For most physicians, owning and operating a hospital can pose financial challenges.
But those challenges could turn into a nightmare for 32 physicians in Columbus, Ohio.
On Aug. 18, the physicians acquired another 50% interest in 118-bed Columbus Community Hospital, which filed for bankruptcy protection that same day. The doctors have owned half of the hospital since 1991.
"The track record of for-profit physician-owned hospitals is spotty," said Dean Coddington, a principal with the Denver office of healthcare consulting firm McManis Associates.
Within the past 13 months, a doctor-owned hospital in Denver and one in Chicago have declared bankruptcy (July 12, 1999, p. 18; April 24, p. 12).
The Columbus doctors, including lead investor Won Song, M.D., didn't respond to requests for comment.
The physicians acquired the remaining 50% stake in the hospital from CHM, a Cincinnati-based management company, and its primary owner, Michael Kitchen. Terms of the sale weren't disclosed.
Kitchen could not be reached for comment.
The hospital filed for Chapter 11 bankruptcy protection from creditors in U.S. Bankruptcy Court in Columbus. As of Dec. 31, 1999, the end of the hospital's last fiscal year, the balance sheet showed assets of $15.9 million and liabilities of $15.4 million, according to Chief Financial Officer Bill Melvin. Once the accounts are updated for the first six months of 2000, the balance sheet will show a negative net worth, he said.
The hospital, the only stand-alone facility in the city, owes $4 million to various creditors, including $1.5 million to the Columbus-based Mount Carmel Health System, which recently backed out of a proposal to buy Columbus Community.
Mount Carmel, a subsidiary of Novi, Mich.-based Trinity Health, already owns three hospitals in the Columbus area. It pulled out of merger talks earlier this month after signing a memorandum of understanding in March (March 13, p. 20). Mount Carmel loaned the hospital $1.5 million around that time because the hospital was having cash-flow problems.
Mount Carmel Senior Vice President Beth Traini said the loan was secured, so Mount Carmel will be paid before other, unsecured creditors.
Traini said Mount Carmel backed out of merger talks during the due-diligence stage.
"Obviously we were serious about negotiations or we wouldn't have loaned them the money," Traini said. "But ultimately we determined Columbus Community would not be a good fit for our system."
Hospital officials said the south side Columbus hospital had been profitable through 1998 but began losing money last year. It lost its chief executive officer twice within 13 months. Interim CEO Michael Brown, who had worked for Columbus Community in other positions for nine years, resigned in late July. Brown succeeded Robert Meadows, who retired in June 1999 after 13 years.
Hospital officials declined to comment on Brown's departure, and Brown could not be reached for comment.
Clair Tosino, Columbus Community's vice president of patient services, said that there was no single cause for the hospital's sudden financial downslide.
"We started feeling the effects of reimbursement cuts from the Balanced Budget Act of 1997 in 1999. Ultimately, it came down to cash flow," Tosino said.
"Certain payers were holding on to their money longer and longer with various results. We did well enough to manage costs. But there was very little room for error; and when these changes occurred in rapid-fire succession, it didn't take long for them to hurt us."
Melvin declined to disclose the size of hospital losses for 1999 or 2000, saying vendors and creditors deserve to know that information first.
Melvin declined to comment on the hospital's reorganization plans.