part of Tier 1, and after being "brushed off," chose litigation as a last resort. The hospital said it could lose anywhere between $3 million and $39 million in the future, and Horizon could not arbitrarily redefine health care in the state in the secretive way it did. While basic categories used in the tier rankings were revealed by Horizon, the weight of all hospital scores were deemed proprietary. Horizon also warned that this suit opens up the floodgates for lawsuits by every doctor or hospital in the state who was excluded from the top tier.

November 2015

Atlantic Health to Pay More Than $25 Million to Settle Tax Case with Town of Morristown By Tom Bergeron Atlantic Health has agreed to pay the town of Morristown $15.5 million dollars — including an upfront payment of $10 million — to settle a hospital tax issue in a deal approved by the system and the Morristown town council Tuesday night. The agreement figures to have far-reaching consequences in the industry. According to a deal, Atlantic Health will make the initial payment of $10 million, then pay another $5.5 million in penalties and interest in annual payments through the year 2025 to settle the years in dispute, 2006 to 2015. The system also will begin making annual tax payments on roughly one quarter of the property, which was agreed to be valued at $40 million, through 2025. The agreement was first reported by NJ.com and Morristowngreen.com late Tuesday night. Morristown Mayor Tim Dougherty said in a statement that the town was pleased with the deal. “I’m glad it’s over and we have a settlement,” he said. “It’s a fair settlement.” Many industry leaders have acknowledged hospitals need to pay more taxes in their local communities since state Tax Court Judge Vito Bianco ruled last June in favor of Morristown in a dispute covering the years 2006 to 2015. The questions always have been: How much — and who will decide? Barry Ostrowsky, the CEO and president of the state’s largest hospital system, Livingston-based Barnabas Health, told NJBIZ.com shortly after Bianco ruling that hospital systems should pay more of their fair share. “I do think there should be some approach, some way for those of us who manage not-for-profit assets, to make sure that we are not only contributing to our community in health care and human services, but contributing to our community financially,” he said. At the time, Ostrowsky said he’s not sure how hospitals should contribute, but he was clear on one point: He feels the decision should come from the Legislature, not the bench. “I think it cries out for some level of legislative policymaking, and I suspect you’re going to see that over a short period of time,” he said. “I wouldn’t want the full impact of the Morristown case to prevail statewide because that would mean many dollars of property tax that we’re not used to paying, but I also don’t think that the answer is zero, to be honest. “How we find an equitable ground, I think, is going to be a challenge for the Legislature more so than the courts.” Tuesday night, it was settled by negotiation. Dougherty, in his statement, said the deal will help the town going forward. "This agreement benefits Morristown greatly," he said. "Taxpayers gain by having the hospital share a greater burden of the cost of providing municipal services, and the 10-year commitment provides a guaranteed revenue stream that allows the town to undertake plans for the future with confidence." Left unsaid was how this precedent figures to impact every other nonprofit hospital in the state.

