Posted on: Saturday, March 12, 2005
Doctors moving into hospital ownership
By Lisa Girion
Los Angeles Times
LOS ANGELES — Dr. Shahram Ravan has treated patients at Midway Hospital Medical Center for nearly 20 years. It wasn't until the cardiologist became one of the hospital's new owners and began examining its books recently that he was able to diagnose why the facility was bleeding red ink.
One clue popped out of a pharmacy bill. It showed the 200-bed hospital was paying $3.20 per pill for an ulcer medication. Ravan asked his pharmacy manager how a commonly prescribed drug could cost so much. Doctors were prescribing two ulcer medications, he was told, splitting the small hospital's order in half and allowing the vendor to charge a premium for both.
Trying to get doctors to drop a drug to save money was the kind of idea that would have been dead on arrival had it come from a corporate bean counter. Not this time. Ravan and his fellow doctor-owners persuaded the staff to drop one of the hospital's ulcer medications, but only because they believed the remaining drug was just as effective. The result: Midway now pays 32 cents a pill, saving nearly $3 a pop.
"The healthcare system is broken," Ravan said. "Unless you get people in the trenches, the nurses and the doctors, involved in the solution, it's not going to get fixed."
Physician-owned hospitals are as rare as house calls these days. But their numbers are growing. Of California's 353 hospitals, as many as two dozen are owned by doctors, double the number of a few years ago.
Last fall Ravan, 53, and six other physicians ponied up a down payment, got a bank loan and bought Midway for $12 million. It was one of 28 hospitals that financially struggling Tenet Healthcare Corp. put on the block last year. Midway lost $9 million in the last seven months of 2003.
The new owners, who include two surgeons, an orthopedist, a pulmonologist, a gynecologist who is good with computers and a dentist with an MBA, have a common goal: balance good medicine with good business. They want to make a reasonable return on their investment and plow money back into Midway in a way its corporate parent hadn't for years. After all, the operating margin for California's 100 for-profit hospitals in 2003 averaged 11.15 percent.
Still, it's a risky business. The doctors' plunge into hospital management comes at a time when a third of the nation's hospitals are losing money. Soaring medical costs, a rising number of uninsured patients and a byzantine billing and reimbursement system have created a crisis that has forced many hospitals to close unprofitable emergency rooms or shut down altogether.
What's driving doctors to buy hospitals is a desire to have "more control over the quality of patient care, and right now they feel like they have none," said Jeremy Hogue, founder of Sovereign Healthcare, a Newport Beach, Calif., hospital investment company. His firm is working with doctors in California and Arizona to acquire hospitals.
The doctors are taking a big financial risk, said Ron Stern, Midway's chief executive under Tenet who now takes orders from Ravan's team. At least three other hospital operators considered bidding on Midway but ultimately passed. Many of Midway's 600 employees worried that a new owner would turn it into a nursing home or a rehabilitation center.
"This hospital was in jeopardy," Stern said. "Now we feel a ray of hope, an opportunity."
These days, no bill is too small to escape Ravan's attention. "We are looking at everything," he said. "These are the strategies of survival."
