After just 14 months of operation, a physician-owned hospital in Denver has filed for bankruptcy, leaving the doctors' financial backer, a local not-for-profit hospital system, with losses of as much as $17.5 million.
Thirty-five-bed Precedent Health Center shut its doors and filed for Chapter 7 liquidation July 1 in U.S. Bankruptcy Court in Denver.
The short-stay hospital had trouble getting enough managed-care contracts and attracting enough patients.
Observers say the doctor owners lacked managerial experience.
"Doctors don't (run hospitals) for a living. If they want to get into unrelated businesses, they'd better seek help from someone with experience," said Denver healthcare consultant Ralph Pollock.
The venture began in May 1998, when 95 doctors on staff at Rose Medical Center decided to open their own facility. They thought the hospital, then part of for-profit Columbia/HCA Healthcare Corp., wasn't giving them enough control over patient care. Rose is now operated by Columbia/HealthOne, a joint venture between Columbia and a local foundation.
The physicians bought a shuttered hospital called Mercy Medical Center and set up operations with an undisclosed sum of their own money and $37.5 million in loans guaranteed by 10-hospital Centura Health, Columbia's not-for-profit competitor.
Centura, a joint venture of Catholic Health Initiatives and PorterCare Adventist Health system, owns five Denver hospitals.
Precedent couldn't consistently fill its beds, partly because it didn't have enough service contracts with payers. Precedent doctors also reportedly continued to refer patients to Rose for procedures that could have been done at Precedent.
Precedent closed with $15 million in operating debt and about $4 million in accounts receivable, said Carl Eklund, the lawyer handling the bankruptcy. Some $2.3 million of those assets are secured by financing the hospital obtained in early June, Eklund said. The bankruptcy court will appoint a trustee to divide the remaining $1.7 million among other creditors, he said.
With Precedent out of business, the building and equipment, worth a total of $20 million, revert to Centura. The system's remaining $17.5 million in loans could be reduced slightly if it recouped money from the bankruptcy settlement.
Evidence of growing instability at Precedent surfaced in late May, with the resignations of key executives (See chart).
But in an interview in June, Chief Financial Officer Lois Conyers said the hospital was back on track after obtaining a new line of credit and restructuring the Centura loan.
Two weeks later, however, the hospital announced plans to close. Precedent officials could not be reached for comment after the bankruptcy.
Precedent doctors will presumably continue to refer patients to Rose, where many have admitting privileges.