Q&A: Past, present, future HCA CEOs discuss the company's long-term success
Over the past 50 years, HCA Healthcare has ridden the waves of a turbulent healthcare economy. It survived an intense investigation into Medicare fraud, which, by 2003, had the company ponying up $1.7 billion to the federal government. Today, the Nashville-based for-profit hospital company boasts healthy margins and satisfactory outcomes. Unlike many of its competitors, HCA has not strayed from its core service lines. Three generations of HCA CEOs talked with Modern Healthcare Editor Aurora Aguilar to reflect on where the company has been and where it is going. Dr. Thomas Frist Jr., a co-founder of HCA, returned in 1997 for a second stint as CEO to right the ship after fraud investigations took a heavy toll on the company. R. Milton Johnson, a 36-year HCA veteran, became CEO in 2014. He recently announced he is retiring at the end of the year. He'll be replaced by President and Chief Operating Officer Sam Hazen. The following is an edited transcript.
MH: What do you credit with HCA's ability to recover from one of the biggest fraud investigations in the industry's history?
Frist: We were at the right place, in Nashville. When I came back, within the first 24 to 48 hours, I let go of 12 or 16 of the top officers. And only in Nashville could you resource and replace that type of talent. We also had wonderful assets. Besides getting the talent, we needed to re-instill a culture that put the patient and the patient's family first. Once we got that, it was smooth sailing.
Johnson: I always like to put that era in our company's history in perspective. It was a period of three years, 21 years ago. What Tommy said is absolutely right. He came back and led a cultural change that brought the company back and has instilled that into the company's DNA and its fabric today. We won't lose that culture.
MH: How has HCA's size facilitated quality healthcare and safety for your patients?
Frist: Size alone is not a determining factor in success. Back when we started HCA, there were six or seven other hospital companies. None of those companies are still around. It has to do with getting the right people and executing a well-thought-out business plan. And we needed to be very flexible as the world changed.
Back in 1985 or so, people said, “Ambulatory surgery is going to put you out of business.” Today, our revenue is about 40% outpatient versus back then when it was 95% inpatient.
Johnson: We believe healthcare is fundamentally a local business. Each market will have its nuances and obviously having scale really gives us an advantage with respect to determining some clinical best practices. It can give scale relative to supply chain, revenue cycle and back-office functions, and technology as well. But at the end of the day, healthcare is delivered on a local market basis. And that's one thing I think HCA has understood for 50 years. We approach every market uniquely in terms of understanding the healthcare needs.
MH: Size has been linked time and again with higher spending. What's been HCA's role in that?
Johnson: First of all, healthcare spending all over the nation does account for almost 20% of the GDP. And yes, we're a piece of it with the hospital sector, no doubt about it. But if you look at HCA's growth in particular and our success, I would say fundamentally it goes back to the great markets we're in. We're in some of the fastest-growing markets in the country in terms of population growth and job growth, so there's an increase in demand for healthcare services. We have invested to meet that need, first and foremost.
From a pricing standpoint, if you look at HCA based on payer mix, we are usually the largest provider in many states we operate in—the largest provider of Medicaid services; largest provider of uncompensated care. So our payer mix reflects the communities in which we operate. So if you look at the pricing metric being net revenue per adjusted admission, over the past several years we've been averaging probably around 2.5% to 2.7%. It's been a mix of meeting the demands of the local markets along with what I would call just inflationary pricing growth for us. That's kind of been our revenue model.
MH: You're currently in a contract battle with nurses. How do you reconcile their staffing concerns with your outcomes?
Johnson: When it comes to the workforce, we're a big company. We're going to find pockets of issues with union organizations from time to time. But I can tell you, when I go out and walk the hallways at our hospitals, I am very proud of our management teams and the clinical capability of our nurses. They provide compassionate care to our patients. We employ about 87,000 nurses across the country. So we are committed to nursing 100%.
Hazen: Let me just speak to what's going on. It's a very exciting time to be a nurse leader in HCA because the company has made a renewed commitment to how we support nursing across our 180 hospitals. And part of that centers around technology. When we're finished by the end of 2019 or early 2020, we'll have close to $1 billion invested in consistent technology in each of our nursing units centered around nurse call-system standards, certain bed standards, communication standards that allow nurses to communicate easily across the unit, across the hospital and with our physicians, and then finally with documentation systems that have been standardized so we can extract nursing information and start to leverage nursing best practices across the company.
We've also trained our nurse leaders to manage a growing, more acute patient population and we think having strong leadership allows our nurses to use their skills more effectively. And we've also leveraged clinical education, nurse education, in a way that allows the nurses to provide the best care they can possibly deliver. Also, because of our size, because of the career opportunities that we have, we offer nurses career pathways and career development that we think makes HCA, for lack of a better term, the nursing employer of choice. So it's very exciting to give our nurses the training, the voice and the overall capabilities they need to deliver the kind of care that all of us want.
MH: What's your growth strategy and how has the potential of tightening reimbursement affected those plans?
