One of the toughest financial decisions a healthcare system makes is to close a hospital.
That was the dilemma faced by Trinity Health, a system formed in May through the merger of Mercy Health Services in Farmington Hills, Mich., and Holy Cross Health System of South Bend, Ind.
During merger preparations, Mercy tried in vain to donate its unprofitable Mercy Hospital to another healthcare system. Unable to find a taker, its board made the anguished decision to close the hospital, which was in one of Detroit's poorest and most underserved neighborhoods.
Then the system faced another quandary: what to do with the building.
There was no shortage of potential buyers for the facility, which had an appraised value of about $6.5 million. But the board of the not-for-profit system wanted to continue its charitable mission in the neighborhood and fulfill the need for healthcare and social services.
A sale to a for-profit buyer might have tarnished the system's image. Local leaders "could have done a lot of things to make that kind of a transaction very difficult," says Trinity Health spokesman Stephen Shivinsky, who was formerly with Mercy Health Services.
One obstacle was that Mercy administrators lacked the time and expertise required to convert the 500,000-square-foot building.
Just before announcing the closure last December, Mercy sought assistance from a tiny Cleveland-area consulting firm that specializes in converting former hospital buildings to community uses. The private firm, Dynamis Healthcare Advisors, has been involved with multitenant projects under way in three Ohio cities (See chart, this page).
In the months following the closure announcement, Dynamis proved a valuable ally for Mercy. It interviewed nearly 200 community members, political and religious leaders, and potential tenants to find optimal uses for the space. It also conducted architectural and engineering surveys, issued a request for proposals and helped narrow a list of possible tenants.
Although the firm is just 4 years old and has had only a handful of clients, Dynamis has carved what appears to be a unique niche, combining real estate services, public relations and healthcare expertise to ease the pain of hospital closures.
Dynamis Chairman J. Christopher Manners, a real estate consultant and former chairman of both St. Luke's Hospital in Cleveland and the Greater Cleveland Hospital Association, says the firm's mission is to show systems that there are options for closed facilities. Manners believes it should be a growth area nationally, as hospital systems continue to downsize and close facilities.
"Closing a hospital is a difficult thing for any senior executive and board to deal with. They feel it's an admission of failure," Manners says. "We show hospitals and the communities that there can be something else."
Dynamis started in 1996, when President Scott Keller, then a healthcare real estate consultant, was hired to find new occupants for the former St. Joseph Hospital in Lorain, Ohio, which closed after merging with rival Lorain Community Hospital. The hospital's leadership was determined not to let the facility become a boarded-up eyesore, says Keller. He recruited Manners and John Leech, a consultant and attorney and former chairman of Meridia Hillcrest Hospital in Mayfield Heights, Ohio. Leech is the company's vice chairman.
They participated in creating a multi-use facility run by a not-for-profit community development corporation. The facility is now more than 50% occupied and has been praised as a model for economic revitalization.
The project's success prompted the three men to form Dynamis, with a goal of replicating it nationwide, says Leech, who sits on the board of the Joint Commission on Accreditation of Healthcare Organizations and is a former trustee of the American Hospital Association.
If poorly managed, closing a hospital can damage a hospital system's image. That presents particular risks for not-for-profit healthcare systems, which can face court challenges of their tax-exempt status if they are perceived as abandoning their charitable missions. For example, the California attorney general is investigating Catholic Healthcare West's closure of its Long Beach (Calif.) Community Medical Center.
Leech says hospitals "need to find ways to reconnect with the community in a positive way." Converting closed hospitals "becomes a focal point for all kinds of ideas for economically depressed areas."
Conversion can help restore a system's image and preserve space for it to continue to provide healthcare services. It also saves money by taking the facility off the system's books as quickly as possible, particularly if there is no potential buyer. Keller says it typically costs $100,000 to $200,000 per month to maintain and secure an empty hospital building, although Trinity Health estimates it's paying $500,000 per month for upkeep at the closed Mercy facility.
Dynamis "brought a lot to the table," says Leigh Sullivan, manager for corporate communications and public relations at Trinity Health. "They knew what the pitfalls were in advance and they could keep us on track."
Swift action helped the project gain credibility and support with local residents, and quashed at least one planned public protest over the closure when Shivinsky was able to show would-be demonstrators a set of written plans for possible new uses of the space.
By year-end, Trinity plans to donate the former hospital to two not-for-profit organizations, a job training program and an agency for young offenders. Trinity will operate an indigent-care clinic in the building, and physicians and other community groups are expected to rent space.
Samaritan Regional Health System provoked the threat of a state investigation when it closed Peoples Hospital in Mansfield, Ohio, according to Dynamis officials who were hired last year to meet with Mansfield leaders, including the mayor, to defuse the situation.
Samaritan is spending money to improve the facility before donating it to a not-for-profit community development corporation by the end of the year.
Sheila York, executive director of the new multitenant campus that's being created there, says tearing the building down might have been cheaper, but in the long run Samaritan won points with residents in Mansfield, where it competes with other hospitals. "This really is a model of what can be done given a cooperative spirit between a community and a hospital," York says.
Dynamis declined to release financial information, but appears to have plenty of potential clients. At least 26 hospitals nationwide have closed this year, with another eight scheduled to shut their doors by year-end, according to Dynamis, which began tracking closures this year. Rising costs and the financial strain of the Balanced Budget Act of 1997 have been blamed in nearly every case.
Moreover, the vast majority of hospital closures are occurring in cities, often in neighborhoods with high demand for social services, job training, economic development incubator projects and healthcare.
Yet not every one is a candidate for economic redevelopment. In some cases, relations between a hospital system and a community are so strained, Keller says, that it's impossible to achieve a community-based solution. In those cases, Dynamis has helped hospitals find acceptable buyers. For example, it helped arrange the sale of Oakwood Beyer Hospital in Ypsilanti, Mich., which was closed in April by Dearborn, Mich.-based Oakwood Health System.
Among its current projects, Dynamis has been hired by the U.S. Labor Department to find a site for a Job Corps program in Cleveland, potentially at the former Mount Sinai Medical Center, which closed in 1999, Keller says.
Of the four conversion projects, none is complete, which means they have yet to be proven long-term models. However, all have won support with local political and community leaders. Two projects, St. Joseph and the former Southside Hospital in Youngstown, Ohio, have lured combined state and federal funding of more than $8.1 million, including grants and low-interest loans, Keller says. The Mercy and Peoples projects have applied for funding from public and private sources.
In Youngstown, where Dynamis stepped in after Forum Health System was unable to find a buyer for the former Southside facility three years ago, the empty hospital is just 35% occupied with eight tenants, including the city health department, says Janet Yaniglos, senior vice president of planning and government relations at Forum Health.
But Yaniglos says she's confident the project will achieve the 75% occupancy needed to become self-supporting within two years, thanks to broad community support. "This isn't just an interesting little experiment," she says. "(This is) something people become passionate about."