With managed care continuing to eat into their incomes, OB/GYNs are turning to new strategies to increase market share, boost reimbursement rates and strengthen clout with health plans.
One strategy is to team together in larger groups and open specialized women's hospitals, usually in financial or management partnership with banks, lending institutions or companies with venture capital funding. The theory is that single-speciality hospitals can do well, but the practice is not without risks and potential rewards, as the experience of two organizations shows.
Philadelphia-based Universal Health Services is one of the nation's biggest healthcare companies, with 44 hospitals, including 21 acute-care facilities in 16 states. UHS also owns surgery centers and radiation oncology centers. Its 1999 revenues were more than $2 billion.
In the mid-1990s, UHS decided to open hospitals called Renaissance Centers for Women, with two in Oklahoma City and a third in Austin, Texas. The idea, says Kirk Gorman, UHS' chief financial officer, was to partner with the OB/GYNs, who could practice in offices upstairs and then go to the ground floor to perform deliveries and other surgical procedures, instead of having to commute to different hospitals. "The doctors really liked (the idea of) the project and the convenience (it offered)," Gorman says, adding, "We had a vision of building a lot of these hospitals."
But things didn't go as planned, and today, UHS is virtually out of the women's hospital business. The company sold off one of the Oklahoma City hospitals, Lakeside Renaissance, while the Austin Renaissance hospital, according to Gorman, "is failing financially and is in the process of being either reorganized or sold or closed; it's not clear what (will) happen."
"It's fair to say," Gorman says, "that we're not anxious to invest more and grow this (women's health) business."
Contrast UHS' unhappy experience with that of Nashville, Tenn.-based MediSphere Health Partners. Founded in 1996, MediSphere originally aimed to corner the OB/GYN PPM market by buying the nonmedical assets of practices and then managing the physicians under long-term contracts.
Instead, influenced by the collapse of the PPM industry, company officials changed direction. "We started off as a PPM but are moving out of that now," says William Hamburg, MediSphere's chairman, president and CEO. The new MediSphere, Hamburg says, will be a specialty hospital company that launches one or two women's hospitals each year for the foreseeable future.
It's not hard to understand the lure of women's health for companies like UHS and MediSphere. No reliable figures exist on women's health because many services get lumped into general healthcare expenditures.
But women undergo "62 percent of all surgeries in the United States and account for about 58 percent of all office visits," says Hamburg. "It's a tremendous potential marketplace, but it's been a very uncoordinated one."
The concept of single-speciality hospitals gained attention in the past few years with the advent of firms like Medcath, the Charlotte, N.C.-based company that has built heart hospitals around the nation. In theory, these hospitals are centers of excellence that give specialists a central place to work and perfect their practice. They attract the loyalty of patients and the managed care organizations to which they belong. And, if the Medcath example is any indication, they can also be very profitable.
MediSphere is banking on running women's hospitals, and Hamburg believes his model can succeed where UHS stumbled. Soon, MediSphere will have its first three women's hospitals. It is currently building one in Fayetteville, Ark. Hamburg says MediSphere picked Fayetteville based on doctors in the area, the size of the market, competition, managed care's role in the market and favorable certificate of need laws.
The physicians will have an equal ownership with MediSphere. Hamburg says the doctors have committed more than $50,000 each, with about 15 doctors involved at this point. Their primary practice site will be upstairs, and they will direct all clinical programs in the hospital.
Construction of another hospital, in the Phoenix area, is slated to begin this summer. MediSphere's first hospital is in Oklahoma City, and if that sounds familiar, it's because the hospital is Lakeside Renaissance, which UHS sold last fall. It is now called Lakeside Women's Hospital.
Both MediSphere's Hamburg and Deborah Huff, M.D., chairperson of Lakeside's board of directors, say Lakeside is successful, and in fact, UHS' Gorman says the same thing. UHS didn't want to sell it, Gorman says, "but the doctors really wanted it, and we didn't feel like running a business where our doctors were displeased with us. So we agreed to a fair financial deal."
In fact, it was a little more complicated than that. Huff tells how she and five other Oklahoma City OB/GYNs decided in 1995 that they wanted to build a women's surgery and outpatient center because "as hospitals were trying to economize, women's health was not a priority, and OB/GYN suffered."
The physicians approached UHS because the company already was running the nearby Midway Renaissance Women's hospital and had expertise, Huff says.
A deal was worked out by which the OB/GYNs paid for a 51% stake and UHS took the remaining 49% stake in building and running the new hospital; UHS also would take care of all the billing and collections, contracting, information systems, and other management functions. Huff declined to say how much the doctors invested in terms of dollars.
The hospital opened in 1997 and was a success, but Huff says the physicians had problems with UHS because "women's health was only one tiny piece of their business. It was not their No. 1 priority." Because their contract gave them an option to buy out UHS' 49% ownership, the OB/GYNs decided to exercise that option, and UHS felt it had no option but to go along.
Since the doctors were neither financially prepared nor management-savvy enough to run the hospital themselves, they sold back the 49% stake to MediSphere, whose "only interest is women's health," says Huff.
