Community Health Systems 2015 Annual Report Download - page 39

Improvement, or BPCI, initiative. This voluntary initiative is comprised of four broadly defined models of care
and links payments to participating providers for services provided during an episode of care. Participating
providers agree to receive one payment for services provided to Medicare patients for certain medical conditions
or episodes of care. In contrast to the traditional fee-for-service model, bundled payments are intended to align
incentives for providers, encouraging more effective and efficient care. We are participating in these BPCI
initiatives in eleven of our markets.
Beginning in April 2016, hospitals located in markets selected by CMS, including some of our facilities, will
be required to participate in the Comprehensive Care for Joint Replacement model, a mandatory bundled
payment initiative for specified joint replacement procedures. Participating hospitals will be evaluated against
quality standards and Medicare spending targets established by CMS for each episode of care. An episode of care
begins with a patient’s hospital admission and includes all related care by the hospital and other providers within
90 days of discharge. Depending on whether overall CMS spending per episode exceeds or falls below the target
and whether quality standards are met, hospitals may receive supplemental Medicare payments or owe
repayments to CMS.
The Reform Legislation also provides for a bundled payment demonstration project for Medicaid services, but
CMS has not yet implemented this project. HHS may select up to eight states to participate, and these state
programs may target particular categories of beneficiaries, selected diagnoses or geographic regions of the state.
The selected state programs will provide one payment for both hospital and physician services provided to
Medicaid patients for certain episodes of inpatient care.
Supply Contracts
In March 2005, we began purchasing items, primarily medical supplies, medical equipment and
pharmaceuticals, under an agreement with HealthTrust, a GPO in which we are a noncontrolling partner. As of
December 31, 2015, we had a 24.7% ownership interest in HealthTrust. By participating in this organization, we
are able to procure items at competitively priced rates for our hospitals. There can be no assurance that our
arrangement with HealthTrust will continue to provide the discounts that we have historically received.
Competition
The hospital industry is highly competitive. An important part of our business strategy is to continue to acquire
hospitals in non-urban markets and selected urban markets. However, other for-profit hospital companies and
not-for-profit hospital systems generally attempt to acquire the same type of hospitals as we do. In addition, some
hospitals are sold through an auction process, which may result in higher purchase prices than we believe are
reasonable.
In addition to the competition we face for acquisitions, we must also compete with other hospitals and
healthcare providers for patients. The competition among hospitals and other healthcare providers for patients
has intensified in recent years. The majority of our hospitals are located in non-urban service areas in which we
are the sole provider of general acute care health services. Those hospitals in non-urban service areas face no
direct competition because there are no other hospitals in their primary service areas. However, these hospitals
face competition from hospitals outside of their primary service area, including hospitals in urban areas that
provide more complex services. Patients in those service areas may travel to these other hospitals for a variety of
reasons, including the need for services we do not offer or physician referrals. Patients who are required to seek
services from these other hospitals may subsequently shift their preferences to those hospitals for services we do
provide. Those hospitals in selected urban service areas may face competition from hospitals that are more
established than our hospitals. Certain of these competing facilities offer services, including extensive medical
research and medical education programs, which are not offered by our facilities. In addition, in certain markets
where we operate, there are large teaching hospitals that provide highly specialized facilities, equipment and
services that may not be available at our hospitals. We also face competition from other specialized care
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