Morris "Moe" Dalitz had a vision.
The former Ohio bootlegger and reputed organized crime associate arrived in Las Vegas in 1949 to make his fortune in real estate. Within a year he purchased an interest in two Las Vegas casinos-The Desert Inn and The Stardust. But he didn't stop there.
Mr. Dalitz-through his real estate development company, Paradise Development Co.-looked to invest in something else. Something bigger, yet completely different in origin and operation. Something that would complement his growing empire of casinos, hotels, shopping centers and golf courses.
He decided to build a hospital.
In 1958, vision became reality when Sunrise Hospital officially opened its doors to the Las Vegas community. The state-of-the-art facility opened thanks in part to a $1 million sweetheart loan from the International Brotherhood of Teamsters Central States pension fund.
Teamsters President Jimmy Hoffa was an old friend of Mr. Dalitz's, and the two envisioned Sunrise as the Las Vegas hospital for Teamsters workers and their families.
Mr. Dalitz's group held an ownership stake in Sunrise until 1968, when the hospital was sold to Medical International for $14 million. The deal earned them a cool $7 million profit, news reports later said. It was one of the better investments Mr. Dalitz-who died in 1989 at age 89-would make during his illustrious and somewhat checkered business career in Las Vegas.
It pays to play. Mr. Dalitz's story illustrates a well-known but rarely discussed axiom that healthcare providers have known for years: It pays to invest in Las Vegas medical services.
However, these days you don't need ties with organized crime to hit it big in Las Vegas. Just being affiliated with a major hospital chain is advantage enough. It also doesn't hurt to be a for-profit provider.
Today's Las Vegas is a city of rapid business development and unprecedented population growth. As a result, its healthcare community is finding more opportunity than ever to expand with the rest of the market.
There are seven acute-care hospitals in the Las Vegas area, with plans for the construction of three others (See chart, p. 45).
In addition, several major insurers provide HMO healthcare coverage in the state, including Exclusive Care, FHP of California, Health Plan of Nevada, HMO Nevada, Hospital Health Plan and Humana Health Plan.
"There's no doubt that the growth in Las Vegas has affected growth in the healthcare community," said Jerry Ash, president of the Nevada Association of Hospitals and Health Systems. "There's absolutely no question about it."
Las Vegas is an appealing market to healthcare providers for several reasons:
Population boom. Clark County, Nev., which includes Las Vegas, is considered one of the fastest-growing regions in America and has nearly doubled in population to just more than 900,000 this year from 463,000 in 1980. Officials estimate that with a stampede of 3,000 to 4,000 people moving to the city each month, the region's population could exceed 1.5 million by the year 2000.
Opportunities for businesses. Las Vegas, known for its flashy casinos, big-time entertainment and fast-paced night life, has been overhauling its image to attract families and nongambling vacationers to the city, which should bring new opportunities to the market, executives said.
A proprietary atmosphere. For-profit providers are at the foundation of the Nevada healthcare industry. About two-thirds of the 27 hospitals in the state are proprietary, and five of the Las Vegas area's seven acute-care hospitals and the three soon-to-be-built medical centers are for-profit entities.
Solid profit margins. A 1993 report by Nevada Gov. Bob Miller's office said Nevada hospital profits are more than twice the national average of $239 per admission and $33.49 per day. Although hospitals have disputed the state's numbers, the figures are indicative of a thriving healthcare market.
Much of that growth can be attributed to the interest and investments of several major national hospital chains, including Columbia/HCA Healthcare Corp., Universal Health Services and Quorum Health Group.
Investor-owned interest. More than 35 years after its construction, Sunrise Hospital and Medical Center remains the largest hospital in Las Vegas. It's also under new ownership. Columbia Hospital Corp.-which has grown to become Louisville, Ky.-based Columbia/HCA, the nation's largest hospital chain-acquired Sunrise in 1993 when it merged with Galen Health Care.
