When contract negotiations go awry
In the final days of 2016, a drama unfolded in Akron, Ohio, that made minor waves in the local press, but rocked the specialty of emergency medicine. According to headlines, the Summa Hospital System parted ways with its emergency physician staffing group with a mere four day’s notice, vaulting the ED into chaos. Summa Emergency Associates (SEA), which had staffed Summa emergency departments for nearly 40 years, learned in the final days of 2016 that their contract was ending effective January 1. In their place would be Canton-based US Acute Care Solutions (formally EMP). There was an instant outcry, and within days there were official statements from every major specialty society expressing concern. While local newspapers characterized it as a simple case of hard negotiations—two parties failing to see eye-to-eye—hundreds of physicians cried foul, claiming false motives and conflicts of interest on behalf of the Summa executives and contract poaching on behalf of USACS. Still others saw the case on a grander scale, a significant warning bell for the future of emergency department management.
This story may have stayed in Ohio, out of the national spotlight, if it weren’t for a blog called Gruntdoc, written by Dr. Allen Roberts. The match that lit the fuse was a blog post titled, “The Rape of Emergency Medicine, 2017 version.” As most emergency physicians will know, the eye-catching title was a reference to another work: “The Rape of Emergency Medicine,” a fictional story about physicians and patients being harmed by emergency medicine contract management groups. The original, published in 1992 by Dr. James Keaney, became the rallying cry for the formation of the American Academy of Emergency Medicine (AAEM). The anti-corporate feelings embodied by Keaney’s work are still alive and well nearly 25 years later.
With a punch-in-the-gut title to his post, Allen Roberts set the stage. What followed was a firsthand account of the chaos taking place at Summa Health in Akron, Ohio, by Dr. Jeff Nielson, an SEA physician. According to Nielson, SEA’s contract was “taken over” by US Acute Care Solutions “through a scandalous process.” Nielson goes on to describe a hair-raising transition period that sounds more like a MASH unit than an urban emergency department. No plan for EHR access. Doctors with no access to old records, CPOE or PACS.
Nielson continues with an “anatomy of a takeover” and explains in no uncertain terms that “Contract negotiations failed when Summa wanted SEA to fund the residency core faculty hours and wanted us to continue staffing under-performing stand-alone ERs that were built in inappropriate markets.”
Both Allen Roberts (Gruntdoc) and Nielson conclude by calling physicians to refuse to work for USACS, the incoming group, in part because of how SEA was disrespected.
“I hope they don’t take the money bait and help bail these new contract holders out,” writes Roberts.
What followed was a firestorm of nearly 300 comments to Gruntdoc’s blog post in which some physicians railed against “corporate medicine,” while others said that SEA had gotten “greedy.” The post lit a fire under nearly every professional society, and each in turn wrote an official statement in response [see excerpts on page 26].
So what really happened? As one Gruntdoc commenter wrote, “there’s two sides to every story.” To understand this dispute and dig deeper into these allegations and their impact on emergency medicine, we have to start at the beginning.
The Struggling Facilities
Founded in 1989 and headquartered in Akron, Ohio, Summa Health System serves more than a million patients each year. Summa Emergency Associates (SEA) has been the sole contract holder for Summa’s five emergency departments since 2013, but prior to that, the landscape looked quite different. Pre-2013, Summa EDs were managed by three groups: SEA, Emergency Medicine Physicians (now USACS), and Phoenix. While SEA staffed the bustling Akron City emergency department, including its residency, EMP ran three facilities that were struggling financially. In 2013 EMP/USACS approached Summa about the fact that their departments weren’t seeing the volume necessary to maintain staffing levels.
“We said this doesn’t make sense,” says USACS CEO Dominic Bagnoli. “Someone needs to manage all of the sites.”
Summa responded by putting the contract out for RFP. Teamhealth, EMP/USACS, and SEA all presented bids, and in the end the hospital decided to consolidate all the five facilities under SEA.
