Saddled with dwindling revenue and increased operating costs, the renowned Menninger Clinic reacted with a fairly standard survival strategy in today's turbulent market: It climbed out from last year's $3 million hole by creating an alliance with two rich new partners.
But in a nonstandard move, the longtime Topeka, Kan., psychiatric institution decided to relocate to Houston, a move that surprised many in the Kansas capital of 126,000.
A confluence of economic pressures--including the constraints of managed care--led to Menninger's affiliation with Baylor College of Medicine and Methodist Health Care System, a big-league tandem with enough clout and cash to rescue the innovative but ailing mental health clinic.
Now, the question is whether the dramatic change of venue will rescue the clinic--or simply transfer its fiscal woes to Texas, where 10 freestanding psychiatric hospitals have been closed in the past year because of financial troubles. The financial pressure now squeezing most healthcare facilities was especially tough on Menninger, which faced decreased reimbursements from government and private insurers for patient care while continuing its research and training.
"It's difficult enough just to provide services to patients in an era of declining reimbursements," says Mark Covall, executive director of the National Association of Psychiatric Health Systems, a Washington-based organization that represents more than 300 psychiatric hospitals. "But Menninger had a broader research and teaching mission, and the resources just weren't there. I think they made a good move."
Aside from the obvious financial resources of its new partners, Menninger will shed the suffocating operating expenses of its Topeka campus and move to a large, thriving population center with a vast potential for new clients.
"We recognize that in the current healthcare environment, it is best to join together--thus creating newer, strong organizations for the century ahead of us," says clinic President W. Walter Menninger, M.D., in a written statement.
The relocation to Houston, he adds, "will position Menninger for growth and provide a platform for Menninger to positively influence American psychiatry for the next century."
Once buoyed by well-heeled patients paying top dollar for costly stays that ran for months, Menninger--with its $77 million annual budget--fell victim in recent years to tight controls by insurance companies and managed-care contracts, which together cover about 60% of its patients. Menninger continued to focus on long-term psychoanalysis while many other mental health centers were turning to shorter stays and psychotropic drug therapies.
Three years ago, the clinic received $24,000 for every discharged Medicare patient, according to Menninger. But that figure has since been reduced to just $10,800. The average length of stay, Menninger adds, has dropped to four weeks from four months, while the number of patient days has plunged to 39,000 in 1997 from 78,000 in 1986.
The clinic's campus, on 242 acres of gently rolling hills in northwest Topeka, contributed to the economic pains because of the increased overhead since its construction in the early 1980s, officials say.
Meanwhile, the clinic's endowment dropped to $104 million from about $129 million. And in a costly effort to attract more patients, the clinic spent about $1.1 million last year on marketing--or almost 10 times the amount in 1986.
Officials responded by cutting jobs, reducing the number of psychiatrists it trained and forging local and state partnerships to try to create a bigger pool of patients.
Even those dramatic steps weren't enough. In late September, Menninger--Topeka's best-recognized business and a key civic institution for 75 years--revealed its plan to abandon its hometown.
"There's been disappointment, anger, frustration--all of those emotions," says Pete Goering, executive editor of the Topeka Capital-Journal. "You don't lose a business like that, with its reputation--not to mention over 1,000 employees--without swallowing hard. It's the signature business in Topeka. There's somewhat of a feeling that Menninger went where the money was. But, from a strictly bottom-line business sense, Houston made sense."
Top officials at Menninger didn't specify who initiated the talks or how the new partners managed to kick off negotiations. Officials acknowledge that Menninger had "been in conversation with institutions about potential alliances" for the past two years.
Despite its deep roots in northeast Kansas, Menninger rejected a $100 million local incentive package hastily pulled together by a consortium of public and private institutions. The lure of Texas was a lot stronger--Baylor and Methodist, for instance, pledged to increase Menninger's depleted endowment to about $300 million to support joint research.
The loss of Menninger will have a significant impact on both the civic pride and the economic outlook of Topeka, a quiet, pastoral community located among wheat fields and prairie 60 miles west of Kansas City.
Menninger's top officials, who hope to make the move to Houston by 2002, have not released any details of how many of its nearly 1,200 employees--including 50 doctors--will relocate to Houston, or whether it will retain some services in its hometown. Many employees are likely to remain in Topeka, helping fill the void by transferring to other local hospitals or mental health centers.
