Spokane Journal of Business

Hospital may spin off dialysis

Sacred Heart seeks, gets offers to buy its program with five centers, 100 staff

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In a move that underscores the increasingly competitive nature of health care, Sacred Heart Medical Center has solicited and is mulling offers from two major national companies to buy its 38-year-old kidney dialysis program. The Spokane hospital is anticipating a possible third offer from a regional company.

The big medical center says it expects the boards of the two governing bodies that oversee it, Providence Services of Eastern Washington (PSEW) and Providence Services, to act on the proposals by the end of March. Allowing two to three months for a sale then to be consummated, which is considered typical for such a transaction, the dialysis program could be under for-profit ownership by this summer.

We have to determine if its the right thing for us to do, says Michael D. Wilson, Sacred Hearts chief operating officer. The hospital always has been committed to serving anyone in need, and, We just want to make certain in this process that there will be a provider (taking over the program) who has a similar philosophy.

Sacred Heart executives decline to identify the two companies that have offered to buy the program or to divulge the potential dollar value of the looming transaction. However, they say they have thoroughly researched both companies to ensure they meet the hospitals standards for patient care and other criteria.

Sacred Hearts kidney dialysis program includes five treatment centersone inside the hospital and the other four in the Northpointe Medical Center on Spokanes North Side, at Valley Hospital & Medical Center, and in Coeur dAlene and Moses Lakethat have a total of 74 individual dialysis stations.

Hospital officials say the program is profitable and has been growing. About two months ago, Sacred Heart moved the Moses Lake dialysis center out of a leased space at Samaritan Hospital and into a new building it erected about three miles away, simultaneously more than doubling the number of stations there.

Jean Stevens, Sacred Hearts director of kidney services, says the hospital expects shortly to finalize similar plans to move its six-station Spokane Valley treatment center out of Valley Hospital and into a new building that would be constructed a few blocks away on Pines Road, where eight more dialysis stations would be added. Its moving ahead with those plans despite the possible sale of the dialysis program.

The buyer of the program would continue to operate all five dialysis centers, leasing space in buildings owned by Sacred Heart, although the 19-station center located in the hospital might be relocated, officials say.

The kidney dialysis program, which also offers in-home services, employs a total of about 100 people, most of them part time, and currently treats about 425 patients, some of whom it has been treating for many years. Stevens says the demand for dialysis services is growing because dialysis patients are living longer now than they did before, due partly to improved treatment methods.

Competition a factor

Despite the success of its dialysis program, Sacred Heart has considered itself to be potentially vulnerable to large, for-profit dialysis companies that might enter the Inland Northwest market. Such companies enjoy certain economies of scale, arent subject to the same regulations as hospitals, and often are able to establish relationships with local doctors that can cause patients to be shifted away from hospital-based centers.

Sacred Hearts concern has been magnified by recent efforts to modify or abolish Washington states certificate-of-need program, which has afforded the hospital protection by regulating the size of dialysis programs and who could provide them. Exploring its options over about the last year and a half, the hospital also found there has been considerable consolidation nationally in dialysis services, says Gerard Fischer, Sacred Hearts vice president of health-systems development.

Sacred Hearts Stevens says staff and patients at all of the hospitals dialysis centers have been kept informed over recent months about developments involving the program. Skip Davis, the hospitals president, informed other Sacred Heart employees about a possible sale of the program earlier this week in a weekly hospital newsletter.

Sacred Heart has made concerted efforts to partner with local physicians toward a jointly owned kidney dialysis service, Davis wrote. This would give doctors the opportunity to be owners, while at the same time keeping our Spokane dialysis services locally operated. For many legitimate reasons, we have not been able to create such a partnership.

For Sacred Heart to use the proactive approach of seeking proposals from prospective buyers of its program, Davis added, gives us some control over the outcome, and allows us to obtain references on these companies from other hospitals that have come to the same crossroad with their dialysis program. It is a fact that our kidney dialysis program is one of the few remaining, not-for-profit, hospital-based services in the Northwest.

Sacred Hearts sale of all or part of its dialysis program would be the latest of several moves by the hospital in recent years to relinquish ownership of some aspects of its operation. Last year, it reached agreement to shift the ownership of its ambulatory surgery center, located in the Sacred Heart Doctors Building on the hospital campus, to a new limited liability corporation that will be owned by Sacred Heart and surgeons who use the center. That transition is expected to be completed this spring. Also last year, it joined with Holy Family Hospital and Inland Imaging Management Inc. to form a new Spokane outpatient radiology services provider called Inland Imaging LLC. That company, owned largely by radiologists, took over the outpatient radiology services provided at Sacred Heart, Holy Family, and a number of offices operated by Inland Imaging Inc.

Sacred Hearts efforts to enter into such collaborative arrangements with various health-care specialists have been less successful in the cancer arena. Cancer Care Northwest PS opened a treatment center here three months ago that will compete with hospital-provided services, and now is readying plans to open a North Side facility. Sacred Heart and other hospitals here are studying how to respond.

Kim Crompton
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