Spurred by the success of a recently updated Medicare reimbursement model, the long-term acute-care hospital market is heating up, and two new providers-led by veteran healthcare executives-are preparing to meet the growing demand for high-acuity care.
Regency Hospital Co., Alpharetta, Ga., scheduled to open two long-term acute-care hospitals in mid-December, has received certificate-of-need approval for a third and is projecting it will open an additional 12 to 14 hospitals by the end of next year, said company founder and Chief Executive Officer Rod Laughlin.
Regency, which operates two hospital-within-a-hospital long-term acute-care facilities in Akron, Ohio, and Florence, S.C., will open 36-bed Regency Hospital of Odessa (Texas) in Medical Center Hospital and 40-bed Regency Hospital of Meridian (Miss.) in Riley Memorial Hospital. Laughlin said Georgia last week approved Regency's plan to develop a 40-bed long-term acute-care hospital within South Fulton Medical Center, a Tenet Healthcare Corp. facility in Atlanta.
"This is a great time to be in the (long-term acute-care) business," he said. "Growth opportunity in the industry is very good."
General acute-care hospitals typically lose money on critically or chronically ill long-term acute-care patients because Medicare reimburses a flat rate regardless of the length of a patient's stay. Hospitals, therefore, have an incentive to discharge patients to long-term acute-care facilities, which have an average inpatient length of stay equal to or greater than 25 days, and where Medicare will reimburse at a higher rate. Under the new prospective payment system for long-term acute-care hospitals, which went into effect Jan. 1, payment is tied to patient acuity and is designed to assure that long-term acute-care hospitals "can offer high-quality medicine while providing incentives for efficient care," said the Centers for Medicare and Medicaid Services.
Medicare expenditures to long-term acute-care hospitals have grown rapidly. Between 1988 and 1996, payments increased from $200 million to $1.7 billion, according to 1999 data from the Medicare Payment Advisory Commission. In 1997, Congress called for a reform of payment policy for long-term acute-care hospitals as part of the Balanced Budget Act, based on rapid growth of the industry.
Five years ago, there were roughly 200 facilities certified by Medicare as long-term acute-care hospitals. Today the number has grown to roughly 285, said Brad Traverse, executive director of the Acute Long Term Hospital Association, Alexandria, Va., which represents more than 100 freestanding hospitals and long-term acute-care facilities within acute-care hospitals.
"It really is a terrific setting to achieve better medical outcomes for people who are critically ill and need intensive intervention over a long period of time," said Laughlin, who sold his previous company, Transitional Hospitals Corp., in 1997 to the largest long-term acute-care provider, Kindred Healthcare, Louisville, Ky. "(Long-term acute-care) can certainly save hospitals money because we're treating the patient at a lower cost and it's better for the patient who is receiving more nursing care during the day. If a patient can get well, we're going to give (him) every opportunity to do so," he said.
Ed Cooper, president and CEO of Acuityhealthcare Management Corp., Austin, Texas, a new long-term acute-care company, said there is a groundswell of interest from providers looking to enter the market, where higher Medicare payments for the sickest patients allow for specialization in care that may lead to better patient outcomes.
"The key to the success of long-term acute-care hospitals is their focus," Cooper said. "And because of our hospital-within-a-hospital model, the incremental cost is less." Cooper co-founded NextCare Hospitals, an Austin-based chain that sold five of its long-term acute-care hospitals to Plano, Texas-based long-term acute-care provider LifeCare in May 2001. NextCare sold its remaining hospital in Florence, S.C., to Regency, he said. Founded in August 2001, Acuityhealthcare Management operates 35-bed Fayetteville (N.C.) Specialty Hospital, part of the Cape Fear Valley Health System, and 35-bed Columbia (S.C.) Specialty Hospital. The company is planning to open 40-bed Carolinas Specialty Hospital within the Carolinas Health System, Charlotte, N.C., in January 2003. Cooper said there is a demonstrable need for long-term acute-care services nationwide, but that states with strict CON regulations are less likely to support growth of the model. Roughly one-third of the nation's long-term acute-care hospitals are located in Louisiana, Massachusetts and Texas.
Cooper said Acuityhealthcare Management's development strategy will focus on the management and acquisition of facilities with 30 to 50 beds. The company also will pursue construction of new facilities and will remain private, he said. Laughlin said Regency is aiming for steady growth that could lead to an initial public offering three or four years down the line.
"These are really first-class projects," Laughlin said. "We're not making deals for the sake of making deals. I've seen companies go in and promise ridiculous lease rates and renovation amounts, trying to make things work that cost too much capital."
Though roughly 70% of long-term acute-care hospitals are freestanding, Laughlin said the hospital-within-a-hospital model, which is becoming more desirable, works best when the long-term acute-care provider has a good relationship with its host hospital.
"Developing that kind of relationship is essential to making the (long-term acute-care hospital) perform," he said. "It's more than just nursing hours-you have to have a relationship with the host hospital where they perceive you as part of the team, and are working to achieve great outcomes that reflect on their mission. High clinical outcomes is what we're aiming for to distinguish ourselves from the competition."
Kindred, which operates 64 hospitals and four pulmonary units in 25 states, is the largest long-term acute-care provider based on bed number. The nation's second-largest long-term acute-care provider, Select Medical Corp., Mechanicsburg, Pa., operates 70 specialty acute-care hospitals in 22 states.
Laughlin says competition will improve care overall in the long-term acute-care market.
"We're relatively new and small and are going up against big, established companies," he said. "The good news is, the need is so great that anyone in this business is going to do well."