The 688-bed hospital is a multifaceted facility that specializes in such services as women's healthcare, a day surgery center, kidney dialysis and a sleep disorders program. Sunrise also includes 145-bed Sunrise Children's Hospital, which operates a pediatric open-heart surgery unit and offers a full range of specialized pediatric services.
A much more publicized move to bolster outpatient care occurred last December, when Sunrise opened a 10,000-square-foot primary-care clinic on the grounds of the new MGM Grand Hotel and Casino. The clinic offers primary-care, radiology, laboratory and nursing services. It also serves as the primary healthcare resource for MGM's 8,000 employees and their families.
Neither the hospital nor Columbia/HCA provided financial details on the investment in the outpatient clinic. However, executives said Sunrise would benefit from the clinic's patient referrals to the hospital.
"There's a definite need for acute-care services in this community," said Allan Stipe, Sunrise's president and chief executive officer. "Columbia has a clear growth strategy, and that's the direction where we're headed."
It's this type of ambitious growth that has helped Sunrise evolve into the city's most profitable hospital. In 1993, Sunrise recorded net income of $12.8 million on total patient revenues of more than $218 million, for a total profit margin of 5.88%, according to HCIA, a Baltimore-based healthcare information company.
And Sunrise's parent company, Columbia/HCA, hasn't overlooked that statistic. In September, the healthcare giant broke ground on a new 110-bed hospital on the city's fast-growing northwest side. The $50 million, 200,000-square-foot Sunrise Mountain View Hospital is expected to open in January 1996, creating approximately 500 new jobs, executives said.
Other players. Columbia/HCA isn't the only hospital chain in the Las Vegas market. King of Prussia, Pa.-based Universal Health Services has been growing in the area for more than 12 years. It operates 398-bed Valley Hospital Medical Center, the city's oldest hospital. Like Columbia/HCA, Universal isn't resting on its laurels.
"Las Vegas is certainly a competitive marketplace," said Michael Servais, Universal's vice president of acute-care operations. "The hospitals in that community, specifically the for-profit hospitals, are more efficient than hospitals in other communities." Investor-owned hospitals also have more available capital and easier access to the latest technology, he said.
Universal's Valley Hospital Medical Center, a tertiary-care facility, is known for its cardiac surgery and cardiology programs as well as its emergency and trauma medicine, Mr. Servais said. In addition, Universal is building a major medical complex in the northwest Las Vegas community of Summerlin, a neighborhood of 50,000 that is projected to grow to more than 150,000 by the turn of the century.
The Summerlin project will include a new hospital, a medical office building, an outpatient surgery facility and other ancillary services. The hospital, scheduled to open in December 1996, will offer such services as emergency medicine, inpatient surgery, obstetrics, cardiology, rehabilitation and oncology services.
The surgery center, meanwhile, will include radiology, magnetic resonance imaging, ultrasound, mammography and laboratory services. It's scheduled to open by the end of 1995.
Universal also plans to develop a third hospital in south Las Vegas, a community facility that will complement Valley's tertiary services, Mr. Servais said.
Universal also has created a PPO called Universal Health Network, which has 75,000 enrollees in Nevada.
All this development comes with a high price tag. Universal will spend more than $90 million developing healthcare services during the next several years, including the hospitals and medical office building.
Is all the investment worth it?
"We think so," Mr. Servais said. "Valley is a very successful hospital. Most of the for-profit hospitals are."
That sentiment isn't lost on St. Rose Dominican Hospital CEO Rod Davis, whose Henderson-based hospital is one of two not-for-profit acute-care facilities that operate in the Las Vegas area. The other is University Medical Center, Las Vegas.
"There's always been a high percentage of investor-owned hospitals in Las Vegas," Mr. Davis said.
St. Rose hasn't experienced the financial success of its for-profit competitors. The hospital recorded a net loss of $422,000 on total net revenues of more than $34 million in 1993, according to HCIA.
However, 107-bed St. Rose isn't lying dormant while the for-profits continue to expand. The hospital recently announced plans to build three ambulatory-care centers in the southeast section of Las Vegas.
