James Desnick, M.D., a controversial Chicago ophthalmologist under federal investigation, has quietly expanded his role as a hospital investor.
"Years ago I was somewhat of an innovator in health," Desnick asserted in an exclusive interview with MODERN HEALTHCARE last week. "I think today the things that I was criticized for 15 years ago . . . are normal business practice. I think there's a much better understanding today about who I am and what I'm doing."
For example, Desnick said he believes he drew unflattering attention by being the first physician in Illinois to aggressively advertise services and to provide patients with transportation to and from his eye clinics.
He opened his first eye clinic in 1984 and expanded to 12 before selling out in 1994 in the face of a federal probe of his business practices.
Now Desnick is bringing his management style to the hospital field, gaining control of acute-care facilities behind the scenes.
In February, Desnick and a group of private investors purchased 112-bed HealthSouth Larkin Hospital in South Miami, Fla., for a reported price of $11 million. Desnick confirmed the acquisition and didn't dispute the price. Larkin was one of the few acute-care facilities owned by HealthSouth Corp., a Birmingham, Ala.-based rehabilitation chain.
The newly named Larkin Community Hospital now operates under a corporate board headed by Anthony Kennedy Shriver, the 31-year-old nephew of President John F. Kennedy and a member of an investor group called Island Trust.
Also in February, Desnick's Chicago-based company, Medical Management of America, tried but failed to acquire 329-bed United Healthcare System, a Newark, N.J.-based hospital now in Chapter 11 bankruptcy. Medical Management was one of five respondents to a request for proposals to take over United by one of its major creditors, Daiwa Securities America. But Medical Management didn't make the preliminary cut and never submitted a formal bid.
Desnick's entrance into hospital ownership occurred in 1992, when he led a limited partnership in buying Chicago's bankrupt Hyde Park Hospital, now Doctors Hospital of Hyde Park, for $2.4 million.
Desnick described himself as an active board member at 200-bed Doctors Hospital. He said he particularly takes pride in having revived the South Side Chicago facility. According to the latest available figures from HCIA, a Baltimore-based healthcare information company, Doctors Hospital earned $2.1 million on net patient revenues of $42.4 million in 1995.
Like Larkin Community, Doctors is now a private investor-owned hospital.
Last week, Doctors Hospital dedicated its wellness center to Rev. Willie T. Barrow, chairwoman of Chicago's Rainbow/Push Coalition. Barrow is one of numerous local dignitaries filling the hospital's board, which includes former U.S. Sen. Alan J. Dixon (D-Ill.).
Clearly, Desnick believes he's more than ready to own hospitals; but is the hospital industry ready for Desnick?
In November 1994, agents representing five state and federal law agencies raided Desnick's Chicago-based EyeCare Physicians of America. The investigation reportedly involves Medicare and Medicaid billing for unnecessary services.
Desnick confirmed in the interview that the investigation is ongoing, but he declined to elaborate.
As recently as this spring, Chicago attorney Kenneth B. Moll said he was subpoenaed by the Illinois attorney general's office to provide all documents mentioning Desnick.
Moll had represented individuals in a class-action suit against Desnick and others involved in Desnick's eye-center business. The suit charged that the defendants were involved in false advertising, fraud and performing unnecessary procedures. The case was settled out of court earlier this year. Both Moll and Desnick refused to discuss the terms of the settlement.
At the time of the 1994 raid, a spokesman for the Illinois Department of Professional Regulation said the investigation was sparked by information the agency had obtained. It's not clear what that information was.
But the agency had filed an 18-count complaint against Desnick in May 1993. The complaint alleged that Desnick had engaged in a host of illegal advertising and marketing abuses. In addition, it accused him of malpractice, professional incompetence and gross negligence stemming from two alleged misdiagnoses of patients who underwent cataract surgery.
Eventually, the department dropped some of the charges and settled the rest with Desnick, who denied the allegations. Desnick agreed in April 1995 to pay a $100,000 fine to the state and to refrain from practicing medicine in Illinois for two years. He said he's not been active in the profession for at least six years and does not expect to return to medicine.
Because of his licensing problems in Illinois, the Florida Board of Medicine voted last month to suspend Desnick's medical license in that state.
According to a transcript of the hearing, the board agreed that Desnick should be suspended "until such time as he can demonstrate that his Illinois license is free and clear of any and all encumbrances." The board has yet to make the suspension of his license final, and Desnick said his attorneys have obtained an order to postpone the Florida suspension.
Despite his brushes with the law, Desnick hasn't shied from the limelight. In 1994, he announced he would sell his eye centers and run for the Republican nomination for the U.S. Senate seat being vacated by Sen. Paul Simon (D-Ill.). Ultimately, Desnick dropped out of the race before the primary.
In the interview last week, Desnick acknowledged the ongoing federal probe, his Illinois probation and troubles in Florida. Pointing out that he's never been convicted of any wrongdoing, Desnick defended his record and motivations, especially his goal of turning around troubled hospitals.
At Larkin Community, his South Miami property, Desnick said, "I'm just a passive investor along with about 10 other individuals." But he said he still will try to work miracles with troubled hospitals.
"I think some of those individuals who saw the success of the Doctors Hospital of Hyde Park in Chicago thought that the same thing could be done at Larkin Hospital," he said.
According to a licensure application filed with the state, Larkin Community was only 29% full when Island Trust gained control of it in February. Now, typically 80% of the hospital's beds are in use, an improvement Shriver attributed to a lot of "little things," such as bringing in new doctors and cleaning up the physical plant.
Desnick said he has no plans for further hospital investments. "I don't think (Columbia/HCA Healthcare Corp.) has too much to worry about," he said.