12 New Jersey Physician

Insurance

Morristown hospital tax settlement figures to be first of many in the state By Anjalee Khemlani After Atlantic Health and the town of Morristown were able to announce a settlement regarding property tax issues that had been brewing since 2006, both sides had the same reaction. They felt the deal — $10 million upfront plus a plan for future payments of more than $15 million over the next 10 years — was fair. And they both were glad the long ordeal was finally behind them. Now it may be the rest of the state’s turn. Prominent lawyers and lawmakers in the state said the deal is the hot-topic business issue in the industry. Mark Manigan, a health care attorney for Brach Eichler, said other municipalities have been watching the case closely. "In light of the property tax epidemic in New Jersey, it will come as no surprise that a number of towns are starting to look at hospitals and see dollar signs," he said. "Unless the Legislature steps in, the Morristown settlement will be the first of many.” How this is going to affect other nonprofits in the state, including how much hospitals should pay and who will decide, are all questions that remain. David Wolfe, a tax attorney with Skoloff & Wolfe, said that, without a ruling from the court, it will be wait and see around the state. “Barring a legal fix, other cases could be similarly resolved,” he said. Wolfe said he was disappointed the case did not make its way to the state’s top court for a more definitive ruling. But if municipalities and hospital systems are waiting for the Legislature to step in, they may be waiting awhile, Assemblyman Lou Greenwald (D-Voorhees) said. Greenwald said towns and hospital systems around the state have had similar discussions since Tax Court Judge Vito Bianco ruled last June in favor of Morristown. Greenwald said he hopes the parties can work it out. “The state’s role is if people resist,” he said. Because of the various sizes and strengths of municipalities and systems around the state, Greenwald said it would be difficult to handle the issue through legislation. “Finding a balance is important,” he said. “It could cripple the hospitals financially if they have to pay for the full value. On the other hand, if they pay nothing, then the burden on residents is significant.” While municipalities are eager to benefit from settlements, the potential financial impact such settlements could have on the industry cannot be overlooked, said Michael Busler, an assistant professor of business studies at Stockton University. If a hospital is viewed as a nonprofit, with no property taxes and no tax liability, it’s a more attractive investment and it improves the cash flow of the hospital, allowing it to borrow at a reasonable rate, Busler said. “If the cash flow is decreased from property taxes, it becomes riskier for the investors,” he said. Which would be a big problem for systems. “Some hospitals are barely making it,” Busler said. “If you start adding taxes, and they are limited (by the Affordable Care Act) on how much they can raise rates, they might have to go under. It’s a very serious threat. It adds a whole new level of uncertainty.” All of this comes at a time of great uncertainty and consolidation in the industry. Vijar Kohli, portfolio manager at Golden Door Asset Management, said potential investment opportunities have played a role in mergers and acquisitions. Now it’s in the IT departments, which have been lagging for years. Because of the requirements of electronic medical records, Kohli said health systems increasingly have needed to invest in overhauls of their IT systems. All of this adds up to the uncertainty surrounding the industry. “It’s yet another fiscal challenge for an industry already in the midst of an exceedingly complicated time," Managan said. Betsy Ryan, New Jersey Hospital Association CEO and president, said the industry has been getting ready for this moment. “NJHA has been educating its members on the tax court’s ruling and its potential implications, but no, we aren’t advising them in any particular direction," she said in a statement. November 2015

"We’ve formed a member task force to determine the best way to bring certainty to hospitals on this issue. We expect more than one bill to be introduced in Trenton, and we look forward to working with the Legislature and the Governor.” Renee Steinhagen, with NJ Appleseed, said the settlement challenges the ways hospitals practice medicine, and is of special concern for physicians. "it will be interesting to see if hospitals will move toward an employee-based system such as Cleveland Clinic, where doctors are (directly employed) not private practitioners," she said. The model used by the clinic pays doctors through the clinic rather than allows them to remain small business which lease space within a health facility, or as in some hospitals, independent contractors. The terms of the Morristown settlement were as follows: Atlantic Health will make the initial payment of $10 million, then pay another $5.5 million in penalties and interest in annual payments through the year 2025 to settle the years in dispute, 2006 to 2015. The system also will begin making annual tax payments on 24 percent of the property, which was agreed to be valued at $40 million, through 2025. That will mean additional payments of $1.05 million a year for 10 years — making the total eventual tax payment more than $25 million.

Some Obamacare co-ops are winding down, but not Health Republic of N.J. By Katie Jennings

During the past month, five health insurance co-ops across the country have announced they are shutting down at the end of this year. Health policy analysts are predicting more closures, but Health Republic of New Jersey probably won’t be one of them. The nonprofit reported net income of $3.1 million for the first half of 2015, according to its second quarter filing with the National Association of Insurance Commissioners. This is a huge turnaround, considering it saw a net loss of $16.5 million at the end of last year. Co-ops — consumer operated and oriented plans — are nonprofit health insurance companies established under the Affordable Care Act. They were kick-started with federal loans and set up to increase competition in the state-based and federally facilitated health insurance exchanges. It’s hard to make direct comparisons given that each of the co-ops is operating in a unique market and had significantly different enrollment numbers. At the end of 2014, only the Maine co-op reported a net income. Of the five co-ops that recently announced they will be closing, New York's saw a net loss of $35.2 million at the end of 2014; Colorado's was down $23 million; Kentucky's was out $50.4 million; South Carolina's lost $3.8 million, and Utah's was down $19.9 million, according to a July report released by the Office of the Inspector General. Health Republic of New Jersey was down $16.5 million but is since turning a profit. UNLIKE OTHER CO-OPS, Health Republic of New Jersey did not rely on risk corridors payments, a federal reimbursement program that fell short. And it gradually built its enrollment, allowing it to better manage risk and capital reserves. It was also one of the few co-ops that benefited from risk adjustment payments, meaning its patient population was sicker when compared to the average patient population in the state. Nowhere is the contrast clearer than when you compare Health Republic of New Jersey to its neighbor, Health Republic of New York, which was forced to wind down last month. Health Republic of New York had an unexpectedly huge surge in enrollment the first year with a healthier than average population, so it had to pay out a huge sum in risk adjustment and was banking on the risk corridor payments. Even though they have the same name and branding, Health Republic of New York and Health Republic of New Jersey are separate, independent businesses. There’s still a long road ahead for the New Jersey co-op, especially as the federal government is predicting a slim increase in marketplace enrollees nationally this year and competitors like Horizon Blue Cross Blue Shield of New Jersey are offering more competitive products, like the OMNIA tiered plans, on the state’s Obamacare exchange. Health Republic of New Jersey also saw a leadership change at the beginning of the month. Jim Martin, the nonprofit’s CEO, resigned and was replaced by Robert E. Meehan on Oct. 5. The company didn’t give a reason for Martin’s departure, but Meehan worked at Horizon from 1991 until his retirement in 2011, rising up the ranks to CEO of Horizon Casualty Services.

