A Boston-area hospital executive known for his epistles against the "frenzy" of joining provider networks is about to sell control of the facility he heads to a company that builds integrated healthcare systems.
Charles Ricks, president and chief executive officer of Boston Regional Medical Center, said last week the 195-bed facility in Stoneham, Mass., has agreed to sell an 80% interest to privately held Doctors Corporation of America for about $52 million.
The remaining 20% would be retained by the hospital's parent company, Atlantic Adventist Healthcare Corp., Rockville, Md. In addition, Scottsdale, Ariz.-based DCA proposed to buy 50% of a separate physician practice organization associated with the hospital.
Ricks said the deal was made to provide access to capital and get the facility out from under a long-term-debt burden of about $37 million. DCA's approach calls for developing relationships with physicians associated with the hospitals it buys.
Even though it means joining a larger organization, the joint venture squares with his principles, Ricks said.
During his three years with the Stoneham facility, Ricks has steadfastly maintained that community hospitals should develop their local service areas to enhance value to managed-care plans rather than rush to join larger networks.
In a commentary published in the July 31, 1995, issue of MODERN HEALTHCARE, he characterized his network-bound colleagues as "lemmings rushing to the sea."
The following year he predicted in another MODERN HEALTHCARE column that provider networks "will become relics of the past" (March 25, 1996, p. 92). When market forces flatten reimbursements for all providers, he said, payers "no longer (will) need exclusive networks or exclusive contract relationships to obtain preferred rates."
While networks such as Partners HealthCare System and CareGroup proliferated in eastern Massachusetts, Boston Regional concentrated on ties with local physicians and on its own dealmaking with managed-care organizations. The hospital now has contracts with 45 payer organizations, nearly double the number of three years ago, he said.
And in March, it forged a clinical affiliation with Lahey Hitchcock Clinic, a large multispecialty physician practice based in nearby Burlington, to jointly improve access to healthcare in Boston Regional's service area and help patients avoid a trip downtown for tertiary care, Ricks said.
But the hospital couldn't overcome the problem of excess debt. Ricks said the same woe has befallen other Boston-area hospitals that overbuilt during the fee-for-service climate of the 1980s and got squeezed when managed care cut the revenues expected to cover bond repayments.
Boston Regional has struggled to break even on operations, posting a $2.3 million operating loss in 1996 and bracing for "close to the same" loss this year, Ricks said.
"Through the good years, (Boston Regional) didn't generate the cash to take it through the lean years," he said. That prompted the deal with DCA. "They have the financial ability to help us do what we want to do," he said.
DCA is hardly a cash machine yet. It reported $150 million in revenues in 1996 from three hospitals and the physician practices associated with them: Hadley Memorial Hospital in Washington, Brea (Calif.) Community Hospital, and Pacifica Hospital of the Valley, Los Angeles.
The firm was founded in 1991 by Paul Tuft, an Omaha, Neb.-based healthcare lawyer. Originally named Pacin Healthcare Corp., the company surfaced in 1992 when it purchased Hadley for $10 million. Tuft is DCA's chairman.
The company, which recently moved its 10 corporate employees to Scottsdale from Omaha, declined to disclose operating results. But Medicare cost reports show all three hospitals have a history of operating losses.
Brea Community reported an operating loss of $2.9 million on net patient revenues of $28 million in 1995, according to American Hospital Directory, a Louisville, Ky.-based healthcare information company. That followed an operating loss of $21,000 on net patient revenues of $4.5 million in 1994. Hadley lost $480,000 on net patient revenues of $23 million in 1995.
Pacifica posted $2.5 million in operating income on $33 million in net patient revenues in 1994, the latest year for which figures were available. In 1993, it lost $23 million on net patient revenues of $20 million.