When Tulane University Hospital and Clinics became part of investor-owned giant Columbia/HCA Healthcare Corp. last year, shockwaves resonated through academic healthcare circles.
New Orleans-based Tulane was the first major academic medical center to become part of the Nashville, Tenn.based chain. The deal was featured not only in the national press and healthcare journals but prominently in the highly respected Chronicle of Higher Education. In the Columbia-Tulane deal, closed in April 1995, Columbia paid $132 million for an 80% interest in the 259-bed tertiary facility (Feb. 6, 1995, p. 34), which became a for-profit entity.
If Tulane's peers were shocked that the facility would buy into the philosophy of an investor-owned company, they're sure to take interest when in the next six months Tulane's academic physicians begin buying their own equity stake in the facility. It's the first time Columbia is seeking academic physicians as investors.
"We could work our entire careers as academic physicians and not get an opportunity to invest in the entity where we work," said Thomas Whitecloud III, a 23-year veteran physician at Tulane University Medical School of Medicine who's professor and chairman of the college's orthopedics department.
Although the terms of the syndication are being ironed out, the 300 faculty members at Tulane University medical school are expected to be key players. Whitecloud said the physicians haven't seen the official offering, but Columbia executives told MODERN HEALTHCARE it will happen later this year or early next year.
"It w ill be different from Columbia's other ventures because we would be syndicating wholly owned facilities with academic medical center physicians," said Steven Pickett, president and chief executive officer of Tulane's hospital and clinics. "The current plan is to do a marketwide syndication, including all of the facilities in the New Orleans market. Physicians at (Columbia's) other hospitals also can be a part of a syndication with a tertiary center."
Physician syndication is a critical part of the Columbia philosophy. Under such an arrangement, doctors are offered an opportunity to invest in a Columbia subsidiary that runs the hospital. Through their stake, physicians share in the profits of the hospital.
The syndication will be selling 20% of Columbia's six hospitals and other properties in New Orleans to physicians at all the Columbia hospitals in the area. The physicians' total stake will be about $300 million, executives said.
For specialists at academic medical centers, such a syndication appears to be quite attractive, especially when those physicians are seeing their salaries cut by as much as 25% in some markets, according to industry analysts. Healthcare restructuring and managed care are drastically reducing physicians' salaries.
Last year, the American Medical Association reported that physician incomes dropped for the first time in the 14 years the orga nization has been keeping records. After years of increases, physicians' average annual net income dropped 3.6% in 1994 to $182,400, the AMA said.
Columbia's syndications are designed to fuel the company's growth through strong relationships with physicians, the chain's biggest revenue producers. Columbia is developing syndications in several markets, including Alabama, Florida and Texas (March 25, p. 81).
The Tulane syndication could be viewed as a trade-off to control costs. Because of their educational mission, indigent-care burdens and research expenses, teaching hospitals typically have a more difficult time contracting with managed-care plans because their costs usually run 30% to 40% higher than their community hospital counterparts. Teaching hospitals are making efforts to reduce costs to be more competitive for managed-care dollars.
`It offers (physicians) an economic opportunity they wouldn't otherwise have," said David Fine, Tulane University Hospital and Clinics' former longtime CEO who now heads the Columbia Institute for Clinical Outcomes, created by Columbia and based at Tulane.
Because there's great disparity in income amon g academic physicians, Whitecloud said he's unsure how many of the 300 medical school faculty members will participate. "It's a chance to invest in a company that you believe in and work for," he said.
Once the offering is under way, Fine expects "slow but steady" growth in the number of faculty physicians who purchase shares in the venture. "The academic physician is not as focused on personal entrepreneurialism," he said.
Columbia's physician syndications haven't been without controversy. Rep. Fortney "Pete" Stark (D-Calif.) earlier this year asked HCFA to investigate whether Columbia and other for-profit providers are involved in "questionable" business practices. Stark, the author of federal anti-fraud statutes, wants to know whether Columbia is violating physician self-referral laws (Sept. 23, p. 6)
But Whitecloud doesn't see any self-referral problems. "I don't think that is a problem. Most of th e faculty physicians (already) do their work at Tulane (University Hospital and Clinics) or Columbia-affiliated hospitals," Whitecloud said.
Meanwhile, onetime skeptics of Tulane's joint venture with Columbia are taking a closer lo ok at the deal.
"They sometimes come in clandestinely and always want to talk to our physicians," Fine said. "We've probably had (representatives from) a dozen or more academic medical centers come visit us. We have nothing to hide.
"A six-member board with three Columbia and three Tulane University representatives settles any disputes between the two parties. So far, only two major decisions have gone before the board. One was the decision to promote Pickett from chief operating officer to CEO, and the other was the move to consolidate all Columbia's New Orleans-area psychiatric services at 102-bed Columbia DePaul Hospital.
"We put all of those psychiatric beds under the Tulane license," Pickett said. "It gives us 50% of the psych market in town.
"As part of Tulane's deal with Columbia, the university was able to pay off the hospital's $92 million in debt. In addition, Columbia agreed to pay $75 million for capital improvements during the first five years and contribute another $75 million to the university's centers of excellence, which are being created.
"You're not going to grow with out having some kind of capital," said John La Rosa, M.D., chancellor of Tulane University Hospital and Clinics.
"Is (the deal with Columbia) the end-all strategy? It's too early to tell," he said. "But we certainly have additional opportunities we didn't have before.
"La Rosa said other academic medical centers are likely to become part of Columbia or other investor-owned chains, based on discussions he's had with colleagues across the country.
"We regularly look to grow," La Rosa said. "I have yet to find another academic medical center that feels as confident as we are."