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Perhaps Meehan will be just the ringer Health Republic of New Jersey needs to succeed in the New Jersey market. NOTHING IS CERTAIN, but the financial statements show that, at least for the time being, Health Republic of New Jersey is solvent, unlike some of its fellow co-ops. On Oct. 1, U.S. Department of Health and Human Services officials announced they would only pay out 12.6 percent of the the $2.9 billion insurers sought in risk corridor payments. The risk corridor program compares the insurers' total cost for medical and administrative expenses to a target. For companies that had costs far exceeding the target, they are then able to get some money back. Co-ops that were counting on this infusion to help them through their first couple years were unable to recover. For example, Health Republic of New York was owed approximately $147 million but was told by the Centers for Medicare and Medicaid Services to expect less than half that. Health Republic of New Jersey was one of a handful of co-ops that didn’t count on the risk corridor payments. “Based on our actuary’s suggestion, we did not build any risk corridor payment into our 2015 rates,” Health Republic of New Jersey spokesperson Cynthia Jay said in an email. “There was discussion at the time whether those funds would be available so we took the more conservative route.” So far, this has paid off. Scott Harrington, chair of the Health Care Management department at The Wharton School of the University of Pennsylvania, said several other co-ops — including Maine, Utah, Connecticut and Maryland — also took this conservative route, reporting very little, if any, risk corridor payments. With the exception of Utah, which announced on Tuesday that it would close, all of those co-ops are still operating. But Harrington said risk corridors are only part of the picture, when it comes to the failed co-ops. “I think if you look at their underlying results, [the co-ops that failed] weren’t charging enough in premiums in relation to their claims costs to be viable on an ongoing basis, regardless of risk corridors,” he said. “Risk corridors might have allowed them to keep operating for a time, if they had gotten the full amount, but they were losing money on their underlying operations.” Health Republic of New Jersey also received a substantial risk adjustment payment, which was designed to reimburse insurers who ended up with a sicker than average patient population. The company received a net risk adjustment payment from the Centers for Medicare and Medicaid Services of $7.9 million. This means Health Republic of New Jersey had a sicker population of patients relative to the average patient on the exchange in New Jersey. Health Republic of New York, on the other hand, had to pay out $80.2 million in risk adjustment payments because the company insured a healthier than average patient population relative to the other insurers operating on the exchange. “It’s zero sum,” Harrington said. It’s difficult for new health insurance companies to predict the type of patients they are going to get, and because because they were new, many also lacked experience in managing claims data. “Some people have said that the newer companies weren’t good at making sure that the claims record actually checked all the diagnoses, so that maybe they weren’t very good at keeping track of the diagnoses,” Harrington said. “If you’re not very good at keeping track of the diagnoses, it won’t go into your risk adjustment.” It’s possible this could have been the case with Health Republic of New York, which had the largest risk adjustment payout by far. The next closest co-op was Wisconsin, which had to pay out $23.2 million in risk adjustment. Health Republic of New Jersey, however, had the highest return, at $7.9 million, far exceeding the next closest co-op, which was Iowa at $4.1 million. PART OF THE UNDOING of Health Republic of New York, which was the country’s largest co-op, also had to do with the success of its initial enrollment. The New York co-op priced so low that it had such a huge influx of patients — nearly 20 percent of the New York exchange market — and it couldn’t keep up with the necessary reserves to cover all those members. Health Republic of New Jersey, on the hand, saw lower than anticipated enrollment in its first year of operations. This may have been a blessing in disguise. “To some extent, if you were small and didn’t write a lot of business, that’s certainly better than writing a lot of business at rates that are far too low,” Harrington said. Most customers in the first year of Health Republic of New Jersey’s operations selected the more expensive Platinum and Gold plans. November 2015

