Staff Photo by Dan Henry / The Chattanooga Times Free Press- 3/31/16. CEO of CHI Memorial Hospital Dr. Larry Schumacher speaks about his new position at the Chattanooga hospital on Thursday, March 31, 2016.

If new CHI Memorial Hospital CEO Larry Schumacher has his way, you'll be spending a lot fewer nights in his hospital's beds, and much more time visiting an outpatient clinic closer to your home.

Schumacher understands his dilemma: Consumers want excellent health care, but the price they want to pay for it "is south of where we are now," he said in a lengthy interview Thursday.

The best way to do that is to move health care closer to the patient, Schumacher believes.

"I know from talking to many, many consumers of health care that what they want is care that is close to home," he said, "with fewer parking lots and lobbies to navigate. We see an environment where most of the health care we provide will not be in a hospital, but will be in an outpatient and home setting."

Schumacher is taking over one of Chattanooga's most complicated businesses, with a huge impact across the metro area. Memorial has 405 beds compared to chief competitor Erlanger's 575, but reported revenue of $1.945 billion last year, slightly ahead of Erlanger's $1.867 billion. The hospital is Chattanooga's fifth-largest employer.

Schumacher, 56, knows hospitals from the inside, having started his career as a nurse.

"I started out as an orderly in a hospital when I was 16," he said, "and I was just intrigued by the whole health care industry."

He initially wanted to be a nurse anesthetist, but by his junior year of nursing school decided that career was too reserved, Schumacher said. His father, a business executive, allowed his son to help out with ordering inventory, so he learned something about running a business.

"I loved the administrative side of things," Schumacher said, "so I started going down a path in what was traditionally nursing administration."

That included stints as a staff nurse, head nurse, director of critical care nursing and chief nursing officer, before his responsibilities expanded to other areas of the hospital.

Schumacher believes his insider experience gives him an edge in dealing with hospital personnel.

"It does take down some barriers sometimes," he said. "It gives me a clearer understanding of the processes and issues that clinicians face."

It also gives him experience dealing with physicians, not always the easiest group to manage.

"Physicians are very gifted people who have very independent thoughts, and they are often aggregated into group practices, so you are working with them individually and in groups," he said.

The key is to relate your goals to how they will benefit their patients, Schumacher believes.

"You don't tell doctors what to do," he said.

Now Schumacher's major goal is to keep health care quality high while lowering the cost.

"We're constantly trying to figure out how to make health care better-cheaper-faster for people," he said.

As consumers are being forced to pay more of their health care costs themselves, that has put more pressure on hospitals to keep costs competitive.

"We're seeing many, many companies where the employees have much higher deductibles than before," he said, "so they are making decisions about whether they will have a procedure and where they will have it based on affordability."

That is a new reality for hospitals, Schumacher said.

"We in the health care side haven't had to play in the retail space very much," he said.

Schumacher's challenge is one facing hospitals across Tennessee and the U.S., according to R. Lawrence Van Horn, a professor at Vanderbilt University and an expert on health care management.

"Hospitals are going to have to be much better at focusing on the patient as a customer and solving their problems," Van Horn said. "Consumers want to know, 'Can I get in, and how much is this going to cost me?'"

"We have to change from a supply-side, push mentality, producing what people should buy," Van Horn said, "to one of, 'This is what people value, this is what they want,' and then give it where they can buy it, at a price they can afford."

That also may mean paying attention to improving the basic quality of some services, Van Horn said. Patients may be willing to sit in a waiting room for 45 minutes if they are only facing a $20 co-payment. But that wait will be unacceptable if they are paying $200.

But as a nonprofit hospital based on religious principles of helping those in need, CHI Memorial doesn't always have the option of offering its services only to those who pay.

As an example, Schumacher said it has sometimes become more difficult for patients to get approvals for surgery from their insurance companies. A patient in pain may rush to the emergency room without the insurance company's blessing. "We do the surgery," he said, "but collecting the money is challenging and difficult."

Chattanooga's population is growing, but many of those new residents are retirees who are on Medicare.

