MedCath last week agreed to partner with Franciscan Health System of the Ohio Valley to build a heart hospital in Dayton, Ohio, marking its first collaboration with a not-for-profit.
MedCath, a publicly held cardiac-care firm, erects freestanding, state-of-the-art hospitals in partnership with leading local cardiologists and surgeons. It operates three heart hospitals with three more under development, all in the South and West.
A change in strategy from opening competing specialty hospitals to joint venturing with existing hospitals could dilute local opposition to MedCath in markets like Dayton, where the company seeks to open the area's first for-profit hospital.
The 48-bed hospital will be built on the grounds of the Franciscan Medical Center-Dayton Campus, which agreed to terminate its existing heart program as part of the deal.
The medical center proposed the joint venture after it became clear last fall that MedCath would build a hospital in Montgomery County. Chief Executive Officer Duane Erwin said Franciscan surely would have lost business to the new state-of-the-art facility, reducing a revenue stream that funds charity care and community outreach efforts.
"The issue came on the table: Does it make more sense to collaborate than compete?" Erwin said. "I was anxious to see if there were alternative ways to generate revenue."
The medical center will own 30% of the venture and share 30% of the profits. MedCath holds 35%. The remaining 35% will be divvied among at least 40 physician investors. Each organization will hold a seat on the hospital's board.
The Franciscan system's other two hospitals, located in its headquarters city of Cincinnati, will not be affected by the deal.
In announcing the deal last week, MedCath and Franciscan painted their joint venture as a win for the community, since it will not increase the total number of heart programs in Dayton from the current five.
MedCath's previous proposal to built a standalone heart hospital in the suburbs drew criticism from local payers and providers, which contended it was unnecessary.
Local providers launched an aggressive but unsuccessful campaign to block the deal. The Ohio Hospital Association called for a two-year legislative moratorium on new hospital construction in the state, which is phasing out certificate-of-need requirements (Dec. 1, 1997, p. 17). The moratorium proposal hasn't found a legislative sponsor.
MedCath officials said building on Franciscan's campus will shave 5% to 10% off construction costs, estimated at $30 million to $35 million. The facility will use Franciscan's emergency room, computed tomography scanner, some radiological equipment and support services, including food, laboratory, maintenance, housekeeping and security.
In addition to ending its heart surgeries, Franciscan will drop its license for at least 48 medical-surgical beds.
"The real story is the elimination of the duplication of services," Erwin said.
Construction is expected to begin in March with completion in early 1999.
Community reaction was lukewarm.
The Miami Valley Employers Health Action Council, which opposed MedCath's original proposal, called the new deal a compromise. The council would have preferred no new construction, said John Tonkin, executive director.
"Unless it reduces capacity, there's no need for it," Tonkin said.