How Pennsylvania Facility Beat the Senate Deadline for Physician-Owned Hospitals

In early December, when the U.S. Senate had not yet passed its health reform legislation, it looked like Bucks County Specialty Hospital, a 24-bed, six-OR orthopedics facility outside of Philadelphia, might be one of the last physician-owned hospitals in the nation.

Bucks County's owners had rushed to get it completed before the Feb. 1, 2010, deadline in the bill at that time. Thanks to their remarkable work, they had it up and running with Medicare certification, the final requirement, by early December, just one and a half months after they took over the building it is in.
 
It turns out now that Bucks County won't be one of the last physician-owned hospitals, although it's probably within the final batch. An amendment just before the Senate bill was passed extends the deadline for new specialty hospitals from Feb. 1 to Aug. 1, 2010. This means that about 50 more physician-owned hospitals in planning stages will likely get in under the wire, according to the Physician Hospital Association.

Some 75 other projects, however, are not expected to meet the deadline. They are not as fortunate as Buck County's owners, who bought an existing hospital that went out of business. Still, it took a great deal of planning and foresight for the Pennsylvania hospital to open as quickly as it did.

Beating the deadline
The new orthopedics hospital was not even a gleam in the eye of its new co-owners until this spring, when the ban was already being seriously discussed as part of the Democrats' health reform legislation.

"We realized we needed to move ahead or we would lose the opportunity," said Mike West, CEO of the Rothman Institute, a 65-physician orthopedics practice based in Philadelphia that was one of the buyers. The other buyer was Nueterra Healthcare, based in Leawood, Kans.

The hospital had been a specialty facility for breast cancer surgery, with six ORs, that had gone into bankruptcy. Nueterra found the facility, which was almost brand-new. "There were no takers due to the poor economy," Mr. West recalls.

Rothman had a minority share in two ASCs and had been discussing a joint venture with Thomas Jefferson Hospital to build an orthopedic hospital in downtown Philadelphia, but those plans had been put on hold. The credit market had dried up and building a hospital from the ground up would never meet the legislated deadline. But if Rothman bought an existing hospital, it might be opened in time to meet the deadline, provided that everything went smoothly.

Not an impulse buy
Mr. West says snapping up the bankrupt hospital was not an impulse buy for Rothman. The small hospital was an ideal fit for the practice in many ways.

The facility is located in Bucks County, between Philadelphia and New Jersey, a suburban area with a growing population where the practice did not yet have much of a presence. Rothman has several sites in New Jersey and when its patients there needed hospital-based surgery, they had to travel to hospitals in Philadelphia. "Having a hospital in Bucks County means they can be nearer to home," Mr. West says.

Rothman and Nueterra invested about $6 million to create the hospital and has committed another $8- $9 million for renovations and leases for medical equipment used at the site. Making the investment was a big leap for a practice, which only has a small foothold in ASCs, but it fit into the practice's vision of the future, Mr. West says.

Increasing the number of people with coverage under health reform would increase the number of hip replacements, and even if health reform does not pass, the whole baby-boom generation is aging, Mr. West says. "Boomers want to stay active, so the demand for hip and knee replacements should remain strong," he says. "Implants are done earlier because they can last longer — 30-35 years."

Up and running within 45 days
The two partners expedited negotiations for lease/purchase option with Medical Properties Trust, a real estate investment trust that held the deed to the hospital. The deal was closed in late summer. Rothman and Nueterra then had to work quickly to get the hospital up and running and have Medicare certification by the expected Feb. 1 deadline.

The hospital was an empty shell when Rothman and Nueterra bought it. It needed to be furnished, wired for healthcare IT, the staff had to be hired and trained and the facility had to be certified by the state department of health. Then it had to be Medicare-certified. All of this all took place in 45 days.

"Nueterra did an outstanding job in getting this done," Mr. West says. The Medicare representatives acted quickly on the certification process. "We made them aware of the deadline in the heath reform legislation," he says.

Campaign to change the legislation claims limited victory
When the Bucks County was approved, Rothman officials did not regard their work as over. They and the owners of a dozen other physician-owned hospitals in the state were part of a grassroots lobbying campaign to roll back the deadline to Jan. 1, 2014 and remove a provision in the bill to prevent existing hospitals from adding beds or ORs.

Over a period of weeks, the group kept in constant contact with the offices of Pennsylvania's entire Congressional delegation. Even though the Senate has passed its bill, the group is still not letting up. The FHA says there is still a possibility that provisions against specialty hospitals could be softened a little as Senate and House leaders meld their two bills into one the coming weeks.   

"Not being able to grow would be very harmful for many specialty hospitals in the long-run," Mr. West says.

Lean more about Bucks County Specialty Hospital.

Learn more about Rothman Institute.