Spokane Journal of Business

Second hospital eyed in Cd’A

Chicago company reportedly interested in surgical facility

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A Chicago-based company reportedly is considering opening a for-profit surgical hospital in Coeur dAlene in partnership with some North Idaho physicians, a move that Kootenai Medical Centers CEO says could cloud the financial picture at Coeur dAlenes only acute-care hospital.

Joe Morris, the CEO of Kootenai Medical Center (KMC), says that representatives of the company, National Surgical Hospitals Inc., of Chicago, have been in Coeur dAlene and have talked to physicians about the project. Morriswho stresses that he has not spoken to representatives of the Chicago company himselfsays he believes it is considering opening a surgical hospital in Coeur dAlene in collaboration with physicians at North Idaho Day Surgery & Laser Center, an ambulatory surgery center at 2205 N. Ironwood Place.

Ron Rock, business manager at North Idaho Day Surgery, wont confirm or deny that such discussions with National Surgical Hospitals have taken place, but says that center has talked about expanding its services.

Were exploring those possibilities, he says. Unfortunately, some members of the community dont like the idea of competition, but we feel that competition will keep the costs of medical care down.

National Surgical Hospitals has no comment, says James Grant, the companys chief operating officer. We cant confirm or deny anything relative to any transaction we have pending or not pending, he says.

National Surgical Hospitals operates a chain of nine boutique hospitals, some offering both inpatient and outpatient care, and some offering just outpatient care.

The company opens such facilities in partnership with local physicians, to whom it estimates it will provide a return on investment of 25 percent to 30 percent per year, the companys Web site says.

The Chicago company said in a news release last year that it had raised about $70 million in venture-capital financing.

National Surgicals Web site also says that the companys hospitals typically concentrate on offering orthopedic surgery, spine and back surgery, general surgery, and pain management.

Not so coincidentally, those procedures are some of the most profitable activities that acute-care hospitals offer, and losing market share for them would be a major financial hit, Morris says.

The truth in health care is that there are some services that are profitable and some services that are not profitable. We provide both, he says. If you take off the profitable services of the hospital and leave only the nonprofitable (services), its difficult to meet community needs.

Those needs include emergency medical care, education and research activities, and providing care to the uninsured, he says. KMC expects to provide about $9.5 million in so-called indigent care to uninsured patients next year, a figure that is growing as unemployment increases and the number of people who are covered by health insurance drops, Morris says. KMC is expecting $111 million in total operating revenue next year, he says.

In Logan, Utah, where National Surgical Hospitals opened a surgical facility in October 2000, the communitys acute-care hospital has seen a 10 percent drop in its gross revenuean $8 million hitsince the new surgical facility opened, says Richard Smith, regional operating officer for Intermountain Health Care, which operates Logan Regional Hospital.

This year we had to institute a 5 percent rate increase to cover the loss. Thats a direct impact on our community. Weve had to reconsider new programs and services, Smith says. What theyre doing is taking the profitable pieces of our business and expecting us to be here to take care of the nonprofitable businesses, and an institution cant live very long on that.

Moreover, because the surgical facility, called Cache Valley Specialty Hospital, doesnt offer a full range of medical care, patients sometimes undergo surgery at one facility, then are transferred to the acute-care hospital for follow-up care, Smith says.

The additional transfer, the disruption to the patient, the lack of continuity of careI dont think anybody can say that thats better quality, Smith says.

Morris, at KMC, questions whether a for-profit hospital would accept patients who are insured by federal and state Medicare and Medicaid programs, which often reimburse hospitals and doctors for many services at a lower rate than private insurers do.

Smith, at Logan Regional Hospital, says the surgical hospital there does take Medicare and Medicaid patients. He adds, however, that because some surgeons have a financial interest in the facility, they tend to take as many of the best-paying patients as they can towards the new hospital.

Morris says hes heard that a decision on whether to open a surgical hospital in Coeur dAlene could be made within a month, and if the decision is yes, it could be open within a year and a half.

Rock says no final decision has been made by North Idaho Day Surgery on its possible expansion plans, and he cant say when such a decision might be made.

The boutique hospitals that National Surgical Hospitals opens are part of a trend. The Washington State Hospital Association, in a policy paper issued a year ago, says niche providers are proliferating resulting in heightened competition with not-for-profit hospitals as more lucrative services such as cardiac surgery, orthopedics, and ambulatory surgery are siphoned off by for-profit providers.

The trend is most evident, however, in states that do not require a certificate of need, or state approval, for new health-care facilities, the association says. Idaho does not require such a certificate, but Washington does.

Although National Surgical Hospitals has met with success elsewhere, Morris says the company faces a challenge in Kootenai County that it might not in other communities: It would have to meet or beat KMCs prices for insurers to agree to reimburse for care provided there instead of at the acute-care hospital, and Were one of the lowest-cost hospitals in the state of Idaho, he says.

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