DoJ Probes Swedish Health Services About Joint Ventures, Other Deals

September 03, 2019 - The US Department of Justice (DoJ) is investigating Providence St. Joseph’s Swedish Health Services over a civil issue, the non-profit disclosed in its recent quarterly earnings report.

The DoJ requested documents earlier this summer pertaining to Swedish Health Services’ joint ventures and physician organizations, as well as other “certain arrangements,” according to the report. However, Providence St. Joseph does not expect the civil investigation to have a “material adverse effect” on the health system’s future consolidated financial position or results of operations.

“Like all large institutions, Swedish is subject periodically to investigations and lawsuits,” a Swedish Health Services spokesperson said in an emailed statement. “Per our policy, we are not able to discuss the specifics of any investigation. However, Swedish fully cooperates with all investigations.”

In the report, Renton, Washington-based Providence St. Joseph also revealed an undisclosed number of pending or threatened malpractice cases against certain affiliates. Although, the “probable recoveries in these proceedings and the estimated costs and expenses of defense will be within applicable insurance limits or will not materially adversely affect the business or properties of the System,” the health system stated in the report.

Swedish Health Services joined Providence in 2012 though the organizations did not go through a formal merger or acquisition. Instead, the health systems announced a “unique structure” that would enable the two systems to “work together to coordinate care for the region” while maintaining separate identities.

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About four years later, Providence merged with California-based St. Joseph Health. The formal merger deal created one of the largest health systems in the country with more than 100,000 caregivers across seven states.

Swedish Health Services has faced federal investigations in the past. In 2014, the HHS Office of Inspector General (OIG) audited the system’s First Hill location. The audit showed that about two-thirds of inpatient and outpatient claims from 2009 to 2012 did not fully comply with Medicare billing requirements, resulting in net overpayments of $937,499 during the period.

In 2017, the Seattle Times also accused Swedish Health Services of asking neurosurgeons to “pursue a high-volume approach” using contracts that compensated them for having large patient numbers and complicated surgical techniques. The health system’s CEO Tony Armada resigned later that year.

Swedish Health Services contributes significantly to Providence St. Joseph’s bottom line. The five-hospital system with over 100 primary care and specialty clinics throughout the Seattle metropolitan area accounted for 27 percent of the inpatient market share in 2017, the recent quarterly earnings report stated. For Providence St. Joseph, that meant Swedish Health Services accounted for 11 percent of total operating revenue by the end of June 30, 2019.

Overall, Providence St. Joseph finished the quarter with an operating income of $250 million on operating revenue of over $12.6 billion, which is up from $30 million in operating income on $12 billion of operative revenue the year before, the earnings report revealed. The health system also reported $41 million in restructuring costs during the quarter.

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The health system has been working to streamline operations and improve productivity. As part of its restructuring plans, the system is looking to diversify revenue streams to support patient care, the report stated.

Earlier in 2019, Providence St. Joseph acquired Bluetree, an Epic consulting and strategy company. The acquisition adds to the health system’s growing portfolio, which includes Providence Ventures, an organization founded in 2014 to manage a $150 million venture capital fund to generate returns through direct investments in health IT companies that aim to improve quality, lower costs, and advance outcomes.

Recently, Providence St. Joseph launched a second $150 million fund and formed a population health management company called Ayin Health Solutions.

Health systems across the country are looking into similar ways to diversify their revenue. And successful health systems have boosted their operating margins by as much as five points through diversification strategies, a recent Partners Healthcare and Fitzroy Health report found.

“The study shows an industry undertaking a vast number of bold experiments to diversify revenue by improving the quality, efficiency, and satisfaction of patient care delivery,” said James Stanford, co-author of study and managing director at Fitzroy Health.

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“Diversifying revenue streams helps ensure future investment for life-saving technologies and ongoing medical discoveries,” added Christopher M. Coburn, co-author of the study and chief innovation officer, Partners HealthCare System.

But new revenue streams and joint ventures could create legal problems with health systems, which must abide by strict healthcare fraud and abuse laws. For example, new arrangements with physicians could violate the Stark Law, a regulation prohibiting physician self-referral.

Navigating healthcare laws and regulations while attempting to survive in a changing healthcare landscape will be tricky for hospitals and health systems moving forward. Although federal agencies are considering changes to the Stark Law to help providers adjust to new trends in healthcare, like value-based care and consumerism.