Some Idaho physicians have decided to take on Columbia/HCA Healthcare Corp. after the small, not-for-profit hospital and clinic where they worked got cold feet.
The physicians are working with community and business leaders in Idaho Falls to build a new $24 million hospital, spreading the start-up costs and financial exposure.
The case illustrates the high financial stakes physicians face when they try to retake control of their local healthcare markets from large insurers or hospital corporations.
The doctors are the 85 physicians and dentists who staff not-for-profit Idaho Falls Surgical Center and its sister facility, 10-bed Idaho Falls Recovery Center, which is licensed as a hospital.
The centers compete for both inpatient|and outpatient surgery business with the only general acute-care hospital in town and the largest acute-care facility in the state, Columbia's 294-bed Eastern Idaho Regional Medical Center.
Two years ago, the physicians decided that they wanted to go toe-to-toe with Columbia's facility because, they said, they were frustrated by the high fees it charges. The doctors lobbied the surgical center and its sister facility to expand to a 20- to 25-bed general acute-care hospital at a cost of $24 million to $30 million.
The centers initially agreed, but after nine months of study they decided in November 1999 not to move forward.
"It was becoming too big," said Roger Stommel, the surgical center's chief executive officer. "The scope of the services was too wide and too varied. The cost of the project was growing out of control. It's not where we wanted to be as a surgical specialty organization-the mortgage payments alone would have eaten up any profits."
After the centers pulled out, Columbia upped the stakes for those physicians determined to move forward with their own plans.
In December, Columbia announced that it was going to spend $42 million to expand its hospital-a sum well beyond the $1 million it allocated for cosmetic renovations, which are under way.
Ty Erickson, one of the proposed hospital's physician investors, said the 10-year-old Columbia hospital needed to grow in some departments, such as the emergency room. But other services, he said, such as a new cancer institute and improved women's care with more private rooms, were clearly efforts to pre-empt similar ideas proposed by the physician-owned hospital.
"We believe (Columbia's expansion) was a direct response to the threat of competition," Erickson said.
Eastern Idaho Regional spokeswoman Kaylynn Greene said the Columbia project had been in the works before the new hospital project was conceived.
"It wasn't because of the rumors of the new medical facility," Greene said. "We knew we had to grow to meet the needs of a growing community."
The physicians, undaunted by Columbia's announcement, have pursued their alternative hospital plan. Richard Vincent, president of ASC Group, a Park City, Utah, development company, is spearheading the limited liability corporation of medical, business and community investors to build the 30-bed for-profit Idaho Falls Community Hospital.
ASC Group works with physicians and hospitals to develop and operate ambulatory surgery centers, the majority of which are physician owned.
All of the potential Idaho Falls Community doctors have contributed earnest, or "founder's," money based on their percentage in the project, Erickson said.
Barbara Kolstad, executive administrator of ASC Group, said a private placement memorandum will be distributed in mid-February to all interested investors, followed by a 30-day period for collection of money and paperwork.
No firm start date for construction has been set, but Vincent said the hospital should be open for business by the first quarter of 2001.
Vincent also said the new hospital's cost structures would be primarily outpatient- or wellness-based, offering some of the same services as Columbia's facility, only for less.
Eastern Idaho Regional has a reputation for being the most expensive hospital in the state. Last week, officials at Blue Cross of Idaho, with 8,300 enrollees in the region, said it was canceling its contract with the hospital.
As reported in the Jan. 17 Idaho Falls Post Register, Blue Cross said Columbia's hospital charges 30% to 100% more for common procedures than similarly sized hospitals in the state.
"We deny the current allegations and consider them to be hard-core negotiating tactics," Eastern Idaho Regional Chief Executive Officer Doug Crabtree told MODERN HEALTHCARE.
The lack of competition and the low managed-care penetration in the region makes the market favorable for the success of a partly physician-owned facility, Erickson said.
Physician ownership can work, said Michael Arehart, administrator of 44-bed Twin Falls (Idaho) Clinic and Hospital.
Established in 1947, it is one of the older and more successful physician-owned facilities in the state.
Arehart credited his clinic's success in part to not growing too fast. But he's aware of the pitfalls of such endeavors.
"My own feeling is, the addition of beds (through a new facility in a community) is likely to hurt," Arehart said. "When you have an increase of capital without an increase of people, something has to give. Physicians need to realize when they pull patients out, it hurts (other) facilities."
He said service to patients must be the driver. "An integrated facility can work, and we're proof of that," Arehart said. Such facilities work "as long as they're managed responsibly, with lots of physician leadership and physician control."