One of the centers will be a primary-care facility that will offer family practice services and urgent care. A second facility will be a medical office building. The third will house diagnostic imaging, rehabilitation, laboratory and pharmacy services. The hospital didn't release the projected cost of the construction.
St. Rose's development plan is to increase its outpatient services division to treat the growing population during the next decade. The city of Henderson has a population of about 100,000, up from 30,000 in 1983.
"Our parent organization, Catholic Healthcare West, studied the (market)and decided not to construct another hospital," he said. "The current inpatient utilization rate at the hospital is 62%. Even with the projected population increase, utilization would only be about 85%, so we'd have excess beds.
"Either way, we still would be over-bedded, just like every other hospital in the city," he said.
In a similar vein, University Medical Center, Las Vegas's second-largest hospital with 506 beds and the city's only teaching hospital, is concentrating more on ambulatory-care development, said CEO William Hale.
The hospital invested $250,000 this year in building two new urgent-care clinics on the city's east side to complement its three existing clinics. Overall, University's outpatient facilities see more than 300,000 ambulatory-care visits each year. It's ambulatory-care services that are the most needed at this time, Mr. Hale said.
"(Las Vegas) is growing very quickly," he said. "And there is going to be a need for additional hospitals- but not for another 10 years."
University's outpatient-care strategy apparently has been healthy for its bottom line. The hospital reported net income of $5.5 million on total patient revenues of $198 million in 1993, according to HCIA data.
The other side of profitability.The robust earnings that the Las Vegas healthcare community has racked up haven't gone unnoticed by taxpayers or state officials. Hospital profitability isn't a wonderful thing to these groups, which have long complained that Nevada's investor-owned hospitals are thinking profits first and patients second.
Hospital profit margins have been a hotly debated issue in Nevada for years. In 1987, the state passed a law limiting hospitals' total profit margins to 17%. Those hospitals with higher margins had to reduce inpatient charges by as much as 25%.
Since the law was passed, hospitals have fought further attempts by the state to control profits, arguing that the 1987 law successfully contained excessive profits.
In 1991, Nevada legislators imposed a one-year freeze on hospital rate increases, followed by three years of controlled hospital rate increases based on the medical component of the Consumer Price Index. State officials said the agreement was reached to help control rising hospital profits and patient charges in the state.
"By taking this regulatory position, the state has been able to control hospital price increases while still allowing hospitals to maintain their viability," Chris Thompson, head of the Nevada Health Care Financial Analysis Unit, said last year. Historically, Nevada hospitals had been able to raise charges annually without consumer backlash.
Despite the threat of regulations, providers continue to move into the market.
In addition to Columbia/HCA and Universal, Quorum Health Group, Nashville, Tenn., entered the Las Vegas market after purchasing 10 acute-care hospitals from Charter Medical Corp. in October 1993 for $340 million (April 25, 1993, p. 4).
However, of the original 10 hospitals it purchased, Quorum has sold all but three of the facilities. One of those remaining under the Quorum name is 210-bed Desert Springs Hospital in Las Vegas.
Desert Springs has been regarded as the crown jewel of the Charter purchase, generating a fourth of Charter's acute-care hospital revenues of $375 million in 1992.
However, Desert Springs didn't have a stellar 1993. The hospital reported a net loss of $4.7 million on total patient revenues of more than $99 million, according to HCIA. Comparable figures for 1992 weren't available.
Meanwhile, Community Psychiatric Centers moved its headquarters to Las Vegas from Laguna Hills, Calif. CPC, which owns 35 psychiatric hospitals, will centralize its billing in Las Vegas and hire 80 to 100 new employees. The company expects to save $2 million annually through the move.
"Las Vegas is ideally suited to CPC's needs for a more cost-effective and convenient base of operations," CPC Chairman and CEO Richard Conte said. "We already own vacant land there in an excellent location; construction, labor, housing and travel expenses are less costly than in Orange County (Calif.); there are no state, corporate or personal income taxes; and Nevada has a pro-business attitude which has contributed to a healthy, growing economy."