Perhaps it's fitting that Nashville is the heart of both the country music world and for-profit healthcare. Some say the hospital industry in Music City is approaching a crisis worthy of a heart-wrenching, soul-searching, guitar-twanging tune.
The history of Nashville's four major tertiary hospitals is a fiercely competitive one marked by several failed merger attempts and recent financial turmoil.
Although three of the four are not-for-profit hospitals, Nashville's status as the corporate headquarters of for-profit Columbia/HCA Healthcare Corp.-owner of the fourth major hospital in the city-has at times divided the market into two camps: Columbia and everyone else. Columbia, the third-largest employer in the area, is the biggest of more than 1,800 healthcare firms in Nashville, according to the Nashville Health Care Council.
Hospitals on the bubble. Experts predict that as Nashville's healthcare market grows more overbedded, there are two possible outcomes: Either one or more of the hospitals will be forced to close, or each will somehow succeed in carving out a market niche, creating new partnerships or reaching out into the rapidly growing suburbs.
Roxane Spitzer, chief executive officer of 124-bed Metropolitan Nashville General Hospital, has been in Nashville for four years. Metro General, a downtown facility run by the city and Davidson County, serves primarily indigent patients. While she believes her hospital must stay open to serve patients who otherwise might not receive care, she predicts one of the city's larger hospitals may be forced to close within the next few years because of sheer economics.
"I do think the community is overbedded," she says.
When she arrived in Nashville, it was much easier to run a hospital than it is now because times were not as lean financially," Spitzer says.
"It's relatively easy to run a hospital when resources are not an issue. You run it by giving everybody what they want and need," she says.
Not so anymore.
Columbia owns 680-bed Centennial Medical Center and Parthenon Pavilion in downtown Nashville, as well as 10 other hospitals in middle Tennessee and southern Kentucky, an area that reaches slightly beyond Nashville's eight-county metropolitan statistical area. The other three major hospitals are all not-for-profit-563-bed stand-alone Baptist Hospital, 576-bed Vanderbilt University Medical Center, the market's well-known academic hospital, and 514-bed Saint Thomas Health Services, owned by St. Louis-based Daughters of Charity National Health System.
Davidson County, home to Nashville, has a population of about 540,000, and the eight surrounding counties that round out Nashville's MSA have a combined population of about 1.2 million, according to figures from the Nashville Area Chamber of Commerce. Similarly sized markets around the country generally do not support four large tertiary hospitals. Memphis, Tenn., for example, a larger city, has two.
As noted in a July report by PricewaterhouseCoopers, average daily census in the Nashville market has steadily declined since 1991, with the number of excess beds at 1,652 in 1998, more than double 1991's figure of 773.
According to data from Chicago-based SMG Marketing Group, however, Nashville's hospitals had an average occupancy of 64.2%, higher than the national average of 56.9%.
Nashville also has relatively low commercial managed-care penetration. When managed care is defined as both HMOs and point-of-service coverage, slightly less than 21% of the total population was covered by managed care in 1997, compared with 30% in Louisville, Ky., and 39% in Jacksonville, Fla., according to the PricewaterhouseCoopers study. The report compared Nashville to similarly sized Southern cities.
Coupled with a high growth rate for HMO and POS enrollment-both of which doubled between 1995 and 1998-these trends will only enhance the mounting competitiveness in the marketplace, says Michael Cadger, a partner with PricewaterhouseCoopers and author of the report.
SMG data show HMO premiums in the Nashville area averaged $138.67 per individual in 1997, less than the national average premium of $147.54. HMOs also lost $2.97 per enrollee per month in the Nashville area in 1997, compared with a loss of 97 cents per enrollee per month among HMOs nationwide.
Dragging 'em down. In an Oct. 6 rating report on Ascension Health-the company recently created through the merger of Saint Thomas' parent, Daughters of Charity, and Sisters of St. Joseph Health System, Ann Arbor, Mich.-Moody's Investors Service predicts Nashville's rivalries may prove to be a drag on the new system.
"Nashville is very competitive, with four 500-plus bed acute-care hospitals and several small providers," according to the report.
Yet so far, merger attempts among the city's hospitals have failed, prompting management changes at the top of more than one of Nashville's major hospitals.
The latest newcomer to the scene is Thomas Beeman, who took over in mid-October as president and CEO at Saint Thomas. The week before he arrived, Saint Thomas announced it was trimming 20 management positions and removing 67, or 13%, of its staffed beds (Oct. 25, p. 4). Beeman, who comes to Nashville from the Hospital of the University of Pennsylvania, Philadelphia, where he was a senior vice president of operations and executive director, says he is optimistic about Nashville's future, despite the troubles his own system has been facing.
"I know enough about tumultuous markets to know I don't think Nashville is there yet," he says. "Is Nashville overbedded? My response to that is I'm not sure beds are even a relevant measure of services anymore."
Beeman says he enters the Nashville scene as a fierce competitor and a very good collaborator. It appears he might have ample opportunity to make the most of those skills.
While he is not considering a merger at this time for Saint Thomas-which lost $53 million on revenues of $395 million during fiscal 1999 ended June 30, he hopes to collaborate with other hospitals on high-end services, he says.
After 16 years as president and CEO, David Stringfield was ousted by Baptist Hospital's board in July 1997 in the wake of a failed proposed alliance between Baptist and Saint Thomas (July 27, 1998, p. 20). Some Nashville sources say Baptist is one of the more vulnerable hospitals simply because it is not affiliated with a larger organization. But Stringfield's replacement, Erie Chapman, who has been on the job a little more than a year, is optimistic about his hospital's future.
