Hard times tend to inspire new alliances. A once-struggling physician-owned specialty hospital in Munster, Ind., has been reborn as a joint venture with a not-for-profit system.
Physicians have paid Sisters of St. Francis Health Services $5.2 million to share ownership in a 63-bed specialty hospital, renamed Franciscan Physicians Hospital. The system bought it a year ago from physicians, including some of the same ones.
Physician-owned enterprises have faced fear and resentment from not-for-profit hospital executives who say the businesses skim the paying patients and leave community hospitals to strain under the weight of caring for the uninsured and indigent. But a growing number on both sides of the divide are deciding theyre better off working together, resulting in deals such as the one forged by physicians with Sisters of St. Francis (Jan. 1, p. 32).
Indiana has no certificate-of-need law, and Munster is just across the border from Illinois, which does. As a result, the area has attracted fierce competition among for-profit healthcare providers and not-for-profit community hospitals wanting to serve the growing area as well as patients drawn from Chicago and its suburbs. Munster has an ambulatory surgery center operated by a local medical group, as well as a not-for-profit competitor, 382-bed Community Hospital.
Sisters of St Francis and their physician partners believe their joint venture to be unique to the region and perhaps a model for things to come. The deal came about after the hospital fell on hard times under previous management. Sisters of St. Francis, an eight-hospital system based in Mishawaka, Ind., paid about $45 million to acquire the capital assets from a holding company in October 2006 and began leasing it back to the hospital, then called Heartland Memorial Hospital.
That arrangement yielded $1.6 million in unpaid rent, according to court documents, and the hospital was forced by another debtor into Chapter 7 bankruptcy. The proceedings led to the Sisters of St. Francis paying about $3.5 million to buy Heartland as a going concern, said Gene Diamond, chief executive officer of the systems northern Indiana region.
In a deal that closed Nov. 1, physician investors purchased 23% of operations and 13% of the real estate, according to the ventures president, Barbara Greene, a 21-year employee of Sisters of St. Francis. Greene said the Sisters of St. Francis are willing to have the physicians stake grow to 49%, as long as federal rules allow it.
The investors include members of the Hammond Clinic, a group that operates an ASC about two miles up the road and is moving forward with plans to open its own small specialty hospital, said Cynthia Sanders, a managing partner and medical director of the group. Collaborating with Sisters of St. Francis, Sanders said, promised access to substantial financial resources under the direction of an ethical organization.
Heart surgeon Hilton Hudson was a shareholder before the Sisters of St. Francis came along and is again under the new partnership. Hudson declined to talk about the events that led the once successful hospital, which was called Illiana Surgery Center until 2006, into financial trouble. We turned the page, and wed like to keep the page turned, Hudson said. Its not just about money. We want to take care of patients, and we want to do that with administrators who see things the same way we do.
The 133,000-square-foot Franciscan Physicians Hospital provides cardiac and orthopedic surgery, both inpatient and ambulatory, as well as imaging, radiology and laboratory services, and a construction crew is at work on an urgent-care center scheduled to open in January.
The Sisters of St. Francis participation in the venture is intended to support its not-for-profit mission in Northwest Indiana, particularly at 624-bed St. Margaret Mercy Healthcare Centers, which serves significant numbers of indigent patients at campuses in the nearby towns of Hammond and Dyer, Ind., officials said.
Sister Jane Marie Klein, board chair of Sisters of St. Francis Health Services, said she was open to the idea when it was presented to her because the current healthcare environment demands innovation and new kinds of partnerships to sustain a charitable mission that goes back 130 years.
So that we dont lose all the paying patients , Klein began to explain, then paused and started over. We have a strong group of doctors willing to make this leap of faith with us.
Molly Sandvig, executive director of Physician Hospitals of America, said the partnership among the Sisters of St. Francis and the physicians in Munster may be an experiment in their market but the approach is finding favor elsewhere, particularly in Texas with Baylor Health Care System, Dallas, and Texas Health Resources, Arlington.
But that doesnt mean that not-for-profits en masse are softening their message that physician-owned hospitals are threatening the ability of community hospitals to stay in business.
On a local level, yeson a national level, no, Sandvig said. Were just fighting for our lives in D.C. constantly.