UHS' problem in Austin was quite different from the dilemma it faced in Oklahoma City. The Austin physicians never co-owned the hospital with UHS, they just rented space in it, explains Margaret Thompson, M.D., an OB/GYN who was part of the group of eight OB/GYNs that originally struck the deal with UHS to open the Austin hospital.
Reimbursement rates for OB/GYNs in the Austin area had fallen so low, Thompson says, that the doctors had to do something. They had been practicing in small groups or on their own, but "solo practice physicians were having a difficult time negotiating good reimbursement rates (from plans, and) we believed that a small, women-focused hospital was the best way to deliver services," Thompson says.
That led the eight OB/GYNs to band together into the new group and strike the deal with UHS. The physicians "anticipated having an ownership (with UHS)" since that seemed to make the most sense, Thompson says, but UHS decided that partnering with the doctors wasn't in its interests and decided instead to sell a 30% stake to Austin-based Seton Healthcare Network. The advantage of UHS partnering with Seton was to have better managed care contracts, Thompson says.
The OB/GYNs were disappointed in not getting ownership but had no alternative but to go along, he adds.
The hospital was losing $2 million annually. It was "a fabulous idea," Gorman says, "but it didn't work financially." When UHS announced plans to close the hospital on March 31, the OB/GYNs, claiming a shutdown would harm the community, filed a lawsuit.
UHS now is under a temporary injunction against closing the hospital until a trial is held in August. Thompson and her colleagues hope to be able to keep the hospital open and to find "a model to make this financially successful," although she understands that Austin's meager reimbursement rates will present real challenges.
The best bet, she believes, is to find "a financial or management partner, probably both," to invest in the hospital, this time bringing in the physicians as equity partners. That sounds like the MediSphere model, but no one at MediSphere is saying whether they are interested in an Austin deal.
Yet doing hospital deals with private companies is only one way OB/GYNs are coping with the times. A more common strategy is to band together into ever larger groups in the hope of capturing a bigger share of the local market (without violating antitrust laws) and, increasingly, offering ancillary services to attract more women.
This is a "unionization strategy," says John Sullivan, a former healthcare analyst at the Boston brokerage house of Tucker Anthony and now a healthcare investor. "The parties the doctors have to negotiate with--reimbursement entities and hospitals--are more powerful than a single doctor, but if a bunch of doctors get together, under a PPMC umbrella or some other association, the group has more power," he says.
Attorney Janice Cunningham, a consultant with Plymouth Meeting, Pa.-based The Health Care Group, says OB/GYNs are putting together networks and forming "one-stop shopping" centers. These include "ancillaries, like mammography, ultrasound, bone densitometry and nonmedical services, like cosmetology, weight reduction and exercise--anything that would be of interest to women."
That was the idea behind Women's Health Connecticut, says Mark DeFrancesco, M.D., an OB/GYN who is chief medical officer of the Avon, Conn.-based firm. In August 1997, he and 140 OB/GYNs merged what had been 26 separate practices into WHC "because we needed to get together in a larger group for security against managed care." A private group of investors ponied up $10 million to get the doctors started; now, the OB/GYNs continue to practice in their individual offices throughout the state but are linked together through a common PPM, Women's Health USA (WHUSA), which handles business matters.
Most of the physicians also offer ancillary services in their offices, including laser hair removal, nutritional counseling and bone density testing. DeFrancesco is familiar with MediSphere and has praise for the young company, but he says the model of building and co-owning hospitals would not work in a tough certificate of need state like Connecticut.
The Connecticut doctors' new strategy seems to have succeeded. "After two years," says DeFrancesco proudly, "we've reached the point where the value of the services we derive from being together exceeds the management fee we pay" to WHC, which is the MSO for doctors and WHUSA.
Another example of the united-we-stand, divided-we-fall philosophy is Femwell Group Health. Robert Boyett, M.D., a Miami OB/GYN and Femwell's president, says he and his 64 OB/GYN colleagues decided to form their group practice 2 1/2 years ago because "we were all in individual practices, two or three or four, and managed care will not listen to you one-on-one." But "when you speak with a voice of 65, managed care is receptive."
Femwell was the result of their banding together, but its real clout wasn't felt until the group built the ultimate ancillary: their $2 million, 11,000 square foot diagnostic center, completed in September 1999. The physicians themselves didn't have the funds to build the center, which serves the 6,000 weekly patients the doctors treat, nor the expertise to manage and run Femwell, so they turned to MediSphere for support.
MediSphere loaned the money to build the center, Boyett says, "and we pay them a management fee to run it (and) to work on contracts with health plans, and upgrade our computers" and other management functions. Boyett says that while "the wheels of progress move slow in terms of a better relationship with managed care," Femwell now can "sit at the table (and) see improvements" in reimbursement rates. The only mistake Boyett feels he's made, he says, is that "we should have done all this earlier."
Steven H. Heimoff is an Oakland, Calif.-based healthcare business writer.