Central Indiana Health System, the parent company of St. Vincent Hospitals and Health Services, Indianapolis, which includes St. Vincent's Indiana Heart Institute, last week announced that it would be the first to open a freestanding heart hospital in central Indiana.
CIHS is the latest Indianapolis health system to announce that it will build a heart hospital, confirming earlier this month it would construct a $60 million, 120-bed, for-profit facility about three miles from its St. Vincent Carmel Hospital in the suburbs.
The property, which the system has not yet purchased but is confident it will, is being rezoned. Deeni Taylor, CIHS executive vice president and chief strategy officer, said groundbreaking should occur this summer and completion should be in 2002.
Although the hospital has not announced any partners for the heart hospital, Taylor said the plan was to open the project to physician investors. Sources close to the negotiations said prospective partners included Care Group, an Indianapolis practice that includes 45 primary-care physicians and the state's largest cardiologists group, with 83 heart specialists. Care Group is affiliated with St. Vincent.
The heart hospital race began several years ago when Charlotte, N.C.-based MedCath, which builds, manages and owns specialty hospitals, approached Indiana Heart Associates, a cardiologists group affiliated with St. Vincent's rival Community Hospitals Indianapolis, to build a heart hospital. Four-hospital Community eventually announced it would form a joint venture with Indiana Heart Associates to build a $60 million, 64-bed heart hospital at the Community Hospitals North facility in Indianapolis-without MedCath's participation (Feb. 22, p. 26). That hospital is expected to open in early 2003.
Taylor said he learned in February that MedCath subsequently had signed a confidentiality agreement with the Care Group in December 2000 to build a heart hospital that would compete with St. Vincent's heart facility. Taylor was shocked, he said, but vowed not to lose St. Vincent's 25-year relationship with Care Group.
It appears he was successful. In April, Care Group told its members that it would not join MedCath after all.
Lana Lehman, executive vice president of Care Group, confirmed that the group is no longer negotiating with MedCath.
"We never signed a letter of intent, only a confidentiality and feasibility agreement. They are a terrific company, and we had a good discussion," said Lehman, who refused to comment further.
But CIHS has not announced that its partner would be Care Group. Michael McCaslin, a former St. Vincent's executive now a healthcare consultant with Somerset Group, Indianapolis, said the group practice probably signed a noncompete clause with MedCath, which has been twice burned in its negotiations with Indianapolis doctors.
"The deal's been dead for months," McCaslin said. "If you're MedCath and the first group stood you up, you put in some kind of clause preventing your prospective partner from hooking up with another party for a period of time or publicly discussing it. That's a common practice."
McCaslin said he believes MedCath has no future in Indianapolis. "By now they've determined that Indianapolis is a parochial town and whatever petty grudges the doctors may have had against their hospitals, they're probably going to go home from the dance with the hospitals that brought them. They have more of an inclination to work with their traditional partners than against them."
MedCath President and Chief Executive Officer David Crane said his company's confidentiality agreement with Care Group expires in September. "Our expectation is that they will begin active negotiations with St. Vincent's. I don't need to be a third player in a market. Our strategy is to be the leader in the market."
Earlier this month, MedCath registered for an initial public offering of up to $172.5 million, which would return it to publicly traded status after three years as a private company. The company didn't specify how many shares it would issue or the price. It anticipates a midsummer offering. Proceeds would be used to pay outstanding debt, buy the ownership interests of some of its physician partners in five of its heart hospitals, develop new hospitals and supply working capital, according to the May 5 registration statement.
MedCath, which operates eight heart hospitals and has two under development, reported a net loss of $13.6 million on revenue of $332.3 million for its fiscal year ended Sept. 30, 2000. MedCath went public in 1994 and returned private in 1998.