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Doc-owned Orthopedic Hospital May Be Last of It's Kind

February 27, 2009
Friday, January 30, 2009 Doc-owned orthopedic hospital may be last of its kindDenver Business Journal - by Bob Mook Kathleen Lavine | Business Journal Sue Hayes, CEO of Colorado Orthopaedic & Surgical Hospital. View Larger After a lengthy wait, the Denver area’s first new physician-owned specialty hospital in several years opened for business recently. But legislation that’s expected to be approved by Congress and President Barack Obama might mean the hospital is the last of its kind for a long time. The Colorado Orthopaedic & Surgical Hospital, 1830 Franklin St., cleared several regulatory hurdles in getting certification to treat Medicare patients for orthopedic procedures such as hip replacements and knee replacements. The new facility will focus on orthopedic surgery, spinal procedures and pain management. But while the owners of the new hospital tout the benefits of the physician-owned speciality concept, don’t expect to see similar sites proliferating. Congress and Obama most likely will approve new laws cracking down on future physician-owned specialty hospitals, which critics say pose a threat to the health care system. Critics say specialty hospitals make money from simple, low-risk and profitable procedures while potentially sticking community hospitals with the sickest, most-expensive and least-insured cases. They also say physician-owners of such hospitals could make medical decisions that might serve the bottom line better than they help patients. Community hospitals have lobbied for legislation to impose a moratorium on Medicare payments at specialty hospitals, said Sue Hayes, CEO of the Colorado Orthopaedic & Surgical Hospital. Former President George W. Bush vetoed similar legislation last year, but Hayes said the legislation likely would get a friendlier reception from Obama and a more Democratic Congress. Restrictions on specialty hospitals were part of a bill to re-authorize the $32 billion State Children’s Health Insurance Program (SCHIP), which the U.S. House of Representatives recently approved. It’s expected to win approval from the Senate and the president. Hayes said the legislation won’t affect the Colorado Orthopaedic & Surgical Hospital and other existing specialty hospitals, but it could severely curtail the facility’s growth as well as the prospects for similar new sites. But even without new regulations, the process of opening a speciality hospital is fraught with challenges. Case in point: The $50 million, 75,000-square-foot Colorado Orthopaedic & Surgical Hospital will celebrate its “grand opening” on Jan. 30 — though the 42-bed facility has been open since September. In an interesting chicken-or-the-egg dilemma, the site needed to be staffed with physicians, nurses and administrators before it got Medicare approval. Without Medicare approval, the hospital couldn’t get private insurers to sign contracts or draw patients for surgeries. Meanwhile, doctors and nurses were on the payroll, running up more than $100,000 a month in expenses, without much to do. Hayes said the bureaucratic Catch-22 is one of the realities of opening a new hospital. “It’s inefficient and costly, but those are the rules and that’s the way it is,” she said. To be certified as a hospital, the site also needed its own emergency room, though Hayes said most patients who stop for emergency care probably would be referred to a neighboring Children’s Hospital satellite, across the street to Saint Joseph Hospital or to Denver Health. Still, federal regulations require the orthopedic hospital to be staffed 24 hours a day, seven days a week, to deal with medical situations that need immediate attention, Hayes said. Hayes said she worked 80 hours a week to ensure the hospital met federal and city regulations — many of which set conflicting standards. In some cases, Hayes said, she had to decide which set of regulations she was more obliged to meet. But despite the cost and the controversy behind the Colorado Orthopaedic & Surgical Hospital, the concept promises to deliver better outcomes for many orthopedic patients than traditional hospitals, said Bob Minkin, president and CEO of Exempla Saint Joseph Hospital. Exempla, which manages three Denver-area hospitals, owns 51 percent of the new hospital, while an investment group and 25 physicians own the remainder. Minkin said that Exempla’s majority stake in the new hospital makes it easier to secure contracts and meet regulatory requirements. He also said physician ownership is an asset, not a liability, for the new hospital. “I think the dedication that physician ownership brings will assure the highest quality possible for the patient,” Minkin said. “If we have control over our work environment, we could provide better care,” said Dr. Ted Parks, one of the physician owners of the new hospital. Hayes said the hospital employs about 40 people but will have up to 75 by year-end. There’s only one other physician-owned hospital in Colorado, located in Durango. About 12 years ago, a group of 95 physicians acquired the former Mercy Medical Center in Denver for a limited-stay hospital that eventually closed when it failed to secure managed-care contracts.