Cash transfusion
Large health-care companies are buying out independent Virginia hospitals. What does the trend mean for community care?

by Marjolijn Bijefeld
for Virginia Business
November 2005

Next year, the $93 million Sentara Williamsburg Regional Medical Center opens, bringing a larger, more modern hospital to the fast-growing area. The new campus is only seven miles from the old community hospital, but the leap in services and technology is like moving up from budget to luxury accommodations.

New mothers and babies will stay in spacious rooms in a Family Maternity Center where they can remain from labor through discharge. Film will become obsolete in an all-digital radiology department. And cardiac patients will benefit from expanded services, including a fulltime cardiac cath lab.

Two years ago, the board of Sentara Williamsburg Community Hospital agreed to let Norfolk-based Sentara Healthcare acquire the hospital. The two organizations weren’t strangers; Sentara already owned a minority stake in the hospital. When the capital demands on the community hospital became too much, the board decided to merge with Norfolk-based Sentara.

Other smaller, nonprofit hospitals around the state have found themselves in the same predicament. It is becoming increasingly difficult for these hospitals to make ends meet. “The consistent theme I hear is that the independent community hospitals are having difficulty generating sufficient capital to invest in information technology and the physical plants,” says Christopher S. Bailey, senior vice president of the Virginia Hospital and Healthcare Association in Richmond. “The preference for most of these local communities is to maintain local control of the hospital.” But the financial pressure of capital reinvestments and, often, a higher-than-average number of Medicaid patients, are forcing hospitals to seek partnerships or be acquired by larger companies.

These deals often bring an infusion of money into a facility and may include millions set aside for community-based hospital foundations, which award grants promoting local health and wellness. (See story on page 22).

Just this year, large health-care companies have acquired at least three stand-alone, nonprofit community hospitals in Virginia. While the pressure may be most acute for small hospitals, it’s being felt across the board. For example, in September, 138-bed Obici Hospital in Suffolk announced plans to merge with Sentara. If the deal is approved, Sentara will have the strongest regional network in the Tidewater area, with seven hospitals.

That doesn’t mean it’s an easy transition for a community, though. Independent hospital boards look for a health-care company with a similar philosophy or vision. The acquiring health-care companies try to retain community connections and employees, although layoffs are always a fear. In many cases, the existing hospital keeps much of its old name. Obici, for example, will be called Sentara Obici Hospital.

Earlier this year, Stonewall Jackson Hospital in Lexington became part of the nonprofit Roanoke-based Carilion Health System; Tennessee-based LifePoint Hospitals Inc. acquired Danville Regional Medical Center and Wythe County Community Hospital. With its announced acquisition of Clinch Valley Medical Center in Richlands, formerly owned by Tennessee-based Hospital Corporation of America (HCA), LifePoint will own four hospitals in the state.

In the Southwest Virginia town of Norton, Florida-based Health Management Associates (HMA) acquired the former Bon Secours St. Mary’s Hospital. It’s now called Mountain View Regional Medical Center and is not far from HMA’s Lee Regional Medical Center in Pennington Gap.

Several hospital administrators of recently acquired hospitals say the deals have benefited their hospitals, the health-care providers and the community in several ways. At 147-bed John Randolph Medical Center in Hopewell, a $189 million infusion of cash over the past three years by HCA has resulted in more technology and services than the hospital could have afforded on its own, says Mark Foust, spokesman for HCA’s Virginia operations.

HCA bought John Randolph in 1995. Since then, it has gained an “e-ICU,” where specially trained nurses and physicians in a central location (a hospital in nearby Henrico County) monitor vital signs of patients in intensive care at HCA hospitals. Other improvements: a networkwide storage and retrieval system for medical images, such as MRIs and scans, and a bar code medication system to ensure nurses give the right medication in the right dosage to the right patient. Plus, there’s a helicopter that brings patients from John Randolph to HCA’s CJW Medical Center in Richmond for speedy treatment after a stroke.

Parent companies also are making enormous investments in information technology for their hospitals. This summer, Sentara decided to implement an electronic medical records system for its network. Completion of the system will take about five years and cost $50 million. At Wythe County Community Hospital, parent company LifePoint will put in place by next May a $1.6 million information technology system, which will also link affiliated community-based physicians to the hospital, says the hospital’s CEO John McLain. “If a doctor admitted a patient the night before and ordered lab tests in the morning, he’ll be able to check on those lab reports from his office later that morning. That kind of investment is difficult for a free-standing facility,” says McLain.

Large health-care organizations also bring expertise and efficiency. Stonewall Jackson Hospital “was in financial difficulties, so we’d like to shore up the current services,” says administrator Steve Arner. Stonewall Jackson became a Carilion hospital on July 1. “Health care is so complex and so heavily regulated, it’s quite difficult for independent hospitals to operate without having expertise in every field,” says Arner. Carilion’s network has that in-house expertise — or can afford to pay for it. For the experts at the local hospital, it’s not as lonely anymore. Rather than tackle a program to improve care alone, that person can reach out to others in similar positions at the other Carilion hospitals, notes Arner.

The inclusion of a community hospital in a larger organization means patient-care practices are formalized. For example, a small hospital like Stonewall Jackson would never include a cardiac center; the hospital would see so few cases, it couldn’t match the expertise of larger, higher-volume hospitals. But if a patient arrives at Stonewall Jackson in cardiac distress, “the emergency room doctor picks up a phone that is already linked to our dispatch center, and an ambulance or helicopter is immediately on the way to bring that patient to Roanoke Memorial Hospital,” says Arner. The emergency room staff and ambulance crew know the Carilion protocol for caring for these patients, so the transition between facilities goes smoothly, he says.

Mergers can also benefit employees of smaller, local hospitals. In Williamsburg’s case, hospital administrator Bob Graves says most of the employees saw an increase in pay and a better benefits package because Sentara has more clout than the local hospital did in negotiating benefits. In addition, employees may qualify for a financial incentive program when the hospital can show it has made improvements in the quality of care. Sentara also brings greater human resources services and a more organized physician and nurse recruiting department.

Recruiting at smaller community hospitals can be difficult, considering that larger hospitals can promise a higher volume of patients and a larger professional staff. So HMA considers it a sign of success that the company has recruited five physicians this summer at Lee Regional, which became a HMA hospital four years ago, says Scott Campbell, vice president for the Mid-Atlantic division of HMA.

Health-care company representatives say they work to make residents feel like the community hospital is still part of the community. While they usually bring in key administrators who are part of the parent company — generally the CEOs and CFOs — they try to keep many local board members and personnel in place. “In this way, we compare favorably with other businesses, such as banking or retail. Those businesses can be part of a national chain, but have successful community relations,” says HMA’s Campbell. “We get back what we put in.”

LifePoint’s McLain agrees that communities are tremendous resources. “They are so supportive of their facilities, and they also have high expectations of them. We have to deliver the same, if not a slightly higher level of care,” he says. How that happens might not be readily visible — new boilers and information systems, recruiting efforts or helicopters at the ready — or it can be hugely visible, such as the new Williamsburg area hospital.