Dear Friend of Mountain States Health Alliance:

Recently, there has been a lot of local news reported about the status of our hospital systems in Northeast Tennessee and Southwest Virginia, with some of the news and resulting questions speculating about whether Mountain States Health Alliance would consider being sold or joining a larger hospital system from outside our region.  Indeed, changes in the healthcare landscape are reported to be happening throughout the nation.   Because of the questions this has raised about our local healthcare, we wanted to communicate directly with you, and bring clarity to any questions that exist about Mountain States Health Alliance, our organizational health and our perspective on the future of healthcare in our region.    As one of the largest employers in the region, and the area’s largest health delivery system, we know that our health as an organization is your business.  Our Board and management team are stewards of your community hospitals, and we appreciate the questions.  

Who we are today

Mountain States Health Alliance is a locally governed, not-for-profit health care organization. Our Board of directors consists of local civic and business leaders who volunteer their time, talents and expertise to make sure our families have access to the highest quality and widest variety of health care services possible. These are people who live, work, and raise their families in the same communities that our patients call home, and they have a long-standing commitment to improving the health of, and supporting the economy of, Northeast Tennessee and Southwest Virginia.  Their only fiduciary responsibility is to our community - the people we serve - not to any outside health system headquartered in another state or region.  All decisions affecting our system are made locally – often based on input heard in our Board members’ communities, their churches, or in their neighborhoods. 

You can learn more about our Board of Directors by visiting www.msha.com/board.


We maintain our local governance structure because we believe this local accountability is important for retaining a commitment to quality, and the evidence supports this assertion.   Recently:
  • Johnson City Medical Center was named one of the top 8 hospitals in Tennessee by U.S. News and World Report;
  • JCMC’s cancer program was named one of “100 Hospitals and Health Systems with Great Oncology Programs” by Becker’s Hospital Review, along with other well-known quality leaders like Cleveland Clinic, Duke University, Wake Forest, Johns Hopkins, Cincinnati Children’s, and MD Anderson;
  • Mountain States Health Alliance was named a “Most Wired” health system for the third year in a row by the American Hospital Association; and
  • Sycamore Shoals Hospital, Smyth County Community Hospital, Indian Path Medical Center and Franklin Woods Community Hospital were recognized by Premier, Inc. for their performance in key areas of health care quality and cost control.
Recognition like this happens because we have great doctors and allied health professionals who focus not on seeking recognition, but on making sure our patients receive the highest quality care you can receive anywhere.  And, as a locally governed system, our hospitals are showing up on lists that many hospitals, which are part of larger, multi-billion dollar systems, are not being recognized on.  There are a variety of reasons for this success, but without a doubt the most important one is that every time we touch a patient, it could be our own family or neighbor.  There is no more important incentive than this.  From our Board all the way to the bedside, our ethical and fiduciary commitment is to our local community, to our patients and their families and to no one else. 

We like it this way, and we have no intention of changing it.

What would compel Mountain States
to change direction?

The last few years have been very difficult for hospitals, no doubt.  Hospitals have experienced cuts in revenue and have seen declines in volume resulting from national reforms and other environmental changes.  Because of this, many hospitals are succumbing to pressure to join larger hospital systems – often times with headquarters in other states or regions.  Many of these hospitals need to do this because they are perhaps (1) concerned about their ability to sustain themselves financially, (2) feel they can no longer keep up with the capital needs of their hospitals, (3) feel their only chance to achieve their vision is to move forward as a smaller part of a much larger system, or (4) they are looking for synergies or cost savings that could be achieved by consolidating services with a larger hospital system that already has overlapping facilities and services in the same geographic region.

Nationally and even in our own region, the rates of hospital admissions are declining, creating potentially lower occupancy rates in hospitals and costly, empty capacity.   Sustaining high quality and lower cost can arguably become more difficult as patient volumes decline.  So, when there are multiple hospitals in a region, each facing potentially declining volumes, and if some of those hospitals are part of a larger system based elsewhere, that scenario might be compelling for the smaller system to be acquired by the larger one.  In that case, there are local synergies that can lead to reduced cost and better value.

But this is not currently the case with Mountain States Health Alliance.  No hospital system from outside the region has a presence in our 29 county service area, and there are no overlapping opportunities that we can currently identify which make a compelling case for Mountain States to be acquired by a system from outside the region.  All health care is local, and we believe value is created when local resources are more efficiently utilized, thus reducing unnecessary duplication and cost.  If done, this allows those cost efficiencies to be passed on to local patients and employers as savings. 

Importantly, these efficiencies can also translate into new jobs and economic growth as the resources are freed up to invest in medical research and other job-producing investment.  As a not-for profit, community-based organization, it is our responsibility to find ways to support our community, and we see no more important way to do so than to find ways to help grow our economy.

Studies have shown that when a larger health system acquires a smaller one, the prices demanded of insurers by the acquired hospitals often increase.  Without specific checks on that pricing, the people who pay the bills – our local employers and job creators and consumers – end up paying more.   To be clear, the Board of Mountain

States Health Alliance is committed to models that are focused on efficiencies, lower costs and increased value rather than a pricing enhancement model.  How this occurs when there is no geographic overlap with a larger system based elsewhere is not clear to us.  Suffice it to say, we would need to see evidence of the cost savings opportunity, and be able to clearly articulate it to the area’s employers and consumers before making any decision of that magnitude.  We would want, and need, their support. 