“They had a strategy in the first year where they were going more for Gold and Platinum type customers and they were not being really price competitive,” said Kathy Hempstead, the director of the director of the Robert Wood Johnson Foundation’s programs on health insurance coverage. “And then [Health Republic of New Jersey] really made a big change in the second year… and was much more competitively priced.” In 2015, Health Republic of New Jersey came out with the lowest priced Silver plan on the exchange and enrollment increased significantly. It’s particularly difficult to be a newcomer in a market with entrenched carriers, like Horizon Blue Cross Blue Shield of New Jersey, which holds around 40 percent of the total health insurance market share in the state. “New Jersey has an unusually small number of insurers, unlike New York and a lot of these other states, I think that there is room for an insurer in New Jersey,” said Ray Castro, a senior health policy analyst at the left-leaning think tank New Jersey Policy Perspective. But competing with Horizon and the negotiating clout it has with providers as evidenced by its new low cost-sharing OMNIA tiered health plans will be a challenge. “The OMNIA network is going to make Horizon very competitive in the exchange,” Hempstead said. “The problem with the small carrier is the difficulty leveraging providers for their prices that just comes with the territory. It’s a problem of lack of market power. I don’t really see how they can be competitive on a price basis, so is there something else that they’re offering customers that’s going to make a difference to them?” In looking at the lowest-priced Silver plans on the exchange for 2016, the other health insurance newcomer, Oscar Health, came in with the lowest price at $311, without tax subsidies. Horizon’s OMNIA is at $320 and Health Republic of New Jersey is at $355, both without tax subsidies. A COMBINATION OF growing enrollment and retaining existing members is going to be key to whether Health Republic of New Jersey is going to make it in the long run. Whether they are able to do that remains uncertain. The company asked for a nearly 18 percent premium rate increase across its health plans on the exchange this year, which opens for enrollment on Saturday. Jay said the company is also looking to grow beyond the exchange plans and expand its small group coverage off-exchange. Harrington said the secret to the success of the remaining co-ops will be to gradually increase enrollment until they hit “critical mass,” while simultaneously charging adequate rates. “I know it comes across a little bit as ‘you’re damned if you do, and you’re damned if you don’t,’” Harrington said of the predicament the co-ops are facing. “If you get very low volume, you may lose money and go out of business anyway, but if you get a high volume because you’re priced too low, you’re going to be dead as well.”

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Prime is winning bidder for St. Michael’s By Anjalee Khemlani

Prime Healthcare Services was selected as the new owner of Saint Michael's Medical Center in Newark. The winning figure, after 17 rounds of bidding, was $62 million. The bid put Prime ahead of Prospect Medical Holdings. Prospect bid $63 million, but a breakup fee for Prime would put Prospect’s bid $500,000 below its rival’s. The final bid meets the minimum requirements of bond trustee New York Mellon, which filed a last minute objection to the sale, stating that a $60 million minimum would be required. “It’s been a long and arduous process,” said Saint Michael’s CEO and President David Ricci. Saint Michael’s was forced into Chapter 11 bankruptcy protection in August, when the state did not sign off on its sale to California-based Prime, which had been under review for more than two years. Subsequently, Prospect and Prime emerged as two prospective buyers. U.S. Bankruptcy Court Judge Vincent Papalia ruled that bids for Saint Michael’s had to meet or beat Prime’s offer — which was $49 million, in addition to investing $25 million in the facility and keeping it open for five years. In addition to the $13 million above to the stalking horse bid, Prime also agreed to invest a total of $50 million in capital improvements, rather than $25 million, over the next five years. "Almost three years ago, Prime came to the table with the best offer to sustain the medical center," Ricci said. "Today, they remain a committed partner and have renewed that commitment by paying $62.2 million and improving several material terms of their asset purchase agreement. Most critically, the Prime sale will ensure that Saint Michael's has a vibrant future, continues to serve the community and preserves the more than 1,400 jobs of its dedicated staff." “The bankruptcy auction process brought out the best in these two high quality bidders. The board considered every aspect of the offers and meticulously exercised its fiduciary duty in selecting Prime. The hospital is looking forward to presenting Prime's bid to the bankruptcy court for approval on Thursday and hopes that, given this rigorous sale process, the state will quickly issue all regulatory approvals,” said Michael Sirota, attorney for Saint Michael’s. A hearing before Papalia is scheduled for Thursday, at which Prime will be recommended to the judge, who will ultimately approve or deny the sale.

