A hospital on the rebound.
That's how executives portray George Washington University Hospital in the District of Columbia one year after investor-owned Universal Health Services purchased an 80% stake in the 296-bed academic hospital.
The $125 million deal already has flooded the 50-year-old facility with some $7 million in cash. Those funds have been used for numerous capital improvements, many of which have increased patient-care efficiency. For instance, some of its renovations have allowed it to put related departments, such as orthopedics and therapy, on the same floor. That requires less movement of patients from floor to floor.
Executives would not disclose financial performance figures, other than to say the hospital is making a profit so far this year. In its fiscal year ended June 30, 1995, GWU suffered a net loss of $6.3 million on total patient revenues of $358.3 million, according to Medicare data reported by the American Hospital Directory.
But results for 1996, the last year for which Medicare data are available, are inaccurate because they include the entire university's finances, hospital officials said.
The GWU-Universal deal represented the first entry of an investor-owned chain into the D.C. market and created a controversy among some community activists who feared that for-profit GWU would cut its uncompensated care to the poor.
The deal prompted the D.C. City Council to pass a new hospital sales law and to require GWU to pay $600,000 in back property taxes and to maintain its level of charity care at $19.9 million per year for the next five years.
The joint venture has freed GWU from the task of running a hospital, which was consuming an increasing amount of medical school executives' time. Unshackled from those responsibilities, GWU medical school executives can devote more attention to education.
"The last couple of vice presidents have been consumed with hospital issues," said John Williams, M.D., vice president for health affairs and executive dean for GWU.
Because hospital affairs are less of a burden for him, Williams said his goal is to "increase GWU's prestige in teaching and research."
"Very few universities have expertise in running a hospital," said Phillip Schaengold, GWU hospital's chief executive officer and managing director. "What they want from us is a hospital with service excellence, where patients are satisfied."
For Universal, the partnership represented the first venture into academic medicine and gave it a presence a short taxi or subway ride from Capitol Hill and the White House.
"It's an opportunity to take a prestigious medical center and show what can be done with good management," said Alan Miller, founder and CEO of Universal, based in King of Prussia, Pa.
To national policymakers and opinion leaders who might use GWU, "we'd like to show them what investor-owned hospitals can do," Miller said.
And for other local hospitals, it has raised the competitive stakes. In the year since the Universal-GWU deal, for example, Medlantic Healthcare Group, which owns market leader Washington Hospital Center, has merged with the five-hospital Helix Health Group of Baltimore in an attempt to stitch together a regional integrated system (Feb. 23, p. 18).
But Universal's joint venture with GWU also represents a gamble for the 20-hospital chain. GWU wanted to sell partly to obtain the capital needed to either upgrade its facility or build a new hospital.
Universal has chosen the latter. In February, the partnership announced plans to build a $96 million, 438-bed replacement facility by 2001. That proposal has raised some eyebrows in Washington, where nearly one in three beds sat empty throughout most of 1997.
In many respects, Universal faced a Hobson's choice. To renovate would have been costly and disruptive. Miller said a renovation would have "wrecked" the current building.
But the site the partnership has chosen -- a parking lot across the street from the current building -- also could be a more costly option than GWU and Universal estimated.
The land is said to be very swampy, making construction on the site more troublesome, and at least one hospital executive said he doubted the cost estimate.
GWU officials said, however, that the estimate was based partly on the costs to construct some nearby office buildings and that they are confident about their figures.
Universal and GWU seem to be defying trends by planning to build a new hospital in a market that has too many hospitals and too many beds and where 100,000 people move to the suburbs per decade.
"It could be a situation where*.*.*.*when you get ready to cut the ribbon, the market's gone," said one local healthcare executive who asked not to be identified.
But Miller said as long as Universal could arrange the financing for the hospital, it wanted to build the new hospital.
"We're interested in building a world-class hospital," he said. "When we're done, we think the patients will be interested in coming to our hospital."
Universal-GWU has filed a certificate-of-need application with the District of Columbia State Health Planning and Development Agency. A final decision on the CON is expected by year-end.
Among the issues the agency will consider is whether GWU is providing the same level of charity care it did before the deal, said Amha Selassie, chief of the agency's project review branch.
In many ways, the GWU deal fits Universal's typical acquisition strategy. Universal prefers to purchase hospitals that can draw the biggest or second-biggest market share in mid-sized markets, Schaengold said. Universal owns 20 hospitals in 21 states and Puerto Rico.
With a population of 554,000, Washington fits the description of a mid-sized market. But GWU will have to steal patients from other hospitals to become the top dog there. Among Washington hospitals, it slipped from No. 3 in admissions in 1996, with 14,142, to No. 5 in 1997, with 11,303, according to the District of Columbia Hospital Association.
But GWU is banking on geography to lure back some of the patients it lost in the tumultuous years leading up to the deal with Universal.
Those losses occurred because some physicians didn't like the operating rooms and patient rooms at GWU. The beneficiaries of that situation were Washington Hospital Center, the market leader; Sibley Memorial Hospital; and Georgetown University Hospital.
But unlike the other hospitals, GWU is close to Washington's downtown offices, foreign embassies and government buildings.
In fact, according to GWU statistics, admissions were higher for five of the first six months of 1998 compared with those in 1997.
As a result, GWU may not feel the same pressure to develop physician networks that Georgetown and Washington Hospital Center have. However, it has assisted its 250-member faculty practice plan and private attending physicians in recruiting new doctors to their practices.
The hospital also plans to take advantage of the GWU faculty practice group's five existing sites scattered throughout Washington's suburbs to build a bigger primary- and specialty-care rotation at those sites. It won't be purchasing physician practices, however.
Georgetown, meanwhile, has viewed a bigger physician network that generates larger patient volumes as a way to remain independent of other hospitals and healthcare systems.
And Washington Hospital Center, through Medlantic's merger with Helix, is intent on forming an integrated system so wide-ranging that health plans could not ignore it if they wanted to cover enrollees in the Washington-Baltimore market.
"Our focus isn't on Universal-GWU," said Kenneth Samet, executive vice president and chief operating officer of Helix-Medlantic and president of Washington Hospital Center. "Our focus is to create an indispensable provider network in the area."
Besides the clinical education they receive at the medical school and the hospital, the partnership between GWU and Universal is giving medical students and residents a lesson in economics.
For GWU's medical students and residents, being exposed to efficiency-minded care under the Universal umbrella is preparing them for the market realities of a cost-sensitive healthcare system.
That is different from the early 1980s, when residents were encouraged to order countless tests, many unnecessary, to diagnose patients. Today, residents and other clinical workers go through a four-day orientation on efficient medical care.
"They are taught what's appropriate and what's not appropriate," Williams said.
"Efficient utilization of resources is mandatory if we're going to have a successful hospital and if we're going to have a successful medical center," Schaengold said.