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January 20, 2014 12:00 AM

Systems cautiously hopeful for 2014 at J.P. Morgan conference

Beth Kutscher
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    As earnings season gets underway for the hospital industry over the next few weeks, the picture that's likely to emerge is one of guarded optimism.

    Presentations at last week's J.P. Morgan Healthcare Conference confirmed what many have already been seeing: inpatient volume is down, but acuity and outpatient activity are up; cost-cutting efforts are in full gear; and growth comes down to being able to take market share away from your competitors.

    Catholic Health Initiatives, the Englewood, Colo.-based system with $13.5 billion in annualized revenue, expects to realize about $150 million in cost savings in 2014, said Dean Swindle, executive vice president of business services and chief financial officer. The system has 87 hospitals in 18 states, and in three markets, it brings in revenue of more $1 billion.

    “We have good diversification in both our markets and the size of our markets,” Swindle said. After entering the Houston market last year through the purchase of St. Luke's Health System, CHI is planning further acquisitions of hospitals and regional systems, Swindle added.

    It also has big plans in cities surrounding Houston, where it recently signed a letter of intent to buy Memorial Health System of East Texas, in Lufkin. “We think there are other growth opportunities that will help us build that scale and build our market in the Houston area,” Swindle said.

    Its competitor in Houston, Memorial Hermann Health System, which says it has 24% of the inpatient market, is also “bullish on growth,” said Dennis Laraway, its CFO.

    Laraway pointed to the future Grand Parkway—an outer beltway being proposed around Houston—as a sign of the booming development in the market. The parkway will follow the energy corridor, and “so will we,” Laraway said, adding that it is expanding its campus in Sugar Land, for example.

    Unlike many of its peers that have struggled with inpatient volume, Memorial Hermann's admissions have grown about 4% per year, a trend that has continued into the first quarter of this year.

    It also has expanded its network of ambulatory and convenient-care sites; outpatient volume has experienced a compound annual growth rate of 7.5% since 2009.

    Northwestern Memorial Healthcare, Chicago, is building a 1 million square foot ambulatory-care center as patients increasingly want to receive care closer to where they live. Those who travel downtown for care tend to need more complex care, President and CEO Dean Harrison said.

    Systems across the country said they are employing more physicians. But with labor costs still accounting for about half of its operating expenses, Northwestern Memorial Healthcare is thinking about how to balance staffing levels against a goal it has set to increase patient satisfaction scores, Harrison said.

    Optimism about healthcare reform

    There's also optimism about healthcare reform, even in those states that have elected not to expand Medicaid or set up their own exchanges.

    “We see healthcare reform as a net positive,” said Milton Johnson, president and CEO of publicly traded HCA, which generates about half of its revenue in Texas and Florida, neither of which are expanding Medicaid.

    Johnson said 75% of its bad debt is related to the uninsured, while the rest is deductibles and copays. While payers said in their presentations that they're entering into a growing number of risk-based contracts with providers, Johnson said the bulk of HCA's contracts haven't changed.

    “We're predominantly fee-for-service and I don't see that changing in the near to intermediate term,” he said. “We're not getting any pressure or requests from payers to change our model.”

    Iasis Healthcare, a private equity-backed chain based in Franklin, Tenn., has seen $100 million in lost revenue due to Medicaid cuts in Texas and Arizona, President and CEO Carl Whitmer said.

    Arizona, where Iasis sees 20% of its revenue, is expanding Medicaid. But even in Texas, some low-income individuals will be able to purchase insurance through an exchange, where hospital payment rates will be close to commercial rates.

    Iasis generates 42% of its revenue in Texas.

    “I do believe the cycle that we've gone through is near the bottom,” Whitmer said. “The momentum feels a bit different now. We feel good about where those opportunities sit.”

    Follow Beth Kutscher on Twitter: @MHbkutscher

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