New Seton Hall, Hackensack medical school approved for nearly $17 million in incentives By Andrew George The future medical school of Seton Hall University and the Hackensack University Health Network received approval Friday from the Economic Development Authority for a 10-year, $16.9 million Grow New Jersey award. The joint venture, which will be housed on the now-vacant former Roche corporate campus in Nutley and Clifton, was first announced last January. In June, Seton Hall and Hackensack finalized the terms of their agreement, which calls for creating the first private medical school in the state. According to the EDA, the $75 million project will create 271 full-time jobs and yield a net benefit of $67.6 million back to the state over a 20-year period. The EDA did not perform an out-of-state alternative cost analysis test like it does with most Grow New Jersey applications because the proposed medical school project is constrained to state borders. When a Grow New Jersey project is technically located within the confines of two municipalities, the EDA picks the municipality with the more permissive zoning requirements to perform its analysis with. In this case, the EDA analyzed the requirements of Clifton, which is listed as a “distressed municipality” under the Economic Opportunity Act. The eventual goal of the campus is hold about 500 medical students and faculty, in addition to roughly 1,500 students and faculty enrolled in the university’s nursing and health and medical sciences schools. Upon signing their agreement in June, officials from Seton Hall and Hackensack University Health said they hope to bring in the first class by fall 2017. They said at the time that they had started the search for a dean and the process of finalizing their lease agreement. The four-year med school would anchor the 119-acre site and be a critical step toward transforming the property, following Roche’s decision in 2012 to shut down its operations there after some 80 years in New Jersey. The operators are now in “in extensive negotiations” with Roche to lease 477,171 square feet at the site, which accounts for more than a third of the vacant commercial space there, according to an EDA memo. In addition to the proposed medical school, the space would also house the existing Seton Hall University College of Nursing and the School of Health and Medical Sciences. November 2015

Carrier Clinic holds ribbon cutting for $21M building renovation By Anjalee Khemlani,

Carrier Clinic held a ribbon cutting for the completion of a $21 million building renovation project which began in May 2014. Belle Mead-based Carrier Clinic is a private, not-for-profit behavioral health care system focused on psychiatric and addiction treatment which has been around for more than 100 years and sees at least 6,000 New Jerseyans per year. Some upgrades to the clinic include conversion to an electronic medical record system, LED lighting, new boilers and refurbished cooling towers, and a switch to natural gas — in addition to a 14-acre solar field which was installed in 2009, before the major building project began. The project included a new wing and renovation of the Blake Recovery Center, Carrier’s Addiction treatment center specializing in detox and rehabilitation for adults; a new Acute Care Unit made up of two 20-bed wings; and the renovation of the Admissions Center. Donald J. Parker, CEO and president of Carrier Clinic, said, “Carrier recognized that the demand for psychiatric and addiction treatment was increasing at a remarkable pace. To continue to serve our patients and community, we responded with the most aggressive building plan in Carrier’s 105 year history.”

Coordinated Health opens new campus as officials rip N.J. legislation By Jim Deegan The Express-Times Coordinated Health on Tuesday christened a new, 23,000-square-foot health care campus in Warren County, and used the occasion to bash state legislation that executives say singles out the project and quashes patient choice. The new facility off Red School Lane in Lopatcong Township opened Oct. 19 in the old Mallinckrodt Baker corporate offices. Coordinated Health officials say they invested $10 million to rehabilitate and open the office, which houses eight physicians, a physical therapy center, imaging and urgent care. It consolidates two former offices of the for-profit health care provider, on Stryker Road and in the Hillcrest shopping center in Lopatcong. But the second phase of the project, a proposed $10 million outpatient surgery center, is the subject of an interstate battle. Lawmakers in June approved a bill that bans out-of-state hospitals from owning ambulatory surgery centers. The moratorium was back-dated to bar any plans submitted after March 1. Coordinated Health applied for a license on May 29. State Sen. Michael Doherty, who opposed the legislation, said the bill is on Gov. Chris Christie's desk and should be vetoed. "This bill was cynically passed. It's unconstitutional," he said. "It's totally against American principles. Usually when you pass a law it's prospective -- moving forward -- not going into the past." Doherty said St. Luke's University Health Network, a Coordinated Health competitor, supported the measure and lobbied in favor of the legislation. St. Luke's is based in Pennsylvania, and it's St. Luke's Hospital in Phillipsburg is within two miles of the new Coordinated Health campus. "Our point of view is there has been competition in Pennsylvania for 25 years," said Jim Tsokanos, president of Coordinated Health. "Let employers and patients decide where they want to get their care, not legislation. We're saying let the patients decide, not the bureaucrats and politicians."

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