During the hospital building boom in the years after World War II, scores of individual physicians joined in the explosion of construction. Many of these physician-owned community hospitals cropped up in rural areas, where doctors often were the only residents with the financial wherewithal to build a hospital.
Starting in the 1960s, however, physician-owned hospitals began going the way of mom-and-pop grocery stores. It's unclear how many individual physicians still own community hospitals today-perhaps no more than a couple of dozen, according to knowledgeable industry observers. After a lengthy search, Modern Healthcare identified only about a half-dozen of these latter-day pioneers-physicians who have broken from the pack, accepting an entirely different career challenge.
On the following pages are the stories of three physicians who have taken the plunge head-first into hospital ownership: one who spent much of his life's savings to buy the lease for a county-owned facility, and two others who purchased hospitals outright.
Less than a decade out of medical school, Jack Michel was overseeing a thriving medical practice in Miami in the mid-1990s when he was presented with an intriguing proposition: A business colleague offered the internist a 10% stake in a money-losing hospital an hour's drive south of his medical office.
Michel, looking for a new challenge, readily accepted the offer. About a year later, he pledged his home and almost everything else he owned to purchase the remaining 90% of Larkin Community Hospital, a 112-bed facility in South Miami that was bleeding about $1 million per year.
"This was a huge personal risk for me," says Michel, the facility's owner and chief executive officer, as he strolls through a third-floor corridor at the hospital, greeting employees and fellow physicians like lifelong friends. "But it was the right place and the right time for me. As a physician, it's one thing to take care of an individual patient. When you own a hospital, you have the opportunity to take care of an entire community-now that's impact."
Michel isn't a typical hospital administrator. In fact, he isn't even a typical physician-executive. Unlike many healthcare administrators, the genial 38-year-old doesn't hold a master's degree in business or hospital administration, and he has never given much thought to acquiring an advanced management degree-widely regarded to be a prerequisite for such a complex job.
"Common sense and creativity-that's what it takes to be a success in this business," Michel says. "I don't claim to be a healthcare executive. But I think I can be the type of person who operates a hospital most efficiently and also provides the best care to his patients. I know one thing: I'm getting a lot of on-the-job training."
An extended family
Michel seems to be well-liked by his employees. During his frequent forays around the compact building, many welcome him in the hallways with a warm smile and a hug. It appears to a visitor that he runs his business more like a family, even though this "extended" family, including a handful of bona fide relatives, numbers about 470 employees. Larkin's top corporate hierarchy, unlike the bloated bureaucracies that weigh down some healthcare systems, is largely limited to Michel's brother, George, also a physician, who is chief operating officer. Michel's wife, Mary, is his assistant, and his father-in-law, Thomas O'Donnell, helps out part time in the engineering department.
Despite his lack of experience, or perhaps because of it, Michel has helped orchestrate a financial turnaround in a highly competitive market that features two formidable for-profit rivals-150-bed Coral Gables (Fla.) Hospital, part of Tenet Healthcare Corp., Santa Barbara, Calif., and 157-bed HealthSouth Doctors' Hospital, also in Coral Gables, owned by Birmingham, Ala-based HealthSouth Corp. Several other hospitals are scattered throughout the area just south of the University of Miami's palm tree-lined campus.
Michel recognizes that he's a rarity, one of a relative handful of physicians who own and operate their own community hospitals.
"Why don't more doctors own hospitals?" Michel asks. "I think most doctors would tell you that they're not willing to risk their livelihood on it. I did it at an early age. I figured that if I failed, I could still start again. I think more doctors should do the same thing."
He believes the U.S. healthcare system would be much improved if more doctors followed his lead. "Hospitals sell a product," he says. "Who better to sell it than doctors?"
After losing about $4.2 million during the past four years, Larkin earned a profit of nearly $2 million in 2002, says Michel, a native of Colombia who immigrated to the U.S. in 1980 and graduated from the University of Miami Medical School nine years later. He expects the profit level to remain about the same in coming years.
