A well-known player is about to re-enter the game of long-term acute-care hospitals.
J. Rodney Laughlin, who founded Las Vegas-based Transitional Hospital Corp. in 1992, is back with Regency Hospital Co., Alpharetta, Ga. Privately held Regency is scheduled to open its first facility, a 28-bed "hospital within a hospital," in July in a space leased from 320-bed Carolinas Hospital System, Florence, S.C.
Transitional started as a subsidiary of Community Psychiatric Centers, Laguna Hills, Calif. CPC sold off most of its psychiatric assets and changed its name to Transitional Hospitals in 1996 (Oct. 28, 1996, p. 21). The largest long-term acute-care provider in the country, Vencor, now Kindred Healthcare, Louisville, Ky., bought Transitional for $639 million in 1997.
Laughlin said he sees a "tremendous need" for long-term acute-care hospitals.
"Medicare has 230 hospitals certified, but only 190 to 200 of them are true (long-term acute-care) hospitals," Laughlin said. "I believe there is a need for several hundred more of these."
The Florence project is a prototype for Laughlin's strategy at Regency. For most of its hospitals, he said he expects the company to lease space for 30 to 50 beds from an acute-care hospital. Leasing the space keeps down the costs and allows the Regency facility to buy ancillary services, including laundry and meal service, from the acute-care hospital, Laughlin said.
Laughlin said he hopes to have at least four hospitals running by the end of the year. He said he expects Regency to open five to eight long-term acute-care hospitals in each of the following four years, starting in 2002.
Regency is likely to remain a private company for at least the next five years, Laughlin said. Waud Capital Partners, Chicago, provided substantial financing in April, but Laughlin declined to reveal the amount.
Long-term acute-care hospitals are a good business opportunity because the number of patients is increasing, and nationwide there aren't that many hospitals like them, said Lori Price, senior healthcare services analyst with J.P. Morgan in New York.
Price said acute-care hospitals are eager to discharge patients who need ventilators or other long-term attention to long-term acute-care hospitals to save money. Patients like long-term acute-care hospitals because they provide more nursing care, Price added.
The Medicare reimbursement environment increases the financing needed to enter the long-term acute-care hospital business, and that makes the business more appealing to those big enough to enter, Price said. Medicare reimburses at cost, subject to some caps, for long-term acute-care hospitals, but only after a hospital has been open for six months and can prove that its average length of stay is 25 days or more. During that six-month waiting period, long-term acute-care hospitals are reimbursed under the DRG system, and the hospitals often pile up losses before the reimbursement switch is made, Price said, meaning an operator needs a lot of cash at the outset.
Medicare is scheduled to shift in October 2002 to a prospective payment system for long-term acute-care. Price said the shift to PPS won't be as negative a factor as it was for other provider sectors because the Balanced Budget Act of 1997 made the system budget neutral, instead of mandating provider cuts as the law did in skilled nursing, home-health and outpatient prospective systems.