EMP/USACS transitioned the care at their three facilities into SEA’s hands, after which SEA began a three-year contract running the whole system. This contract was set to expire January 1, 2017, unless renewed.
In 2015, Thomas Malone, MD, MBA, a perinatologist-neonatologist, was appointed president and CEO of Summa Health System. According to Jason Weigand, legal counsel for SEA, Malone came into his position well aware of the struggling facilities and suggested to SEA that Summa would be able to turn those facilities around, making them financially viable.
“Unfortunately,” says Weigand, “for reasons that may be outside of Malone’s control, it just didn’t happen.”
Looking at Malone’s CV, it wasn’t for lack of experience. Prior to working at Summa, Malone was president and CEO of two Wayne State University teaching hospitals, and he was also responsible for graduate medical education.
How much were these facilities struggling? One was seeing a mere 21 patients a day while another was seeing 31 patients. SEA president Jeff Wright described them as “drastically underperforming,” adding that “between two facilities we were losing $3 million a year. We couldn’t make them work with bare minimum staffing.”
According to Weigand, for three years SEA served their contract at Summa, all the while proposing solutions for how to staff—and pay for—its underperforming facilities. The first recommendation was that SEA drop the failing facilities from the contract. But Summa wanted to keep them consolidated under one physician group. Next, SEA proposed to staff those facilities at their market hourly rate. Summa refused. So SEA proposed a flat rate. Finally, SEA suggested a revenue guarantee model such that Summa would agree to pay a fixed amount of SEA’s losses should there be any with the struggling facilities, with SEA absorbing the rest. Still, no agreement was reached.
A Late Start to Negotiations
In early October, 2016, realizing that time was running thin on negotiating a new contract, Jeff Wright reached out to Summa, and on October 24th participated in a conference call with Summa’s executive contract team: Dr. Valerie Gibson, Dr. Vivienne Von Gruenigan, and Dr. Cynthia Kelley. During the call, Wright proposed solutions for staffing or dropping the underperforming facilities. Summa responded that they would deliver a contract to SEA to consider that would work for all five facilities. Wright also got his first hint that Summa might be taking the contract in a new direction.
“The CMO [Vivienne Von Gruenigen] talked about how they were looking to significantly cut the budget for the residency. I understand cutting, but the residency wasn’t overfunded to begin with. Many on faculty hadn’t had a raise in 15 years. They were talking about cutting the residency faculty from 10 down to five.”
Wright responded by explaining that ACGME required one faculty member for every three residents, so they required 10 faculty for their 30 trainees. He left the meeting and thought little of the exchange, assuming the suggestion of deep cuts were a matter of misunderstanding.
It wasn’t until November 28 – little more than a month before the contract was set to expire – that SEA received Summa’s 80-page proposed contract renewal. Typically, hospitals negotiate contract renewals 90-120 days prior to expiration, especially when there are substantive changes to prior contract language. Summa wanted a reply within two weeks. According to Wright, the late hour of this offer, and the slowness of negotiations on the part of Summa, planted a seed of mistrust that grew as time went on.
Wright and the SEA legal team saw Summa’s first offer as significantly off the mark, and essentially impossible to fulfill. It took their existing contract, which had been losing millions for years, and cut it even more.
“They cut the residency reimbursement by about 15%,” says Wright. “There was absolutely no discussion of reimbursement or assistance with the under-performing facilities—even though we’d been having meetings about this for a year-and-a half. Plus, the hospital had the right to control any negotiations with payers. That hadn’t been in our contract before. Another problem was that they could basically put up emergency departments wherever they pleased; we would be obligated to staff them.”
The last sticking point of the first contract—and the point that has been touted the loudest in the press—was the term length. Summa requested a three year contract, which SEA felt inhibited their ability to recruit and retain top talent.
SEA’s Counter Offer: Go Big
SEA delivered a counter-offer on December 12. It was a 15-year contract, which Wright admits was a stretch. He has since been lampooned for this ask in Crain’s Business.
