Hospital Survival

Hospital Survival

HEALTH CARE by Jean Gruss | Editor/Lee-Collier

Hospital operators in Southwest Florida are fighting to keep their organizations profitable, but they're taking different approaches. Which strategy will pay off?

A group of hospital executives, doctors and government officials gathered March 7 on a dusty lot in Cape Coral to ceremoniously shovel dirt.

They were there to break ground on a new Lee Memorial Health System outpatient building that will be completed in 2008. Two more buildings are on the way on the site, promising a campus that will be home to outpatient surgery, diagnostics, primary care physicians and obstetricians.

The construction is just one indication of the financial pressures that are forcing hospitals to change the way they do business. Lee Memorial eventually plans to have as many as 25 such centers outside of the hospitals it operates.

Behind these changes are pressures that include the rising number of uninsured patients, insurance and Medicare reimbursements that aren't keeping pace with costs and entrepreneurial physicians who are skimming the best-paying patients away from hospitals and into their own outpatient centers.

To remain competitive, hospital administrators are taking action. Tactics include building outpatient centers to compete with doctor-entrepreneurs, partnering with doctors in joint ventures, hiring staff physicians, eliminating procedures with low reimbursements and even offering doctors ownership stakes in the hospitals themselves. Some are snapping up competitors to dominate their markets: Lee Memorial Health System spent $250 million to buy HCA's Gulf Coast Hospital last year, making it virtually the sole hospital provider in Lee County.

One big driver is the doctors skimming patients. Industry observers say the biggest competitive threats aren't rival hospitals but these entrepreneurial physicians.

"We see a fight over the most profitable part of the business," says Jim Nathan, chief executive officer of Lee Memorial Health System.

A strained relationship

At the heart of the current struggle is money.

The ranks of the uninsured have swelled, Medicare reimbursements aren't rising in step with costs and insurance companies are squeezing doctors and hospitals alike. Hospitals are required to care for anyone, regardless of whether or not they can pay, and that's eating into profits.

Insurance reimbursements take two forms: a professional fee for the doctor who diagnoses the patient and a technical fee to the hospital for the equipment and facilities.

Now, entrepreneurial doctors are building their own outpatient centers and collect both the professional and technical fees, in direct competition with hospitals. For the most part, hospitals haven't reacted quickly enough to this change. "We're a little late to the dance," concedes C.B. Rebsamen, chief medical officer at Lee Memorial. "What's important is to make sure that we don't watch and let it happen."

For years, doctors relied on the hospital emergency room to generate new patients for their practices. Now, the emergency room is a dumping ground for people who can't pay. Nathan estimates that a quarter of the residents of Lee County don't have health insurance. Charity write-offs at Lee Memorial rose 23% in 2006 to $73 million compared with $59 million in 2005.

Those patients who do have insurance are often steered by insurers to outpatient centers owned and operated by entrepreneurial physicians. From gastroenterology to physical therapy, only the most difficult cases end up at the hospital. "It happened almost overnight," says Nathan.

Outpatient business grows

With the improvements in technology, many medical procedures that were once performed inside hospitals can be done in outpatient centers more efficiently.

Lee Memorial isn't the only hospital group to plan outpatient centers. Sarasota Memorial Health System also is planning more than a half dozen centers in the next eight years, says Michael Harrington, Sarasota Memorial's chief operating officer.

Many of the new outpatient centers in Sarasota and Lee counties will revolve around primary care physicians. "Outpatient care really starts with your primary care physician," Harrington says.

Both Sarasota Memorial and Lee Memorial plan to pair up with physicians in these outpatient centers. They'll do joint ventures, sell or lease space to physicians and even hire their own doctors.

For example, Sarasota Memorial leases four-hour blocks of time at its heart and vascular center. The doctors then can bill insurance for both the professional and technical fee. "We've been doing that for a couple of years," says Harrington. "We were responding to changes in the market."

Harrington says the system of block leases can be applied to other procedures. One idea is to lease space for PET scans in a mobile trailer. "As reimbursement changes, a lot of these options will have to be looked at," Harrington says.

Not all hospital systems plan such big outpatient expansions. "We can't afford to buy physicians," says Allen Weiss, the president and chief executive officer of NCH Healthcare System in Naples. "Let's try to collaborate so we have a common goal," he says.

For example, magnetic resonance imaging (MRI) scans can now be performed in any outpatient center. Weiss says there's no need to compete in that business because the cost of entry is relatively low.

Instead, Weiss argues that hospitals should focus on procedures that use highly specialized technology that can't be replicated in outpatient centers, such as the Da Vinci Robot. The robot helps surgeons operate without having to make large incisions and the first robot-assisted surgery in West Florida was performed at NCH in 2005, and Sarasota Memorial also now has the Da Vinci.

What's more, NCH now pays doctors to staff the emergency room as much as $1,000 a day. This is a departure from the past, when physicians volunteered time in the emergency room because they used it to build their practices. Today, people who can't afford to pay for healthcare are the ones who typically frequent the emergency room and physicians don't have the financial resources to care for them.

Weiss argues that hospitals should become more efficient so that physicians can perform more procedures and be rewarded accordingly. Hospitals use antiquated systems to communicate and plan, shunning management techniques that have become standard practice in other industries such as manufacturing and retailing.

"The doctors are our customers," says Weiss. "The best thing I do is sales."

Doctors: employees or owners

Hospital owners and administrators say Southwest Florida is a peculiar location because patient demand is outstripping the supply of doctors. That's forcing hospitals to hire doctors, something they've resisted doing in the past.

Two years ago, a group of general and vascular surgeons refused to operate at Lee Memorial because they were asked to staff the emergency room. So the hospital hired seven new surgeons to replace them. "I don't think they thought we'd be successful," says Nathan. "The reality is we need each other." Now that Lee Memorial is virtually the sole provider of hospital care in Lee County, it's unlikely to face doctor revolts.

Health Management Associates, the Naples-based hospital chain, has had to beef up its staff of doctors as well. "In many cases we are employing physicians where we never would have in the past," says William Schoen, HMA's chairman.

HMA, which finances the private practices of many of the doctors who use their hospitals, just completed a joint venture with 51 doctors at Riverview Regional Medical Center in Gadsden, Ala. Under the terms of the deal, the doctors own a minority interest in the hospital with HMA. Having doctors as owners is a great incentive to boost efficiency, Schoen says.

The Gadsden model may be replicated at other HMA hospitals.

REVIEW SUMMARY

Industry. Hospitals

Trend. Hospitals are trying new ways of doing business with doctors.

Key. Hospitals need to remain profitable in the face of entrepreneurial doctors, rising charity costs and lower insurance reimbursements.

Uninsured patients at top of agenda

Jim Nathan says education will lead to political change.

Nathan, the chief executive officer of Lee Memorial Health System in Fort Myers, also is the chairman of the Florida Hospital Association, the hospital industry trade group.

Expect Nathan to lobby legislators about the health care challenges that lie ahead. In particular, Nathan says the state needs to craft a solution to the rise in the uninsured population.

In Lee County, for example, about a quarter of the population has no health insurance. "The uninsured are working folks," Nathan says.

Although other states are proposing health insurance programs, Nathan is cryptic about any fix. "Florida will need to find its own solution," he says.

"Political change can't happen until the public becomes aware," Nathan says. He sees his role as a facilitator to engage people in discussion to craft a plan.

-Jean Gruss