For-profit hospital companies have routinely been cast as the bad guys, riding into serene markets to wipe out the not-for-profits.
But as the dynamics in the northern Virginia market show, competitive tactics can cut both ways and not-for-profit players aren't always the underdogs.
Springfield, Va.-based Inova Health System, a regional not-for-profit, and Nashville-based Columbia/HCA Healthcare Corp., the nation's largest for-profit healthcare company, are emerging as the market's dominant providers.
"It will come down to choosing between one or the other for most hospitals," said Kenneth Swenson, president of Prince William Hospital, an unaffiliated 131-bed not-for-profit hospital in Manassas, Va. "They're expected to start exercising some of their clout."
Swenson said Prince William is weighing affiliation offers from Inova, Columbia, Brentwood, Tenn.-based Quorum Health Group, and King of Prussia-based Universal Health Services. He said the hospital's board will likely reach a decision by this fall.
Inova owns four of the 13 hospitals in northern Virginia, including the only two acute-care hospitals in Alexandria: 311-bed Alexandria Hospital and 229-bed Mount Vernon Hospital. The system also operates 656-bed Fairfax Hospital in Falls Church and 133-bed Fair Oaks Hospital in Fairfax.
Meanwhile, Columbia operates two of the three investor-owned acute-care hospitals in northern Virginia. Columbia owns 127-bed Reston (Va.) Hospital Center and has a 50% stake in 299-bed Arlington (Va.) Hospital. Louisville, Ky.-based Vencor operates 206-bed Vencor Hospital-Arlington, the only other for-profit acute-care hospital in the region.
To hear Inova tell it, for-profit giants like Columbia are threatening to dominate the market.
In March, Inova tried to rally other not-for-profit hospitals to form a coalition to counter the sale of community hospitals to for-profit companies. The coalition has yet to come together, but Inova insists that while its executives may have acted like "country gentlemen" in the past, the gloves are now off.
The scramble for positioning in northern Virginia that led to such fighting words began in earnest last year when Columbia brokered a 50-50 joint venture arrangement with not-for-profit Arlington Hospital. The two formed a new company called Columbia Arlington Healthcare System, to which the hospital contributed more than $200 million in assets and its facility. Columbia threw in its hospital in Reston, a 100-bed psychiatric facility and a surgery center in addition to $8 million in compensation to Arlington's parent.
The aggressive move put area hospitals on alert. Inova shored up its holdings earlier this year when the Federal Trade Commission approved its merger with Alexandria Health Services, the parent of Alexandria Hospital, despite last-minute attempts by Columbia to derail the deal. Less than two weeks later, Inova celebrated its upper hand with a press conference in Washington, calling for the formation of the Coalition to Protect Community Not-For-Profit Hospitals.
But Inova may be exaggerating the plight of the region's not-for-profits. Inova controls 49% of the acute-care beds in northern Virginia, and the two most profitable hospitals in the region are run by other not-for-profits.
Prince William, owned by Prince William Health System, was the top performer with a total profit margin of 15.8% for the fiscal year ended September 30, 1995, according to Virginia Health Information's 1996 Buyer's Guide to Efficient and Productive Hospitals and Nursing Homes (See chart).
The Prince William system recently changed its name from Unicare Health System.
The second biggest earner was not-for-profit Loudoun Healthcare's 106-bed Loudoun Hospital Center in Leesburg, with a 15.3% margin for the fiscal year ended June 30, 1995. Columbia's Arlington Hospital came in third with 14.7% for the year ended Dec. 31, 1995.
In addition, the guide ranked Inova's Fairfax Hospital as the region's most productive and efficient, followed by Columbia's Reston Hospital Center, and not-for-profit CMH Health Corp.'s 70-bed Culpepper (Va.) Memorial Hospital. The guide measured the hospitals' efficiency and productivity by looking at their charges, costs, utilization rates and other financial indicators.
Swenson said the pressure for not-for-profit hospitals to align with larger systems isn't coming from poor finances or a tax status debate but from the demands of managed-care organizations looking for larger networks that cover wide geographic areas or for more restricted networks that offer more competitive pricing.
"We're not the underdog," Swenson said. "Columbia just has access to more capital, and we'll have to see how that plays out."