As the coda to their jinxed joint venture in Northern Virginia, Arlington Health Foundation and Columbia/HCA Healthcare Corp. are shuttering Pentagon City Hospital, a 154-bed acute-care facility in Arlington.
The hospital will close "as soon as is prudently possible," the joint venture partners said last week.
Wick Lyne, president of Columbia's Central Atlantic Division, said in a written statement that "a convergence of current environmental factors mitigates against continuation of operations and the feasible replacement of this facility."
The hospital's closing comes three years after the partners bought the facility for an undisclosed price. But now the partners have gone back to being competitors, and that helped seal the fate of the co-owned hospital.
"The express intention was to rebuild and replace it at another location-Springfield, Va.-where there is a burgeoning population, where its specialty services could be incorporated into a new facility," said Stephanie McNeill, director of public affairs at Arlington Hospital.
Arlington Health, parent of Arlington Hospital, and Columbia formed the 50-50 joint venture in November 1996. Columbia brought two hospitals to the table.
In July 1997 the joint venture bought a fourth hospital, National Hospital Medical Center, and renamed it Columbia Pentagon City Hospital.
They proposed then to replace it by building an 11-story, $100 million, 160-bed hospital in Springfield, a booming suburb of young families and Defense Department employees.
But the application for a certificate of need was opposed by state regulators and Inova Health Systems, which owns nearby 229-bed Mount Vernon Hospital in Alexandria, Va., as well as one of the largest hospitals in the market, 656-bed Fairfax Hospital in Falls Church, Va. Also, Fairfax County did not grant the necessary land-use permits (Dec. 7, 1998, p. 56).
Lyne said the CON denial might have been reversed over time, but another adverse factor intervened. Shortly after the joint venture was formed, Arlington Health Foundation asked for a private-letter ruling from the Internal Revenue Service to assure the joint venture's tax-exempt status. The IRS has declined to issue such a letter.
Then in March 1998 the IRS ruled that in joint ventures between tax-exempt and investor-owned organizations, the tax-exempt organization must have controlling interest for the whole venture to remain free from taxation.
Arlington had written into the joint venture agreement a two-year cancellation option, which it exercised last January to preserve the tax-exempt status of its main asset, 282-bed Arlington Hospital (Feb. 1, p. 8).
At that point the partners had to choose how to split their assets.
"Columbia could have liquidated its assets to Arlington and left the market, or do a status-quo-ante transaction, which is what we did," Lyne said. "We are committed to our assets in this market."
Both parties were interested in retaining the Pentagon City facility. In fact, less than two weeks before the closure announcement, the board of Arlington Health Foundation voted to buy out Columbia's interest in Pentagon City, and negotiations were under way (Aug. 16, p. 20).
But the two sides could not agree on how to dispose of it. The impasse led to the decision to close Pentagon City, Lyne said, and to the loss of 400 positions.
Whatever value it had as a going concern, Lyne said, its aged plant would have required "significant capital investment. Neither Arlington nor Columbia was prepared to operate the facility as it was today."
Financial statements supplied by the Health Systems Agency of Northern Virginia, a local planning authority, show Pentagon City lost $5.4 million on net patient revenues of $27.3 million in calendar 1997. The hospital's total charity care that year was zero. It had 902 admissions and 7,637 patient days in 1997, or an occupancy rate of 26% of staffed beds and 14% of licensed beds.
For a hospital with "Pentagon" in its name, it had no patient days for the Civilian Health and Medical Program of the Uniformed Services, or CHAMPUS.
Dean Montgomery, director of the regional health systems agency, said the closing was not necessarily a bad thing.
"The general area where Pentagon City is located, there are 300 to 400 excess beds and at least two excess hospitals," he said.
The other hospital that should be closed is Northern Virginia Community Hospital, formerly called Vencor hospital.
The Pentagon City building is not suitable for a nursing home or any other healthcare usage, he said.
"We have recommended that it be replaced, on-site or nearby, with an outpatient and urgent-care center," Montgomery said.
The surrounding community on Arlington's south side is largely immigrant, with many Latinos, Asians and blacks.
Of the hospital service areas in Northern Virginia, Montgomery said, the area "is the least desirable economically. They are the poorest, they are less well- insured (and) more likely to be on Medicaid than the population as a whole."
The community's inpatient needs will be well-served by the remaining hospitals in Alexandria and Arlington. No one will be farther than 15 minutes from an emergency room, he said.