LPNT

LifePoint Hospitals, Inc. (LPNT)

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LifePoint Hospitals, Inc. (LPNT)

February 26, 2013 1:30 pm ET

Executives

William F. Carpenter - Chairman, Chief Executive Officer and Chairman of Quality Committee

Jeffrey S. Sherman - Chief Financial Officer and Executive Vice President

Analysts

Gary P. Taylor - Citigroup Inc, Research Division

Presentation

Gary P. Taylor - Citigroup Inc, Research Division

Good afternoon, my pleasure to introduce LifePoint Hospitals. I somehow misplaced my description of the company, but obviously, really the largest pure-play -- what I'd say still call pure-play rural hospital company that's out there. We have Bill Carpenter, the CEO and Chairman; and Jeff Sherman, the Chief Financial Officer, with us today. So gentlemen, thanks for being here.

William F. Carpenter

Yes.

Gary P. Taylor - Citigroup Inc, Research Division

Kind of first question. I've just been asking everyone's view on this theme of our confidence is the value imperative and as a health care team, our thesis is over the next 5 to 10 years, increasingly payers, commercial and government payers are going to have more value over what they're buying as opposed to just paying for volume today, moving to some sort of definition of value. And so the question is are you seeing any of that yet in your market? What do you think you need to do over the next 5, 10 years to position LifePoint for a change in how payers may choose to pay for what it is they're purchasing from you?

William F. Carpenter

So we look at the value proposition in this way, Gary. We are going to be paid less in the future for the services that we provide, and we're going to be judged on the basis of the clinical outcomes that we deliver. So the expectation there is our view of the expectation of pay for performance is clinical outcome improvement and produce reimbursement. So we are, in fact, positioning the company in order to be able to accomplish both of those things. On the improved clinical outcome front, we've always been proud of the quality of care that we provide in the community where we're located. But in addition to that, we have entered into our partnership with Duke University, for instance, in order to be able to bring top 10 academic health care to small community hospitals across the country. We're also 1 of 26 entities that received a Hospital Engagement Network contract. We're the only full private company to be the recipient of one of these Hospital Engagement Network contracts, which are designed to find ways to reduce readmission and to find ways to reduce the harm event that occurs in hospitals, both of which are things that go straight to the definition of value that I see as being improving clinical outcomes. So we're working hard on this thing. At the same time, we are working hard to find ways to take cost out of the system. And we've announced recently our Parallon initiative, whereby we are outsourcing certain back-office functions to Parallon, with a view that their scale and their expertise in that area should allow them to, quite frankly, do a better job at those discrete areas even though we would be able to do it in 57 different back-office operations across the country.

Jeffrey S. Sherman

And I would add to that, Gary, on the contacting side, we're certainly seeing that Medicare is leading the charge with hospital readmission penalties and hospital-acquired conditions, a carrot and a stick approach. So we're seeing -- that's kind of the early signs for that. We do not have a lot in our current commercial managed care contracts related to quality metrics, but we see that is going to evolve. In general, we expect many of these changes to come and more risk bearing, more different types reimbursement structures to come later to our more rural communities than the urban markets. For instance, we don't still today have any capitation agreements. We're not taking full risk at any of our markets today. So we see those types of changes potentially coming slower to rural communities. We are preparing for that. We're looking at ways to organize and work with our physicians more closely in our markets. We're employing more physicians as well. So we're taking, we believe, the necessary steps to prepare for whatever the ultimate -- whatever these ultimate reimbursement changes planned out over time. But we expect some of those changes to come slower to our community, just by virtue of the physician infrastructure, physician relationships we have and the fact that you don't have those more advanced payment methodologies in our markets today.

Gary P. Taylor - Citigroup Inc, Research Division

If I think back over the last couple of decades, back in late 80s, early 90s, where we're seeing capitation growth, the PPM growth, the managed care industry consolidating and putting a lot of pressure on urban providers, really, that was kind of a time period where the HMA and the communities of LifePoint have kind of -- the end of differentiated rural model actually performed pretty well. So through that time period, you would look back, you were still relatively isolated from more progressive payment methodologies historically as well, right?

William F. Carpenter

I think that's accurate and not a lot has changed over that period of time, but we will see. I think more new and different payment methodologies, bundled payments moving to more pay for performance or clinical outcome, how do we get more efficient, provide better clinical outcomes. Coming in, I think we're preparing -- we think we're doing the things we need to prepare for that, we just don't think that's going to happen in the near term, in the next few years. But we are preparing for that. We think, eventually, it will come over time.

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