A cash infusion from a medical finance firm last month breathed some much-needed life into Denver's Precedent Health Center. But the effort may be too little, too late.
Representatives from Precedent and Doylestown, Pa.-based DVI, an accounts receivable financing firm, refused to reveal how much credit will be extended. Whatever the amount, many in the Denver healthcare community believe the 57-bed outpatient hospital is on its last legs, and the loan from DVI will only delay its inevitable closure.
Precedent is owned and operated by physicians. "They had some good ideas and some fairly innovative things going on, but they just didn't have the capital to do (everything), " says Glenn Foust, M.D., a Denver obstetrician-gynecologist and chairman of the Denver Medical Society.
In its 14-month lifetime, Precedent has struggled to secure managed-care contracts and battled with much larger competing hospital systems over turf. The hospital has asked physician owners to forego salaries and invest personal savings, weathered the resignation of its chief operating officer and seen two financial suitors walk away from life-saving deals at the last minute.
Now, Precedent's administration won't talk to the media, and the group practice started by the hospital has been abandoned for a much looser independent practice association. Although Precedent won't reveal just how many, at least a dozen physician owners have reportedly jumped ship for private practice or full-time employment with HMOs, and rumors of Precedent's collapse circulate Denver daily.
Although physicians across the country saw Precedent as an example of what could be, many now are likely to view it as a lesson in what could have been.
Precedent was the idea of a group of physicians from Rose Medical Center, a Denver hospital then owned by Columbia/HCA Healthcare Corp. and now co-owned by Columbia and local not-for-profit partner HealthOne. Dissatisfaction with Columbia's management style led about 100 physicians to defect. They formed a multispecialty group practice and invested $8 million -- much of it their own
money -- to purchase a nearby vacant hospital from Centura Health Corp., a Denver-based integrated health system. Centura, which was looking to expand its Denver presence, also loaned the physicians $40 million and acted as guarantor for the hospital's line of credit.
In May 1998, Precedent opened its doors to much national attention and fanfare. The outpatient hospital does not have an intensive-care unit, but it promised VIP suites, top-of-the-line equipment and patient-friendly, service-oriented care. Chairman Jeffrey Mishell, M.D., heralded the new hospital as an example of physician power and spoke of touring the country to lecture on the Precedent model.
But the doors had barely opened when financial troubles started surfacing. First, the young hospital had trouble securing managed-care contracts. Physicians were asked to pony up additional funds to keep it afloat, according to local healthcare consultant Ralph Pollack.
"The one thing Mishell will admit today is that he didn't think enough about the contracts," says Pollack, who heads the Denver-based AP Group. The financial backing and physicians weren't enough, he says.
Pollack's own primary-care provider, one of Precedent's founding members, recently bailed out and is now employed elsewhere.
It was the service orientation about which Precedent boasted so loudly that got the hospital into trouble, says Foust, who had considered joining Precedent but opted not to.
"I was a little worried they weren't going to make it financially because I knew what they were undertaking was extremely expensive," he says. "They were focusing on really having a high nurse-to-patient ratio and providing that real quality one-on-one consumer-oriented care that people really like but is also very expensive."
By last fall, just a few months after opening, the rumor around Denver was that Precedent couldn't pay its bills even at full capacity, says Jim Hertel, publisher of the Denver-based Colorado Managed Care Newsletter. Making matters worse, Hertel says, was that Centura wanted out.
Centura spokesman Chuck Reyman will not comment on those rumors but does acknowledge the relationship is in a "redefinition stage."
A number of physicians, including Mishell, have foregone salaries for several months to keep Precedent afloat. Earlier this year, they started shopping around for an investor. First, Scripps Clinic, a San Diego-based management services organization, balked at a deal to assume some of Precedent's management, according to local reports. Then last spring Precedent entered discussions with HealthPlus, a Houston-based hospital system. Again, the potential investor balked, and Precedent announced that its physicians were going to raise money themselves by individually signing loan guarantees.
"Mishell, in essence, has bled to death 50 of his closest friends," says one observer who requested anonymity.
How much the DVI money will help is unclear. Mishell is not talking, nor are any of the physicians who have decided not to stick around to find out. One founding physician member who recently left called his decision "gut-wrenching."
Some, including Pollack, say egos hindered the hospital's success. Instead of striking out alone, Pollack says, perhaps the physicians should have sought a partner with operating experience from the get-go.
The question many Denver physicians are asking now is what will happen to the Precedent doctors if the hospital goes under. The answer may be enough motivation to keep the hospital afloat a little longer.
"You have a group of physicians, mostly guys, mostly in their 50s, most of whom have just spent their entire life savings, their retirement, and are on the hook to the tune of a quarter of a million dollars in the event that the hospital goes down," Hertel says.
Now, they're faced with going to a bank and borrowing the money to open a new practice, he says, "but the hospitals they'd hope to affiliate with are the hospitals they've been flipping off for the last couple of years."