"The Medicare population has the most chronic illnesses and the highest usage of in- and outpatient services," Schumacher said. And he noted, "Medicare is not the best payer," reimbursing hospitals at rates below those paid by private insurance companies.

Schumacher said he believes CHI Memorial's position as part of the Catholic Health Initiatives network offers several advantages. The 102 health care facilities in the network have greater financial clout when negotiating with suppliers, he said, whether in purchasing drugs or computer equipment.

Some human resources and personnel tasks such as payroll, insurance and retirement benefits are handled at CHI headquarters in Denver.

Schumacher insisted CHI Memorial pays only its fair share of those expenses, and does not provide any other funds to the network.

"What is our bottom line after we pay expenses, what do we send to Denver? We don't send anything to Denver," he said.

CHI Memorial is a nonprofit hospital but it also must have some money left over after expenses, Schumacher said.

"We're challenged like any business is to reinvest in itself, to replace beds, replace equipment."

The cost of drugs and technology and patients' inability to pay their bills is putting pressure on that bottom line this year, Schumacher said.

"You see all of the wonderful drug ads on TV. Those drugs are not cheap, but some of those drugs are very effective for patients, so we have to figure out how to afford them," he said.

Technology is also a growing challenge, both financially and in its growing role in hospital operations. Hospitals across the U.S. are considering how to computerize their records, and to combine dozens of separate computer systems into one unified network.

But the cost can be staggering — Erlanger is budgeting $100 million for its new system — and there is resistance to the change, particularly among doctors.

A typical sole practitioner, for example, may have his or her own small computer system in a medical office. But when that doctor goes to a hospital to work — and many doctors may work occasionally at all three major hospitals in Chattanooga — he or she may encounter separate systems for handling medical records.

"It is just incredibly complex and almost an unreasonable expectation for someone to be able to use four entirely different systems," Schumacher said. "It slows them down, it's time consuming — most of them will tell you, it is one of the most frustrating things in their practice."

But at the same time, there is no question health care is going paperless. In the future, patients and anyone who treats them will have instant access to their entire medical record, something that is impossible at present.

"If done well and done right, it can be something that can really help them," Schumacher said. "Information can be readily available to them, safety factors can be built in so patients don't get double doses of medication from multiple providers."

In his three months on the job, Schumacher has not announced any major changes. He's conducting a community survey to determine where local residents see a need for better health care services. He said Memorial will continue to offer the services it has emphasized in the past.

"Our hallmarks here have been to be incredible at cardiac work, cancer, orthopedics and general surgery and general medicine, mainly in the adult and geriatric space," he said.

He will leave most children's care and emergency care to Erlanger.

But he doesn't intend to sit still as Erlanger, revitalized after several years of red ink by its own new CEO, Kevin Spiegel, expands. Figuring out how much market share each has is difficult, but Schumacher doesn't intend to see his piece of the pie shrink.

"If your market share is dropping, there is a reason for your market share dropping," he said. That could be that someone else has better equipment, or a speedier response, or perhaps just that Memorial is operating at capacity and doesn't have the ability to add new patients.

New federal regulations emphasize paying hospitals for the overall value of their care — whether the patient ends up being re-admitted in a few months for the same problem, instead of the old approach, where hospitals were paid a flat fee based on the volume of their services. That has forced hospitals to pay more attention to what happens after patients are discharged and move on to a rehabilitation facility, nursing home or home health care.

Schumacher said he is spending more time meeting with nursing home or rehab facility managers to work out ways to coordinate care. For now, he doesn't foresee CHI Memorial moving to buy or start its own after-care facilities and vertically integrate its health care offerings.

"There is always that possibility, but for now our approach has been to partner with people," he said.

But he knows the old ways of doing business are clearly changing.

"We're moving from volume to value, to different payment systems, and we're having to adjust to a lot of changes in how care is delivered," Schumacher said. "We're going to continue to focus on getting better on all of those things."

And he doesn't seem to be someone who will back away from a battle with the competition.

"Traditionally all of us in health care have a competitive nature," he said. "But we have to do what's right for the community, too."

Contact reporter Steve Johnson at, 423-757-6673, on Twitter @stevejohnsonTFP, and on Facebook,