One key factor in Larkin's turnaround was trimming bureaucracy. Another involved a slight change in the official designation of bed types. Before he arrived, Michel says, the hospital officially included 90 medical-surgical beds and 22 psychiatric beds. Since the psychiatric beds were paid on a per-diem basis, the hospital wasn't taking advantage of a funding formula that increased disproportionate-share payments to facilities with 100 or more beds that were paid under a DRG formula. By switching those 22 beds to medical-surgical DRGs from per-diem payments, Michel says, funding increased fivefold. Meanwhile, the census has held steady at about 70 patients during his ownership.
He says his easy rapport with most of the 200 doctors on staff at the hospital has been a key element of his success as a physician-entrepreneur.
"A lot of doctors resent the fact that many administrators are people who have no idea what medical care is all about," says Michel, who spent the better part of two months in a hospital bed at Larkin recovering from a stroke in late 2001. "Most administrators are basically business people, looking to the bottom line."
Says J.D. Suarez, chief of Larkin's family practice department: "He talks our language."
A compact man with a round face and a quick smile, Michel stops often on a tour of the five-story hospital to talk with physicians. One of his close associates, Gustavo Leon, a general surgeon on staff, offered high praise for Michel's stewardship before ducking into the operating room to perform a routine hernia operation.
"Healthcare has been taken away from the doctors," Leon says. "The medical industry isn't in the hands of physicians any more. Other doctors should follow what he's done. I think Jack's a pioneer."
As an outgrowth of his ownership, Michel also believes he has made a difference in healthcare access in Miami-Dade County, where about 25% of the residents lack insurance. Mirroring the work of "Project Access," a not-for-profit group formed six years ago in Asheville, N.C., as a model for providing healthcare to the uninsured, Michel has opened three clinics throughout the county, including one in an office building directly across the street from the hospital. The clinics, which generally do not act as feeders for the hospital, provide basic healthcare without cost to those who can't afford to pay; those who can are asked to make a $20 donation to help defray operating expenses. In the past three years, the clinics have registered about 30,000 patient visits, he says.
When HealthSouth sold Larkin to a group of investors in late 1997 for about $15 million, Michel says, he welcomed the opportunity to pick up a 10% interest because he believed knowing how the hospital was being operated would help him provide better care to his patients.
Among the investors: James Desnick, an ophthalmologist who also owned Doctors Hospital of Chicago, which Desnick purchased in 1992 for $2.4 million and converted to a for-profit facility. That scandal-plagued hospital was shuttered in April 2000, shortly after filing for bankruptcy protection, and a lawsuit filed last year accused Desnick of financial impropriety, mismanagement, illegal loans and breaches of fiduciary duty. The case is pending.
For his part, Michel was involved with Desnick as a partner for only about six months. He officially took over as Larkin's owner and CEO in January 1998, coming up with about $1 million of his own money for the $15 million deal. Still struggling to turn the corner in early 2000, Michel sold 45% of the hospital for an undisclosed amount to a local businessman who owns a handful of nursing homes.
Michel and his hospital made national news last September, when three medical students scheduled for a six-week clinical training session at Larkin were detained briefly as terror suspects after being stopped by police in Florida. Although the hospital-based training was canceled after hundreds of threatening e-mails were received by Michel and other hospital officials, the students completed their second-year medical school rotations at one of the hospital's clinics, Michel says.
Larkin, several blocks west of bustling U.S. 1, in a drab commercial sector far from the glamorous tourist areas of Miami Beach, is as unpretentious as its owner. The doctors' lounge, just around the corner from a door to the alley, doubles as a meeting room for patients. In fact, a 1 p.m. gathering of a group of arthritis sufferers not too long ago forced Michel and two guests to cut their lunch short to accommodate the elderly patients. On one floor, an armed guard stands sentry before a thick iron door separating the lobby from 16 beds for federal and state prisoners, one of several facilities in the area that house these patients. The cafeteria, about the size of a large living room, features a few tables and a tiny buffet.
Sitting behind a cluttered desk in his small, windowless office, Michel smiles at the memory of his unlikely foray into hospital ownership.
"I knew absolutely nothing about buying or running a hospital," Michel says. "I was pretty much blinded by the fact that this was one of those rare opportunities for a physician to really be in charge, to have all the say in how care is delivered to patients. It's been a very, very interesting career change."