Roger Verdon, a Menninger spokesman, did not make any of the clinic's top officials available for interviews with MODERN HEALTHCARE, saying that many details still needed to be worked out. But that same reticence to share information has caused problems for Topeka facilities hoping to help fill any future gaps in service.
"Menninger doesn't even have the management team set," says Dan Kingman, president of the board of directors of Shawnee Community Mental Health Center. "The people here don't know who will be going and who won't. Clearly, some services will be left behind."
With its affiliated groups, Kingman's mental health center provides services to 4,000 patients per year, operating on a budget of $17 million, he says. Mental health facilities in Kansas, Kingman points out, have successfully responded to two previous facility closings. He expects they'll do the same once 143-bed Menninger packs up and heads south.
Already, Topeka's 313-bed Stormont-Vail HealthCare is interviewing applicants to fill at least four positions. Two other local hospitals also may help occupy the void--266-bed St. Francis Hospital and Medical Center and a 423-bed facility operated by the Department of Veterans Affairs.
The clinic, formed with a $20,000 mortgage on an old farmhouse outside Topeka, was the brainchild of visionaries Charles Menninger and his sons, Will and Karl. The men, all psychiatrists, developed an international reputation for training mental health professionals and treating the toughest kinds of patients.
Named the nation's No. 1 psychiatric hospital in 1995 and consistently ranked among the country's top five by U.S. News & World Report, Menninger is the only psychiatric organization in America with four major functions in mental illness--treatment, education, research and prevention.
Menninger will relocate in the sprawling, fast-growing Texas Medical Center, already the world's largest health complex and the home of famed heart surgeons Michael DeBakey and Denton Cooley. The medical center, which has 55,000 employees at 41 institutions, is expected to expand to about 30 million square feet of building space from the current 20 million during the next decade.
Some observers in Texas are questioning the need for another psychiatric institution--especially one that relies on fee-for-service and managed-care payments. A shortage of mental health professionals in Texas is another concern.
"There's an unmet need in the whole country for psychiatric beds for the poor, but that's not (Menninger's) client base," says Geri Konigsberg, spokeswoman for the University of Texas-Harris County Psychiatric Center in Houston, which operates 173 beds and provides care to the indigent. "Is there a need for more beds for people who have significant resources? I don't know. And we're all wondering how additional facilities like these will be staffed. There's a shortage of nurses for all medical fields, but in particular for psychiatry."
In Texas, Menninger enters a turbulent market that experienced a dramatic shakeout last year, when 10 psychiatric hospitals operated by the troubled Charter Behavioral Health Systems were closed. There are now 30 freestanding psychiatric hospitals in the state, five of them in Houston, with a total of 2,409 beds, according to the Association of Texas Hospitals and Health Care Organizations.
Covall, of the national psychiatric organization, says the Charter shutdowns do not accurately reflect the nature of the market in Texas, which has stabilized after an oversupply of beds in the 1980s and early 1990s. Today, he says, it's "sometimes difficult to find an inpatient acute-care bed for a child or adolescent."
Menninger, which has treated nearly 200,000 patients from around the world in its illustrious history, operates a 95-bed adult hospital and a 48-bed children's hospital in Topeka and manages 95 inpatient psychiatric beds in four hospitals in the Kansas City metropolitan area, which are expected to be phased out in about six months. Together, the facilities treated about 24,500 patients last year, officials say.
Menninger says none of the other potential partners matched the world-class reputation, research and clinical expertise Baylor and Methodist offer.
In addition to the infusion of new money for its struggling endowment, Menninger can expect to help create a thriving brain and behavior research center with Baylor. A private university, Baylor boasts a medical school with nearly 700 students--54 of them in psychiatric training. It also has an endowment of more than $1 billion. Methodist is a teaching hospital with a $2 billion endowment.
Merle Blair, president of the Greater Topeka Chamber of Commerce for nearly two decades, acknowledges that the loss of the famous clinic "hurts our pride a little." But he doesn't blame Walt Menninger and the clinic's board for leaving.
"Their backs must have been up against the wall for them to make this decision," Blair says. "Financially, it wasn't feasible. They didn't want to leave Topeka. They had to."