When 57-bed Precedent Health Center opened its doors in Denver last month, it managed to land on the front page of the Wall Street Journal and ruffle the feathers of the nation's largest hospital company, Columbia/HCA.
The small, outpatient hospital is attracting much local and national attention because it is a symbol of physician-led organizations' increasing clout and ability to compete with corporate medicine.
Precedent -- physician-owned and operated -- is attempting to carve out a niche in a very competitive hospital market (50% hospital-bed occupancy, according to some reports). Cautious observers, however, are taking a wait-and-see attitude on the viability of the physician-owned hospital.
Rick Abrams, M.D., chairman of Precedent's board of directors, says he is not surprised by the interest in the physician-owned hospital: "It reflects a growing frustration among physicians about medicine today. They're looking for ways to restore their professional satisfaction and to restore the patient to the center and focus of healthcare," he says. "They're looking at us as in some respects as an experiment, to see if this even is possible."
The experiment was first conceived about three years ago by a group of physicians from Columbia-owned Rose Medical Center. The physicians were unhappy with "the way medicine was going," and wanted more control over the physician-patient relationship, says Precedent CEO Jeffrey Mishell, M.D. The 50 physicians formed Precedent Health Partners, a multispecialty group practice, in the fall of 1996. Then they went about recruiting more doctors and building an infrastructure to do more, Mishell says. In July, 1997, 100 physicians purchased the nearly vacant Mercy Medical Hospital for $8 million.
Physicians invested amounts ranging from $5,000 to $30,000 apiece, and tapped into debt financing to cover the purchase price and another $30 million in renovations.
Colorado not-for-profit health system Centura Health Corporation helped with the terms of the physician's loan and acted as a guarantor for the physician's line of credit.
The hospital is administered by a board made up of six primary-care physicians, six specialists, and CEO Mishell.
Precedent medical director Jay Want, M.D., calls the hospital an "in-betweener -- halfway between an outpatient surgery center and a full hospital."
The hospital, which has 150 employees, offers everything but an intensive-care unit, including: an all-digital radiology department (except for mammography); laboratory, pharmacy and rehabilitation services; urgent care and an emergency center. There are four operating rooms (with plans to open two orthopedic operating rooms) and six labor and delivery rooms; all patient rooms are private and there are six VIP suites.
"We're going to stress what we think is the wave of the present and future and that's ambulatory care -- patient-friendly, service-oriented, high-quality ambulatory care and short stay care," Mishell says.
Most of the 100 physician-owners defected from Columbia's Rose Medical Center, and, according to Want, some within the Rose community greeted the hospital's opening with anger and resentment.
"There are lots of people mad at us for having done this, but it's what we viewed as best for our patients and our professional futures," he says.
Some area physicians complained that Denver already has too many vacant hospital beds and the last thing the city needs is more competition. "The idea of 50% occupancy in Denver is a myth. Rose is licensed for 450 beds, but (some) of those are offices right now," Mishell counters. "Hospital occupancy in Denver is closer to 70% to 80%. We're opening up 57 beds. It's a minute amount."
According to Want, Rose has refused to negotiate with Precedent on some capitated products, and so the group is taking a portion of its capitated products to Porter Care Hospital. "They believe that if you open a hospital down the block, there has to be a fight," Want says. "We are disappointed by that reaction."
Rose medical staff president Jeffrey Levy, M.D., was not available for comment. But in response to reports that the hospital was making life difficult for Precedent physicians, Levy issued this letter to all Rose medical staff and employees: "Any reports that doctors practicing with Precedent are not allowed to practice at Rose are simply untrue. All physicians who choose to be on the Medical Staff at Rose are welcome to provide care at Rose." (Most Precedent physicians retained their privileges at Rose.)
Mishell says PacifiCare Health Systems initially said it would not contract with the physician-owned hospital, but the two are currently in talks. In addition, the hospital has secured contracts with Medicare and Medicaid and Aetna and is in discussions with other private health systems. Landing those and future contracts is now the biggest challenge facing Precedent, he says.
Despite the contracting challenges and stiff competition facing Precedent, Mishell has heard from physician groups across the country who are interested in starting their own hospitals. In fact, he has received so many requests, the group has set up a consulting branch to deal with physician queries.
The most important piece of advice Mishell offers is also the most obvious. "You need a group of committed physicians, and physician commitment must include "physicians paying out of their pocket books."
Gerald Niederman, a partner in the health law division of Faegre & Benson's Denver office, helped set up a corporate structure Precedent and says it can be replicated, provided "there is community need and a real business purpose."