Valinda Rutledge: Yes, we're a stand-alone system. We're in Gastonia, N.C. We're right outside of Charlotte. We have a 435-bed hospital, a 100-bed nursing home, a hospice, an inpatient hospice unit, free-standing hospice unit. We have 150 employee physicians, 45 practices and we're in five counties, so we're a large independent system but with only one hospital.
David Burda: So you're stand-alone, unaffiliated with a larger system.
Valinda Rutledge: Right, right.
David Burda: Now you've run a hospital that was part of a larger system—
David Burda:I believe the Bon Secours system—
David Burda:Now you're operating a hospital, a stand-alone facility. How would you compare the two jobs?
Valinda Rutledge:Well, I think as a CEO of a free-standing system, your real focus is in terms of meeting the community needs. You work much closer with the community, with the community leaders. Your board members are people, community leaders, that work and live in that community. So the total focus is in terms of solely on meeting the community needs and how best you do that.
David Burda:Do you prefer running a stand-alone hospital or a hospital that is part of a larger system?
Valinda Rutledge: Well, what intrigued me to this role was I really feel that healthcare is moving. It's moving away from a very volume-based, competitive model to a value-based. And I really felt that there was some advantages that a stand-alone system has as that model is transforming this industry.
David Burda: Now has CaroMont ever been approached to join a larger system?
Valinda Rutledge: Yes. A few years ago the board was approached by two large systems to become affiliated. They spent several months in terms of taking a look at the advantages and disadvantages, and they really felt that the advantages of being independent outweighed the advantages of becoming affiliated.
David Burda: So ultimately you rejected it. Do you see any other offers coming your way soon?
Valinda Rutledge: No. Not at this point. I think the board really felt that when they took a look at it, it really felt that from a quality point of view, we had superb quality, we were able to manage quality much more effectively being small because the board has community leaders that live and work in the community. We're able to focus solely on the community health needs, and also being independent allowed us to really focus in terms of being an economic driver of that community. As you know, a lot of times in larger systems, the more profitable hospitals find that some of their revenues are funneled out of the community into not profitable hospitals. Thereby it doesn't allow some of that money to be totally reinvested back into the community.
David Burda: So you're saying that can leave a bad taste in some hospitals' mouths that are part of a larger system.
Valinda Rutledge: I think in terms of from a community point of view and from a community leadership point of view.
David Burda: What do you see as the future for stand-alone hospitals?
Valinda Rutledge: Well, I was thinking a lot about this as I was coming up, and, first of all, I do think that over the next—in the short term, what we will see is that we will see that there will be greater pressure for stand-alones to merge. I think there's two reasons for that. No. 1 is I believe that—I was just recently at a conference in which they were sharing that larger systems had higher operating margins. And yet, when I reflected on it, what they were looking at—they were looking at the past. They were looking at hospitals operating in a volume-based competitive, which is: How many more casts can I get? How many more open hearts can I get? Versus looking at value, which is looking at the quality of care and the cost along the continuum, and how to reduce that. And so when you look at it from a volume perspective, a competitive perspective, it looks like when you're looking at that past model, that large and bigger is better. They have a larger operating margin, but when you really reflect on it, to me it was really—it was a reflection not on their efficiency but the reflection was a representative of their market leverage generated higher managed-care rates. So if you take that scenario, and you say that that market leverage may not exist in the future, and that the competitiveness will be surrounded in value, then bigger will not be better.
David Burda: Now is CaroMont profitable right now?
Valinda Rutledge: Absolutely. Absolutely. But I do think because that data hasn't come out yet, I think we are evaluating success from a past business model. So thereby, you're going to have a lot of pressure in terms of everyone feeling that bigger is better, you've got to consolidate. The second reason why I think that you're going to see a lot of stand-alones get a lot of pressure to consolidate is I think larger systems are going to see more deterioration of their operating margins. In order as they have grown larger over the last few years, they really haven't focused so much on redesigning the care delivery. They really have focused on just adding a component: additional hospitals, additional physicians. And so, in order to compensate for not having the redesign, the complexity has become so large that they've added more and more bureaucracy. And so because of that, it's slowed down their decisionmaking and their operating margins will start deteriorating because they have not learned from the core competencies, I think, in care coordination. So those larger systems will want those stand-alones that are profitable with positive cash flow as theirs are deteriorating in this transformation.
David Burda: So do you feel your decisionmaking process is at the right pace, it's as nimble as you want it?
Valinda Rutledge: Absolutely. I think being a stand-alone system with local business leaders that are on our board and we focus on how do we better meet the needs of the community. We're really getting involved in population health. We have a lot of partnerships with the health department, with the federally qualified clinics in terms of how we redesign care. I think you can't do that very effectively in a larger system. The other thing that I think that we have to recognize is we're in a very transformational part of this industry. And any industry that's going through a lot of transformation, a key ability for success is agility. And agility is being able to look at key learning quickly and adapt it. I think smaller systems have that agility that larger systems—just because of a large bureaucracy that they've had to put in to manage—is more and more complex, is going to be very difficult.
David Burda: Final question: Where do you see yourself and CaroMont a year from now? Still agile?
Valinda Rutledge: Yes, I do, but that was the other question I was thinking of. I think that in healthcare, what we're going to see over the next few years after we get through this next six to eight months where everyone's saying: “Bigger is better” and “You need to consolidate” and “Who you going to affiliate with?” and etc. I think out of that, we're really going to back off, and we're going to say: “What is the appropriate size to coordinate care?” “If I assume the financial risk for a population in my community, what is the appropriate size?” “How big do I need to be?” “How do I have to reorganize myself to assume that financial risk for those health outcomes?” So, what I think's really actually going to happen is we're going to look at different ways we're going to partner. They're going to be much more fluid. It's going to be less merger and acquisitions, which I think are very outdated, and we're going to look at more fluid. And that fluid nature of a partnership will allow us to be competitors and partners, so your answer: Are we going to be acquired? No. But are we going to partner? Probably. But, it will be in a different type of partnership, and it won't be an either/or. So the answer is: It's not an either/or. It will probably be an and.
David Burda: Valinda, thanks for visiting with us today.
Valinda Rutledge: Thank you.
David Burda: Thanks for watching. This is Dave Burda for Modern Healthcare.