Health Care & Life Sciences and Health Care & Insurance

Community tries to wring out another $100M

July 8, 2013
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Community Health Network thinks it can improve its profitability by $100 million over the next two years by reorganizing itself into patient-centered teams.

It’s the latest move by a local hospital system to cut costs in the face of declining reimbursement from public and private health insurance plans, as well as persistently depressed volumes of procedures.

Community has already cut out more than $130 million in expenses since 2009, but it needs to cut more or find new revenue in order to offset rising levels of bad debt and charity care that have squeezed its profit margins.

In 2012, Community earned operating income of $47.7 million on record revenue of nearly $1.7 billion. But its operating margin, even after excluding a nearly $18 million debt payment, tumbled to 4 percent from 5.7 percent the previous year.

Community’s leaders have set a goal to boost their operating margins back to 5 percent. So on July 1, Community announced the internal restructuring, in what seemed like a modest step toward that goal.

But Community CEO Bryan Mills says the move is critical to reduce waste and ensure high-quality care across its eight-hospital system.

“The patient, regardless of how they entered, they’re going to receive the same care. Regardless of who they saw, they’re going to receive the same care,” Mills said in an interview.

Before, he added, “There was a lot of patients finding their own way rather than us holding their hands.”

The restructuring will place one executive over each of 10 different service lines throughout the entire Community system, such as oncology, cardiology and primary care. Before, Community’s executives were typically in charge of specific hospitals or surgery centers. Those building executives will remain in place, but will now work with the service line executives to standardize care in all settings.

Before, Mills said, various physicians and facilities had different “pathways” for treating patients. Now, he said, Community will determine just one treatment pathway for all patients with the same condition.

Community isn’t the only hospital trying to have one standard of care across its system. Indiana University Health has been trying to do the same thing for years and is still relying on the concept to help it shave more than $1 billion from its annual expenses.

“Variation is the hobgoblin of cost control,” IU Health CEO Dan Evans said in an April interview.

To cut its expenses by about $55 million a year, St. Vincent Health announced a mass layoff of more than 850 people on June 28.

Mills said Community’s restructuring will not reduce the size of its workforce, which numbers more than 9,000, but it might produce churn as new executives are hired and others decide to leave.

Mills hopes the restructuring not only achieves cost savings, but also brings in new revenue. He thinks the combination of both could achieve the goal of $100 million in additional profit.

Community can grow revenue, he said, in part because the new structure will allow system-wide collection of quality and cost data, which will position Community to capitalize on the new kinds of payments being tried by the federal Medicare program, the state-run Medicaid program and private health insurers. Those new payments typically offer a bonus if hospitals can demonstrate high-quality care, good patient outcomes and lower costs.

“The market is demanding various approaches, and we’ve got to be able to adapt,” he said. “This gives us the 'systemness' to determine, 'What’s the cost? Are we achieving the clinical outcomes we want? What’s the quality? Are patients satisfied with the care that was received?'”

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