Mission CEO Discusses Why They May Sell
Last updated 4/25/2018 at 3:38pm
Editor's Note: The Transylvania Times recently sat down for an interview with Ron Paulus, president and CEO of Mission Health - the parent company of Transylvania Regional Hospital - as it considers selling to the Hospital Corporation of America (HCA).
This is the first of two parts on the interview.
Preparing for the uncertain future of rural hospitals in America, Ron Paulus, president and CEO of Mission Health, said is just one of the reasons for the Mission Health Board of Directors discussing selling to Hospital Corporation of America (HCA).
"More than one hospital closes every month in rural America," Paulus said. "It's hard to recruit doctors to rural areas, and it's hard to keep doctors, and most rural hospitals are losing money. So, this is not a pretty future over here."
A common misconception when examining the future of Mission Health, Paulus said, is to "presume" that a path without HCA would mean things would remain the same as they are today.
"That's the most untrue presumption that could ever exist," Paulus said. "It goes without saying that we are in a time of extraordinary transformation in health care, and I would argue that it's the most transformative time since the passage of Medicare and Medicaid in the '60s."
Comparing everything through the lens of the improving health of Western North Carolina residents, Paulus said the hospital board often stops and asks if this "mission" is being achieved and what changes can be made to achieve it.
"We are faced with what I call the 'Mission math problem,' and what that means is, because of our demographic of older, poorer, sicker and less likely to be insured, we have a disproportionate share of Medicare, Medicaid and uninsured patients, and because of that, we really don't increase the amount we are getting paid every year," he said. "Yet, our input costs, in terms of supplies, labor, technology and electricity, rise."
"We always end up, every year, with the average of the price increase across all of our patients, with less than 1 percent, but our input costs are 4 to 5 percent," Paulus said. "So, let's say it's 4.5 percent. So, now we have our costs rising at 4.5, and our prices rising at less than 1 percent. You've got a 3.5 point gap between rising costs and rising prices, and that 3.5 percent times $1.7 billion is a lot of money, and that's the amount of money we have to cut every year if we are going to stay even."
For the most part, Paulus said, there has not been a 3.5 percent operating margin in the prior years.
"To say it another way, if we don't cut that 3.5 percent gap, the whole health system loses money the next year, and then it gets worse and worse," he said. "We've cut over a quarter of a billion dollars over the last four years, and it's been getting harder and harder to cut that because the stuff you cut last year doesn't count anymore. We have to cut 'net new.'"
Throughout this, Paulus said, Mission Health has continued to perform "extraordinarily" well, having been named one of the top 15 heath systems in America five out of the last six years.
"No one else has ever done that, not even the Mayo Clinic, though it did win it more total times, but not five out of six," he said. "Transylvania Regional Hospital itself received Joint Commission Top Performer and Critical Access awards. So, we've done a really great job, but it's getting harder every year."
As a business person, Paulus said he's learned that a move such as joining with HCA must be made at the "peak of strength, not when you are behind the eight ball."
"What most hospitals or health systems have done, if you look nationally, is they have egos that keep them from potentially accepting the fact that they need a partner," he said. "Then they wind up performing worse, and then they have no choice but to get a partner."
That's why, Paulus said, the Mission Health Board of Directors voted unanimously to pursue a partner.
"But it's got to be the right partner and the right deal because you always want to be able to walk away, otherwise you can never get the best deal," Paulus said.
A CEO's role, Paulus said, is to present problems before they present themselves.
"If I look back at July and we were going out of network with Blue Cross and not sure how that's going to end, and Blue Cross isn't offering anything even livable, let alone something viable in the long run, I started to have the conversation a CEO has every day of the week, such as, 'How are we doing?' and 'How are we thinking of the future?'" Paulus said.
One of those conversations eventually became about the possibility of seeking a partner.
In Monday's paper, Paulus discusses why HCA stands out as a viable partner for Mission Health, the pros and cons of the partnership, and its impact on Transylvania Regional Hospital.