Although larger players reduced their facilities and consolidated operations, psychiatric systems still ended 1997 with growth, MODERN HEALTHCARE's 1998 Multi-unit Providers Survey shows.
The number of facilities operated by the 54 responding healthcare systems that run freestanding psychiatric hospitals rose 19% to 305 in 1997 from 256 in 1996. The total number of psychiatric beds increased 11% to 27,436.
Secular not-for-profit systems grew the most, increasing their facilities 27% to 28 in 1997 from 22 in the previous year. For-profit companies increased their psychiatric holdings 20% to 253 from 211.
Although the number of psychiatric beds is up overall, the rate lagged behind the growth in psychiatric hospitals. Analysts say that could be an indication some systems are shedding inpatient psychiatric beds in preparation for lower reimbursement required by the federal Balanced Budget Act of 1997.
"It's really a consolidation strategy," says Mark Covall, executive director of the National Association of Psychiatric Health Systems in Washington. "(Systems) are adding hospitals through consolidation but focusing more on outpatient care than they have."
Columbia/HCA Healthcare Corp., the nation's fifth-largest operator of inpatient psychiatric facilities, continued to divest psychiatric hospitals and beds last year. The Nashville-based system's psychiatric hospitals dropped to 18 in 1997 from 22 in 1996, and beds dropped to 1,914 from 2,476, mostly through consolidations. The chain operated 25 psychiatric hospitals at the end of 1995.
Paracelsus Healthcare Corp., based in Houston, also pared facilities. It ended 1997 with just one psychiatric hospital, down from five in 1996, and its number of beds fell to 59 from 437.
Companies such as Paracelsus and Columbia are trying to create leaner operations and focus on their acute-care hospital business as a way to improve sagging margins, executives say.
Charter Behavioral Health Systems, the nation's largest psychiatric hospital chain, ended 1997 with 91 hospitals, a 4% drop from 95 in 1996. Atlanta-based Charter owned or managed 2% fewer beds, dropping to 8,748 in 1997 from 8,913 in 1996.
Charter is amid a major restructuring and could become a publicly traded company by year-end.
In March, Fort Worth, Texas-based Crescent Operating said it would buy the remaining stake in Charter's parent, Magellan Health Services, for $310 million. Crescent bought 50% of Magellan last year.
Once the Crescent-Magellan deal is complete, Charter will consider becoming a separate public company (March 30, p. 8).
Meanwhile, Behavioral Healthcare Corp. of Nashville was adding facilities last year. The company completed its acquisition of all 25 psychiatric hospitals owned by Las Vegas-based Community Psychiatric Centers for $60 million in cash and $70 million in stock.
Behavioral also acquired five psychiatric hospitals from Bellevue, Wash.-based Sterling Healthcare Corp. for undisclosed terms.
Those deals helped cement Behavioral in the No. 2 spot in this year's survey. The system now operates 47 hospitals with a total of 3,861 beds.
Universal Health Services, King of Prussia, Pa., also posted growth, increasing its psychiatric hospital holdings to 45 last year from 28 in 1996.
"There's really been a move by companies like Universal to expand partial-hospitalization services before moving more into outpatient care," Covall says.
The balanced-budget law enacted last summer reduces Medicare payments to psychiatric hospitals and inpatient units by $225 million this fiscal year, which began Oct. 1. Total Medicare spending on inpatient psychiatric care is a little over $3 billion. The Medicare payment reductions affect 84% of psychiatric hospitals and psychiatric units, according to the NAPHS.
An NAPHS report said the budget law is likely to fuel further consolidation in the industry.