Community Health Systems 2015 Annual Report Download - page 22

Patients needing the most complex care are more often served by the larger and/or more specialized urban
hospitals. We believe opportunities exist in selected urban markets to create networks between urban hospitals
and non-urban hospitals in order to expand the breadth of services offered in the non-urban hospitals while
improving physician alignment in those markets and making them more attractive to managed care.
Hospital Industry Trends
Demographic Trends. According to the U.S. Census Bureau, in 2014, there were approximately 46.2 million
Americans aged 65 or older in the U.S. comprising approximately 14.5% of the total U.S. population. By the year
2030, the number of Americans aged 65 or older is expected to climb to 72.1 million, or 19.3% of the total
population. Due to the increasing life expectancy of Americans, the number of people aged 85 years and older is
also expected to increase from 6.2 million in 2014 to 8.7 million by the year 2030. This increase in life
expectancy will increase demand for healthcare services and, as importantly, the demand for innovative, more
sophisticated means of delivering those services. Hospitals, as the largest category of care in the healthcare
market, will be among the main beneficiaries of this increase in demand. Based on data compiled for us, the
populations of the service areas where our hospitals are located grew 3.2% from 2010 to 2015 and are expected
to grow by 3.6% from 2015 to 2020. The number of people aged 65 or older in these service areas grew by
15.8% from 2010 to 2015 and is expected to grow by 16.6% from 2015 to 2020. People aged 65 or older
comprised 16.8% of the total population in our service areas in 2015, yet they could comprise 18.9% of the total
population in our service areas by 2020.
Consolidation. In addition to our own acquisitions in recent years, consolidation activity in the hospital
industry, primarily through mergers and acquisitions involving both for-profit and not-for-profit hospital systems,
is continuing. Reasons for this activity include:
• ample supply of available capital,
• valuation levels,
• financial performance issues, including challenges associated with changes in reimbursement and
collectability of self-pay revenue,
• the desire to enhance the local availability of healthcare in the community,
• the need and ability to recruit primary care physicians and specialists,
• the need to achieve general economies of scale and to gain access to standardized and centralized functions,
including favorable supply agreements and access to malpractice coverage,
• changes to healthcare payment models that emphasize cost-effective delivery of service and quality of
outcomes for the entire episode of care, and
• regulatory changes.
The healthcare industry is also undergoing consolidation in reaction to efforts to reform the payment system.
Hospital systems are acquiring physician practices and other outpatient and sub-acute providers to position
themselves for readmission, bundling and other payment restructuring. Similarly, payors are consolidating and
acquiring disease management service providers in an effort to offer more competitive programs.
Trends in Payment for Healthcare Services. As discussed in more detail in the Government Regulation section
of this Form 10-K, the impact of healthcare reform legislation, combined with the growing financial and
economic pressures on the healthcare industry, has resulted in challenges to current and future reimbursement
trends. Because of higher healthcare costs and expanded coverage for uninsured patients, the healthcare industry
must face the risk that higher deductibles and co-payment requirements for insured patients will increase,
resulting in the potential for greater write-offs of uncollectible amounts from those patients.
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