The contributing factors for deciding whether to join a larger system based and governed elsewhere rely on an assessment of four key areas: 1) our financial capability, 2) our ability to make capital investments in our facilities, 3) our vision, and 4) any geographic opportunities for achieving reduced costs through synergies. 

Through this lens, how do we look?

A.    Our Finances:  Mountain States Health Alliance has a BBB+ bond rating with a stable outlook by the three major rating agencies.  We just finished our most recent fiscal year, with the last 6 months of the year providing significant high single-digit growth in our volumes, and double-digit growth in our surgical volumes.  For this, we credit our great doctors and allied health professionals for the wonderful work they do every day.  Our cash flow margins have remained strong due to good management of expenses and, frankly, making some difficult decisions about our costs in light of the revenue cuts we have taken.  In fact  our operating performance as measured by cash flow is consistent with larger systems that have “AA” rated bonds – a strong position noted by all three major credit rating agencies.

B.    Capitalization:   Over the last five years, we have invested heavily in building replacement hospitals and expanding existing ones.  Examples include:  new hospitals in Abingdon, Marion, and Johnson City; expansion of operating room services and radiation oncology in Johnson City; and sizeable investment into our information technology infrastructure.   All in, these improvements amount to about $500 million of investment into our communities – an investment that requires good balance sheet management in order to pay off the resulting debt.  To that end, last month, our board approved a debt reduction plan that we believe will help us achieve an upgrade to an “A” rating by the bond rating agencies within 3-5 years.  Even with the debt reduction, we plan to spend nearly $250 million in capital on our hospitals in the next five years, investing in new technology, upgrades to facilities, and expanded services.   So as you can see, we have a capital and debt management plan that both invests in our hospitals and properly manages our balance sheet.

C.    Vision:  Mountain States Health Alliance is committed to being the region’s leading high quality health system – but not just a hospital system.  We have a strong partnership with East Tennessee State University, our principal medical school partner, and we see a future that includes developing research and academics with ETSU as a major economic driver in the region.  We also see our children’s hospital – Niswonger Children’s Hospital – becoming a beacon for improvement of the health of our children, investing in services and programs to improve literacy, wellness, and overall child well-being in our region.  Through our clinical partnerships with Vanderbilt University Medical Center, Cincinnati Children’s Hospital and St. Jude Children’s Research Hospital, we see Niswonger Children’s Hospital and our adult services bringing comfort to thousands of families who know help is only a few miles away.  This is a vision our board is committed to. 

D.    Geographic Density:  With 14 hospitals, including a major teaching hospital and trauma center, regional community hospitals, a children’s hospital, a psychiatric facility, rehab and other inpatient and outpatient services, and home health and hospice, we have a geographic density that few outside systems based elsewhere can really improve upon.  Simply put, what can a hospital system based in another city, or state, possibly do for our community that we cannot do for ourselves, especially if that system has no past experience or personal investment in our region?  
For these reasons, and others, we do not currently see a compelling case for giving up community-based governance to a system based elsewhere, and Mountain States Health Alliance has no plans to do so.  This is the course we are on, and we will not depart from this strategy unless fundamental changes in our local market force us to do so. No matter how good an outside system might be in its own community, our strong preference is to maintain local control of our health care resources. If we were ever to go down the path of seeking a partner outside the region, it would be because we had no other choice.

Our local commitment runs deep

Mountain States Health Alliance has a clear vision for our future, and it involves building on our relationships with our communities and the businesses that make those communities great.  Our vision involves an even closer relationship with our academic partners at ETSU and other local colleges. We see a future that involves investment into medical research, which will spur economic growth, new jobs and economic diversification for our region.  We also envision continuing to work closely with employers as we seek ways to reduce their health care costs, and ensure a healthy workforce.  

Are we alone?

No, we are not.  In fact, many of the nation’s measurably best health systems are smaller and regional. Each community and region is different, and the health care problems and solutions are necessarily unique to those communities.   Because of this, many other well-respected health systems remain locally governed, independent, and not part of larger national systems.  Orlando Health in Florida just made the decision to remain locally governed after completing a robust evaluation of their strategy.  Wellstar Health System in Atlanta, rather than joining a larger system, instead created innovative partnerships with its local competitor, Piedmont Health System.  Ochsner Health System in New Orleans, rather than be acquired by a larger system, has opted to partner with smaller local hospitals where there is overlap of physicians.  Wake Forest Baptist in Winston Salem, Integris Health in Oklahoma, and Mission in Asheville - these and dozens of other health systems, while similar to or smaller in size than Mountain States, have chosen to remain independent or locally governed because they seemingly believe, as we do, that this is the best way to remain accountable to the communities and people they serve.

We are grateful for the questions we have received about the recent news.  These are your health care resources, and you have a vested interest in their future.  Our system’s leaders are proud to call this region home, and we pledge to do everything we can to ensure we retain local governance of Mountain States Health Alliance.  Should circumstances change, we will certainly communicate that with you. We owe it to our families, our neighbors, and the future generations who will come after us.          

                             
 
Alan Levine 
Barbara Allen
 
President/CEO Chair of the Board of Directors
Mountain States Health Alliance
Mountain States Health Alliance