The worries of a hospital CEO

As I was working this month to nail down that Community Health Network and Eskenazi Health had, in fact, called off their highly touted partnership, I got hold of a presentation Community CEO Bryan Mills made in February to the leaders of his hospital system.

The 70-minute "State of the Network" presentation, which Community made available to employees via four videos, shows Mills talking candidly about where his hospital system is, where it needs to go and the biggest challenges it faces right now.

Those challenges are so great that Mills said he and his managers briefly discussed–though never seriously pursued–the possibility of laying off 1,000 people last summer because the system was barely breaking even until seeing a rush of patients in December. (Watch at about the 7:00 mark in the video below.)

The other major hospital systems operating in Indianapolis—Indiana University Health, St. Vincent Health and Franciscan Alliance—all announced layoffs of roughly 900 positions last year.

There are also new challenges emerging that threaten the foundation of a hospital system's business. Namely, hospital executives know the high-priced, low-convenience model they've been running for years is ripe for disruption from retailers and employers—organizations that, until now, have been only on the periphery of health care.

"If I asked you right now, who are our competitors who are the competitors of Community Health Network, I bet you would say IU Health, St. Vincent’s Health and Franciscan, primarily. Those are the three primary competitors," Mills said.

But then he set his listeners straight.

"Walgreens, Wal-Mart, CVS, employer clinics, Target, that’s who our competitors are," Mills said, saying the health care clinics operated by those entities are capturing more and more of the walk-in patient visits that physicians and hospital systems used to own. "We’ve partnered with Walgreens," Mills added. "We’re far better partnering than we are trying to compete. They’re not going to go away. They’re probably 50,000 times our size."

In addition to partnering, Mills also said Community would begin posting its retail prices and quality metrics for about 20-25 common retail items, such as physician office visits, a session of physical therapy, an MRI scan.

'There are about 20 to 25 items that people shop on these things, and we’ve got to be price competitive," Mills said. "And we’re not going to raise the prices on any of them. Guaranteed."

(You can watch these comments at the beginning of the video below.)

Employers are the other big threat to Community and hospitals like it. Mills said—and I have heard other health care executives say this too—that employers are increasingly looking to become active purchasers of health care. Until now, they have just been purchasers of discounts negotiated by health insurers such as Anthem Blue Cross and Blue Shield, the Indiana subsidiary of WellPoint Inc.

But that is changing, Mills said. He predicted employers would start operating their own private insurance exchanges for their workers. These private exchanges might present health plans selected via a bidding process among hospital systems or other groups of health care providers. The state of Indiana, which has about 36,000, is looking at this approach already, Mills said.

"These private exchanges are going to say, 'We’re going to take my 36,000 employees, and I’m going to start shopping for health care. These 36,000 people are going to need 100,000 office visits and 5,000 surgeries and 100 days in hospital. … So I’m just going to line up all the people to provide this and say, "Give me a price."'"

"That changes health care like that," Mills added. (Watch at about the 6:00 minute mark in the Mills4 video above.)

But Mills thinks Community can adapt to that change by engaging directly with self-funded employers, not just by working through health insurers.

"We’re going to work with them. We’ve got to go hands on to make sure that works," Mills said of employers, saying Community would offer easier access and assign nurse managers to specific employers and their workers to improve the health of people with chronic diseases. "That’s a key piece of our strategy, is to make sure we form these direct relationships with the employer and their employees, and not just and make sure we get them through the insurer."

Mills said Community has a head start on other hospital systems, because it has pushed recently to ramp up patient access. In fact, Community was the only hospital system to see a general increase in patient volumes last year. (You can see Mills discuss Community's 2013 performance as well as his explanation of the breakdown in merger talks with Eskenazi, in the video below.)

But even the nature of "patient visits" is changing, Mills noted, with far more encounters happening via telehealth services or by providers going to work sites, retail clinics and other places that are more convenient for patients to receive care.

"Many of the patients that receive care in this system will never go to a facility. Never," Mills said in the video below. "And the ones that go to facilities, particularly inpatient, are going to be ones that are very, very, very sick. But that’s going to continue to be a shrinking market."