Hazen: We have roughly 2,000 outpatient facilities. We think that's very important for the patients so that they have convenience. For our payers, it gives them different price points that are important to their network configurations. We have been very focused on building our outpatient capabilities for the past five to seven years. HCA has about 40% of its revenue in outpatient services, including the emergency department.
There are always adjustments to reimbursement coming out of Washington. I don't think what's there today is necessarily going to be that material to us because we have a fairly diversified class of outpatient facilities. Underneath that, we have a diversified revenue stream, so the implications are not overly material. Obviously we're not looking for any kind of reimbursement cuts from Medicare because, in our opinion, we're not fully being reimbursed for all of our costs. But nonetheless, it doesn't pose a unique risk to the organization because of the platform of outpatient capabilities that we have.
The company's acquisition strategy has been well-articulated. If it's complementary to an existing network and helps us respond to the community more effectively, then those are very attractive acquisition opportunities. In some instances, just like recently with Memorial Health in Savannah, Ga., we felt that system was very capable, with great employees, great physicians and great program offerings. We think we can create value in the right circumstances and that's how we approach it. We're very excited about the Mission Health acquisition, and we're hopeful that acquisition will transpire. Again, we think we can bring unique value to that system, which is doing a great job in meeting the needs of the Asheville, N.C., community.
MH: While other systems have had issues with declining patient volume, HCA is “killing it,” according to LifePoint CEO Bill Carpenter. What's your secret?
Johnson: Bill is referring to the companies that are primarily rural hospital operators and have been struggling with volumes. But, we're in seven of the top 10 or 12 of the 20 fastest-growing markets in the U.S. So we're not competing against LifePoint or Tenet. It would be the large not-for-profit systems. In Nashville, we compete with Ascension and Vanderbilt. So in these markets, I'm not so sure the other systems are seeing the sort of pressure on volumes that some of the rural hospital operators have been reporting.
Hazen: We've been very intentional over the past seven or eight years about improving our service. We've improved our quality metrics, we've improved our efficiency metrics, and we've ultimately improved our patient-satisfaction metrics. And that's what's been driving some of our growth. Additionally we've made investments in building out our networks, whether it's outpatient development or even service-line capabilities so that we have a comprehensive array of services and are much more than a primary-care hospital or a secondary-care hospital. We've moved way beyond that in a lot of our markets, and that's been a piece of our growth strategy.
And then finally, I would point to our capital investments. The company has been very intentional about resourcing our strategy, resourcing our networks so that we have adequate capacity, we have sufficient technology for physicians, and we've put ourselves in a position to respond to the needs of our constituencies. The company has made great strides in responding to our physicians and creating what we believe to be preferable places to practice medicine. So it's a combination of all of those things. And we think that's against the backdrop of a very positive market environment that Milton was alluding to.
MH: What are you proudest of?
Frist: We are very well organized for a large system. For example with Hurricane Florence recently, we moved all the patients safely out of a hospital in Myrtle Beach, S.C. The same goes for how we dealt with Katrina. HCA was (treating the wounded) in Las Vegas after the shooting. When we're in the path of natural and man-made disasters, we respond.
Johnson: Whether it's our supply chain, our transfer center capability or our supplemental workforce capability, we have numerous resources we can utilize. We have figured out how to scale disaster management, and we continue to learn from it. We've faced these natural disasters almost annually. We have the ability to make the investments in human capital as well as technology and other aspects and processes to be able to manage through these disasters as well as anyone. So it's something that we're proud of. I think it's ingrained in our culture now. When there is a disaster, a risk to the organization, we're going to do whatever it takes to protect our patients and our staff.
Hazen: I'm also proud of how we are scaling some of the analytics that we have. One of our initiatives is something we call at-scale analytics where we're using scaled analytics with clinical data, with human resource data, with nursing data, with efficiency data, whatever the case may be, to support best-practice identification, best-performance identification inside this massive database we have. To improve quality outcomes in many instances, to drive better engagement and better performance for our employees—all those kinds of things are happening inside what I call the scaled initiatives of HCA.
We've developed specialized capabilities to support research, quality improvements, training, accreditation, all those kind of things to support our trauma network. This is another version of how scale inside of HCA can make a difference for our patients, our communities and our organization.
Frist: I am so proud of our presence in cancer. We probably are the second- or third-largest in the whole U.S. as far as clinical research on cancer.
Hazen: We may be the first.
Johnson: We're heavily involved in cutting-edge clinical research with oncology. Also, a few years ago, we worked with Harvard to find the best treatment protocol in ICUs to reduce MRSA. That research was published in the New York Journal of Medicine and was later recognized as one of the most important, or one of the top 10 most important, studies conducted in that year.
And then, we conducted a clinical trial along with the March of Dimes looking at the impact of elective deliveries before 39 weeks. And we deliver about 5% of all the babies in this country, 200,000 to 225,000 a year. So we could do this research faster than any other system, again, because of scale. And the output and the outcome of that clinical trial determined that it was best for the mother and for the child to avoid elective deliveries before 39 weeks. And that later became the standard of clinical practice.
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