Abrupt Compass shutdown exposes regulatory flaws

Here are some steps that may prevent this situation in the future

THE ABRUPT hutdown of Compass Medical on May 31 exposed a serious flaw in the state’s health care regulatory system.

Compass is an 80-clinician, multi-site practice that provides primary care services to roughly 70,000 patients. Compass officials called employees to an 8 a.m. meeting and told them the company was closing its doors immediately, all patient visits were being canceled, and no arrangements had been made for follow-up care.

Equally shocking was the fact that Compass could take such drastic action without violating any state regulatory laws. There is no requirement to give any advance notice; indeed, the Department of Public Health’s essential service closure laws only apply to services offered by licensed hospitals and not to independent physician practices like Compass.

It’s hard to believe state regulations simply allow physician groups of this size to just close.   The class action lawsuit that was filed against Compass a few days after the closure seeking damages for Compass patients is not a substitute for a regulatory scheme that at least tries to provide some amount of prior notice to help avoid some of the worst aspects that accompany an abrupt closure—if not create an opportunity to prevent the closure itself.

What precipitated the closure is still unclear, but there appear to be at least two key factors – our primary care system is under severe stress and selfishness and greed tend to dominate decision-making in our health care system, particularly when less-than-ethical for-profit entities like Compass are involved.

Compass and Steward Healthcare—business partners until a 2017 falling out—have been in court litigating against each other about money flows between the two under contractual agreements.  After a lengthy trial ending in late 2022, Steward won a $16 million judgement (now likely up to about $25 million after interest) based on fraudulent and incomplete reporting to Steward under the agreement which resulted in overpayments over many years going to Compass Medical. It seems likely that this judgement in Steward’s favor was a key factor in Compass’s decision to abruptly close its doors now and file for bankruptcy.

Had there had been some advance warning, one option could have been to try to keep the practice sites, clinicians, and employees intact and simply look for new owners to take over the practice.  Ideally, details of such a transition could be worked out while the clinical practices continued, minimizing dislocation.  A potential model to look to could be some sort of version of what is in place now for our state’s health insurance industry. After Harvard Pilgrim almost failed, legislation was approved allowing a distressed health insurer to go into receivership, and a guaranty state fund then pays claims so that providers and insurance beneficiaries experience no disruption.  If needed, other health insurers could be called on to financially support the guaranty fund if additional resources are needed.  There is currently no similar law which either creates an escrowed pool of state dollars to deal with Compass-like situations.

Compass Medical’s failure is causing a lot of chaos, but our goal should be to avoid even more and greater suffering in the future.   That is why last week’s health care failure seems to be an important distress call for much greater state government involvement in the oversight of health care provider operations and finances, and perhaps considerations such as:

  • At a minimum, change the essential services closing law and regulations to cover independent physician practices of a given threshold size; this seems a no brainer flowing out of last week’s news.
  • Legislate to create an escrow pool to support some continuing period for essential services for failed or failing providers; or require some level of reserve contributions from other providers to be available to help fund the transition periods when closures of essential services —including physician practices — need to be avoided and a workout plan is being developed and acted on to continue the operations of those services under different ownership.
  • Charge some state agency to maintain a current resource assessment of all of the existing inpatient, outpatient, and ancillary care services that are deemed essential to meet basic access to care needs of Massachusetts residents. This sort of document has been called-for by many different constituencies over a good number of years and likely would come out of a thorough state planning process for health care services.
  • Require quarterly financial accounting from a range of providers of a threshold size that would include sufficient detail tied to assets, liabilities, operational revenues and expenses, and measures tied to liquidity and solvency.  One goal of having this information is that if a provider gets into financial trouble—perhaps state inquiries and/or intervention can occur well before any sort of event occurs which could lead to either a major reduction or closure of an essential health care service.
  • Consider state legislation that would help to shore up primary care practice and hopefully find a way to take it off its traditional fee-for-service chassis.   While it still needs a lot of work, a bill filed by Sen. Cindy \Friedman is a good starting point for launching a serious discussion about how to move needed resources toward primary care in a way that helps meet patient needs, sustains practices, and helps to attract more people—doctors and nurse practitioners—into such careers.  Data released this week by the Health Policy Commission indicates primary care spending as a proportion of total health care spending has actually been dropping—that is exactly the opposite of what should be happening.
Meet the Author

All of these state action considerations need to be fleshed out, but Compass Medical’s failure last week only underscores the reality that the status quo is really unacceptable.

Paul A. Hattis is a senior fellow at the Lown Institute.