Chapman was proud to announce recently that Baptist's net operational loss for the year ended June 30 was $15.1 million on net revenues of $448 million. His enthusiasm may appear odd until the results are compared with fiscal 1998's operational loss of $73.3 million on revenues of $487 million. And for the first quarter of fiscal 2000, ended Sept. 30, Baptist showed an operational profit of nearly $1 million on revenues of $112 million.
"I actually think in a strange way that the Nashville metropolitan market can support four systems," Chapman says. "When you look around the country, there are a lot of mergers that haven't worked very well. There's always a sense that savings will be bigger than they are. The culture issues are gigantic. So are the savings issues."
Since Chapman has been at the helm, Baptist has tried to pare down its complex corporate structure, trimming the number of divisions from nearly 60 to less than half that number, Chapman says. It has also begun to get out of the real estate market, so far selling four properties, primarily office space, for $4.4 million and currently working on deals to sell other properties for $5.4 million more before year-end. The hospital is also trying to get out of long-term sponsorship contracts with local hockey and football teams, including skyboxes, free tickets and billboard advertising. They were purchased through multiyear contracts that were signed during Stringfield's tenure.
"Most of the sports sponsorships are too distant from patient care for us to continue to support them," Chapman says.
The hospital has also cut about one-third of its administrative staff, with top executives taking pay cuts.
"Having a positive first three months was a very big deal for us," Chapman says. "The steps we've taken in two to three areas have kicked in."
A long-term turnaround will depend on the success of a renewed focus on patient care that executives hope will build on Baptist's reputation, he says.
Turf battles. Saint Thomas, meanwhile, will be trying to diversify its services, Beeman says.
While Moody's notes that Saint Thomas is the leading cardiac provider in the Nashville area, the report also notes that other providers have begun to target Saint Thomas' cardiac market while the hospital is in the midst of financial turmoil. In fact, Vanderbilt and Columbia's Centennial are expanding their cardiac programs and trying to recruit physicians from Saint Thomas.
Meanwhile, Baptist is beefing up its obstetrics services with a new women's center.
"As competitors begin to target Saint Thomas' traditional clinical strengths and service differentiation diminishes, we question whether Saint Thomas can maintain its market position," Moody's states.
Part of the drag on Saint Thomas' balance sheet was from costs incurred from breaking contracts with physicians in order to sell its owned physician practices. Beeman says the practices were costing the system about $20 million annually.
Nobody seems to believe the academic and research-driven Vanderbilt will be the system that will be forced to close.
For fiscal 1999 ended June 30 Vanderbilt posted net income of $10 million on total revenues of $962 million, says Joel Lee, executive director of communications at the medical center.
"Regardless of how many systems there are, Vanderbilt will be one of them," Lee says. He sees the Nashville market maturing with increasing specialization and the exporting of services from downtown to the suburban hospitals.
Vanderbilt, in fact, is currently wooing the board of directors of 121-bed Williamson Medical Center, just south of Nashville in Franklin, to form a strategic partnership.
Not surprisingly, because Williamson County is one of the fastest-growing and most affluent counties in the region, other suitors, including Columbia, Baptist and Saint Thomas, at first threw their hats into the ring. But Baptist and Saint Thomas have since taken themselves out of the running for the hospital. Williamson's board of trustees recently rejected Columbia's bid because it would have involved relinquishing control to the for-profit company. The board then agreed to enter exclusive negotiations with Vanderbilt. The partnership talks are expected to conclude with a firm deal within three months.
"Instead of collecting tertiary patients, we're distributing tertiary knowledge," says Ronald Hill, Vanderbilt's vice president of strategic development, of the model being pursued with Williamson. "We wouldn't necessarily find those patients. They'd go to the community hospital."
Williamson's CEO, Ron Joyner, understands that his profitable hospital could play a role in determining the fortunes of the major metropolitan hospitals in Nashville.
"If you don't have a critical mass in the marketplace, you're vulnerable," he says. "Everyone predicts that it's going to eventually be odd man out. Now's the time to do your deal, before everyone gets stressed. A deal with Franklin could tip the scales."
Paul Rutledge, president of TriStar Health System, Columbia's new name for its middle Tennessee region, had hoped to convince Williamson's board that a deal with Columbia would be good for both partners.
Although those on the not-for-profit side of Nashville's healthcare scene would disagree, Rutledge argues that the days of dividing the world into for-profit and not-for-profit teams are over.
"Running it like a business keeps us accountable for not having our costs out of line," Rutledge says. "What you're about to see in Nashville is the others getting up to speed."
He, too, predicts that within five years, one of the not-for-profit hospitals will fold.
Rutledge says Columbia's strength is its ability to reap cost efficiencies by combining the back-office functions of its hospitals into one unit, incorporating technology that would be prohibitively expensive for a stand-alone hospital.
TriStar officials did not provide financial information on their Nashville hospitals, despite repeated requests.
Like Vanderbilt's Hill, Rutledge emphasizes the importance of pushing services out into the suburbs, given the surplus of beds in downtown Nashville.
"People like to access care near home and work," he says. "We want to push out our services to all our partner hospitals, rather than bring them into the mother ship."
As the relative newcomer, Saint Thomas' Beeman believes Nashville and his own hospital will actually gain from what others see as the looming danger of too many empty hospital beds.
"I think what keeps institutions great is having great competitors," he says. "I think that serves the community well, to have choice and to have high-quality competitors."