Reflecting growing ties between hospitals and physician practice management companies, Deaconess Hospital in Evansville, Ind., is partnering to build a for-profit women's hospital.
The 30-bed facility is slated to open in early 2000 at a cost of $10 million to $12 million. It will be funded jointly by Deaconess and Women's Health Partners, a Nashville-based firm that manages 15 local OB/GYNs.
As part of the deal, Deaconess will close its existing obstetrical unit and transfer its staff to the joint venture.
Deaconess anticipates that the joint venture will capture market share. The new facility will accommodate up to 2,500 births annually, compared with Deaconess' volume of about 1,500, or one-third of the local market, said a Deaconess spokeswoman. Its two competitors, who are in merger talks, together hold a two-thirds share.
Women's Health Partners will operate the new hospital, to be called Deaconess Women's Hospital of Southern Indiana. The PPM company and its affiliated physicians will share governance equally with Deaconess, a 333-bed not-for-profit.
It's one of three similar joint ventures with hospitals under way at Women's Health Partners, said Gerry Brown, the firm's senior vice president of operations.
In August, the company obtained certificate-of-need approval to open a women's hospital with 545-bed Baptist Hospital in Nashville. That facility is expected to open in July 1999. The company also is pursuing a CON for a joint-venture women's hospital with 316-bed Baptist Hospital of East Tennesee in Knoxville.
Brown said he did not have the hospitals' permission to disclose how much capital each was contributing to the respective joint ventures.
More PPMs are turning to hospitals as capital partners, particularly as their industry has fallen out of favor with investors in recent months. For hospitals, the joint ventures are viewed as a way to preserve or gain market share and align incentives with physicians.
Only a handful of deals have been publicly announced, however.
MedCath announced joint ventures to build for-profit heart hospitals with not-for-profit hospitals in Dayton and Albuquerque earlier this year (March 9, p. 20). The Charlotte, N.C.-based cardiac-care firm confirmed last week that it is in negotiations with several other hospitals around the country to build hospitals.
Women's Health Partners manages 160 physicians in Indiana, Kentucky, North Carolina and Tennessee. In Evansville, its affiliated physician groups, doing business as Tri-State OB/GYN and Evansville Obstetrical and Gynecological Associates, have 70% of the OB/GYNs in town, according to Deaconess. The doctors affiliated with the company at the time of its inception in 1996.
Brown said he believes his company and its affiliated physicians could have financed the projects and obtained CON approval on their own.
"In every market (our affiliated physicians) have very positive relationships with the hospitals. Their desire is not to take business from the hospitals, but to find ways to align incentives and work together," he said.
"The concept of physicians as joint-venture partners with hospitals to develop women's hospitals is relatively new," Brown added.
Deaconess President Tom Kramer could not be reached for comment last week.
The new hospital will provide comprehensive women's care, including obstetrics, nurseries for high-risk infants, cancer treatment and infertility and imaging services.
Brown said Deaconess will convert its existing obstetrical unit to medical/surgical beds; Indiana does not have a CON requirement.
Deaconess' two competitors in Evansville, St. Mary's Medical Center and Welborn Memorial Baptist Hospital, announced plans to merge earlier this year, but as of last week, they had not reached a definitive agreement. The competitors did not respond to requests to comment on the proposed new facility. St. Mary's has about 2,000 births per year. Welborn has about 1,000.