“They started with three [years], we came back with 15, and we expected to negotiate somewhere around seven to ten years.”
In terms of the underperforming facilities, SEA didn’t ask for money in the counter-offer. They asked to remove themselves from two of the facilities and gave Summa the option to hire them on to run the departments at the local going rate.
“They could close them, turn them into urgent cares,” said Wright. ”We just couldn’t afford to keep staffing them.” He hoped that if Summa billed and collected for emergency services at the financially struggling facilities, it would better understand the direness of the situation. Citing the sterling reputation of the residency program, Wright countered the 15% cut to residency faculty reimbursement with a suggested increase of around $250,000 per year.
“I knew they were very different offers,” said Wright. “I knew there were going to be negotiations. All our group wanted to do was stay competitive locally.”
SEA’s leadership moved into mid-December with the full confidence that those differences could be bridged in a final negotiation. Weigand saw the differences in proposals as not only solvable, but as negotiations which could be finalized in a single afternoon.
“There was plenty of time left to get this done if [Summa] wanted to get it done,” says Weigand. “Our focus is trying to get a deal finalized.” SEA informed Summa that their people were available as much as required to finalize a contract by year’s end.
Finding a Third Way – Face to Face
According to Weigand, from mid-December onward, SEA repeatedly requested an in-person meeting in order to hash out final numbers. Summa’s response during this period was to repeatedly ask for contract extensions. Wright and his team, feeling that there was plenty of time to hammer out a deal and sensing that Summa’s desire for an extension might be disingenuous, refused the extensions. They insisted on pushing ahead with the offer, and continued to request in-person meetings. Weigand’s law office was finally able to set up a meeting for December 26th, less than a week prior to the end of the contract. This would turn out to be the first and only face-to-face contract meeting between Jeff Wright and Tom Malone.
“[Malone] seemed somewhat surprised about the under-performing emergency departments,” Wright recalled about the meeting, which took less than an hour. “That made no sense to me, because we’d been talking about it with him—and other high level hospital officials— for a year-and-a half.”
The meeting was collegial, but Wright’s defenses were up. He’d learned that on December 24th, Malone had reached out to USACS CEO Dominic Bagnoli. Not only was SEA upset by the timing – Malone spoke to Bagnoli before meeting with Wright about a final offer – but they suspected a conflict of interest because Dr. Bagnoli is the husband of Vivienne Von Gruenigen, Summa’s CMO and a member of the contract negotiation team.
Malone maintains that he reached out to USACS merely as a back-up, because SEA’s counter-offer was so far afield from the original offer, and because SEA refused to any extensions. Malone saw January 1st approaching and felt he needed a contingency plan.
Wright came ready with three new proposals, a 10-year, a seven- year and a five-year, each with varying degrees of financial assistance. Malone countered and they discussed a variety of outcomes. But one thing Malone was adamant about was the extension, given the late date.
“I came here from Detroit and I was Chief Medical Officer there for five years before I became President of Harper Hutzel,” says Malone. “I negotiated contracts with Wayne State University, the teaching faculty. I’ve never been in a negotiation where you’re not doing an RFP and you’re just negotiating with one group that you don’t extend to figure out the terms of the agreement. I’ve never been anywhere where people just give you a deadline and say they’re going to leave. I never thought they would do that.”
Wright left the meeting on the 26th feeling optimistic. “We thought that we could get something hammered out with them,” says Wright. “We’ll come down on the years, they’ll figure out some kind of financial assistance model. The attorneys will get into a room and we’ll get this figured out. We were both in the ballpark.”
The very next day, when Wright was hoping to receive a final counter-proposal, he instead learned through a group email to the Summa medical staff that Malone was opening up the contract for outside bids.
“I said to myself, ‘Okay. That’s interesting,” says Wright. He sensed that his concerns of backdoor dealing were playing out before him.
