Hospitals across the country are suffering the financial consequences of miscalculated business deals with physicians, but few as severely as Bossier Medical Center in Bossier City, La.
Voters in the city of 60,000 will decide May 1 whether to sell their hospital to Christus Health, a Dallas-based Catholic system that operates Christus Schumpert Medical Center in Shreveport.
Officials at the 168-bed municipal facility have blamed poorly written physician contracts for contributing to the hospital's financial decline.
But Bossier City leaders say the ultimate threat to the hospital is competition from private health systems across the Red River in Shreveport, La.
Bossier Medical has sentimental value for local residents, who enacted a half-percent sales tax in 1966 to build it so they would not have to travel for care.
But now that Bossier is a growing market, two hospital systems are vying for its patients. That includes Christus Health and Shreveport-based Willis-Knighton Health System, which opened an 85-bed hospital in Bossier City in 1996, after its offer to buy or lease the city-owned hospital was refused. Willis-Knighton plans to expand its Bossier City hospital to 210 beds by the middle of next year.
Last week, Bossier Medical officials were called before the City Council to explain the hospital's unexpected financial downturn during the fourth quarter of 1998.
In an interview with MODERN HEALTHCARE, Chief Executive Officer Jack Houghton blamed the hospital's operating deficit on the city's July 1998 decision to sell. He said the pending sale angered some physicians, who began referring patients to other facilities. He said the hospital was previously profitable.
However, Houghton said, the hospital took a major financial hit with its 18 employed physicians, whose internal medicine, family and surgery practices the hospital has been subsidizing to the tune of $2.5 million to $3 million a year.
"Their contracts were poorly designed and had very poor incentive for productivity," he said.
City Finance Director Charles Glover agreed the physician contracts posed too much risk for an institution of Bossier Medical's size. "You cannot compete in this marketplace and not have deep pockets," he said.
However, Glover said he believes the hospital's death knell sounded when Willis-Knighton opened its hospital in Bossier City, eroding revenues at Bossier Medical.
According to Houghton, the hospital tried unsuccessfully last year to renegotiate its physician employment contracts, which expire in 2001.
A major blow came in December 1998, when four of the employed physicians announced they would terminate their contracts. Five others followed suit. All but one signed employment contracts with Willis-Knighton.
Because the physicians' contracts lacked noncompete clauses-a standard feature of most physician employment deals-the doctors left without paying a financial penalty, said Houghton. Many of their patients went with them.
The hospital's remaining nine employed physicians are negotiating with Christus Health.
The contracts were signed in 1994 under a previous chief executive. Hospital and city officials could not explain why the contracts were so favorable to the physicians. At the time, noted Glover, hospitals nationwide were scrambling to link with primary-care physicians.
Ironically, the hospital was once a cash cow for the city. When the city decided it could not afford to raise taxes in 1987, it refinanced hospital bonds to enable the hospital to divert some of its profits to city coffers. As a result, the hospital has enriched the city by $11 million, according to city and hospital sources.
Glover said Bossier Medical would record a loss of $5.2 million for 1998-mostly because of write-downs on assets-on revenues of about $47 million.
Glover said it would be unwise for the city to fund the hospital's losses. "If the people do not vote to sell the hospital, it will close shortly thereafter," he said.
Christus Health offered $18 million in cash for the hospital, plus $10 million for its accounts receivable. However, the value of the accounts receivable has slipped to about $8 million since the bid, Glover said. If voters approve, the sale is expected to close July 1.
Christus also has signed a letter of intent to purchase Highland Hospital in Shreveport from Columbia/HCA Healthcare Corp.
Some hospital officials contend the hospital could have survived under municipal ownership if a sale hadn't been initiated. But now, everyone agrees the only way to save the hospital is to sell it. "Unfortunately this is a situation where politics and healthcare didn't mix well," Houghton said. "The hospital needs to transition out of municipal ownership, and then the physicians will come back."
Roy Fleniken, M.D., vice chairman of the hospital's board, lamented that a sale would result in a loss of local control.
"I think the best way to deliver care is through a community-owned institution, and to involve the people," said Fleniken, an otolaryngologist who has practiced at the hospital for 23 years. "Unfortunately, once you get politicians involved, they're looking at the numbers."