One Last Offer – One Final Dealbreaker
On the 28th and the 29th, Wright and Malone re-engaged their conversation, getting on multiple conference calls with their respective legal departments, to talk the issues out. According to Malone, Summa offered one final compromise which they sincerely hoped would bridge the gap.
“On the 29th I offered a five-year contract with a one-year guarantee and with an opportunity in year two to five to have a stipend somewhere between 1-1/2 and $3 million,” says Malone. The caveat, and the sticking point, was that Malone required a fair market valuation from an outside firm. “I even said to him: If we just do a two-week extension, we can get that fair market value done now and we can just lock in what that might look like for the next few years.” According to Malone, Wright refused the extension, saying he wouldn’t go below five years with $3 million guaranteed for all five years. “And he wouldn’t open his books outside of just a couple of the EDs. The problem we have with a fair market value is that we need to see all the books. If you’re making money at one ED and losing money at the others, we need to tally that in if we’re going to give you a stipend to try and help you make it through based on the fair market valuation. We do a similar process with our anesthesia group and our radiology group; so it’s a known process that we go through. And I was kind of frustrated that Jeff not only wouldn’t extend to do the process but wasn’t willing to open the books up in order for us to do that fair market value.”
Wright continued to feel that there was no reason for even a two-week extension.
“We thought it was a ploy to give them time to negotiate with someone else. A five-day extension would have been one thing, but if it wasn’t being done in a way that there were going to be honest and true negotiations, it was just buying time. That was the feeling of me and my group.”
For Malone, this call on December 29th represented Wright’s final rejection of a final proposal. To Malone, the clock was ticking and he couldn’t risk not having a staff in place for his emergency departments come January 1. So later that day he reached out to Dominic Bagnoli at USACS and set the wheels in motion. Contracts, credentialing, training, all began in earnest on the 29th.
Wright, on the other hand, left the call on the 29th feeling close to an agreement, confident that in the end, their group would stay on at Summa. On the afternoon of December 31st, in an apparent Hail Mary, Wright sent a term sheet to Summa’s top brass, including Malone, laying out a final five-year deal. Multiple people responded to his email saying that the terms seemed reasonable and they would contact Malone personally.
“People who said it looked like a good offer don’t understand fair market valuation and what needs to be done,” says Malone. “Jeff had sent us an email basically saying that we could easily support the $3 million stipend based on the referrals that his group sends the hospital from other EDs that they staff. He put that in writing. And when you put that in writing, I’ve got to be clear for anti-kickback regulations that we have a process in place that looks at that stipend as fair market value. We really had to cross the t’s and dot the i’s, which is why we wanted the two-week extension.”
At four o’clock, Malone called Wright personally to inform him that SEA’s contract was officially ending at midnight.
“The conversation wasn’t heated at all,” says Wright. Malone expressed surprise at SEA’s level of mistrust, and then talked about the significant divide between their two offers. And then they hung up and it was over.
The decision to replace SEA on New Year’s Day “created a firestorm in the medical community and Greater Akron community,” wrote the Akron Beacon Journal. A dozen Summa department chairs signed a letter urging medical staff to support hospital administration, and then two days later, more than 250 Summa doctors lined up in a hospital auditorium to vote “no confidence” in Summa CEO Thomas Malone and his leadership team, even calling for their resignations.
To hear it from Wright’s perspective, Malone was out to make an example of SEA, the biggest group in the hospital, so that he’d have greater leverage the next time he negotiated with a physician group. This sentiment can be seen echoed on the GruntDoc comment thread.
In the end, the motives will remain unknown, but the results are all too concrete – dozens of SEA physicians are out of work, residents education was paused, Summa got a black eye in the community, USACS was painted as an enabler and an example of corporate medicine, and patients were likely put at risk. And why? It all depends on who you ask.
In the days following the Summa/SEA fallout, each major emergency medicine society took the time to post an official statement. Here are four statements:
Click here to read more from the Deal Breakers: The Summa Story series.
Additional reporting by Alex Busko.