Health Care

Chicago hospital group buys controlling interest in LSSH A changing health care environment convinced a boutique hospital’s 32 doctor-owners that a national partner could enhance their 7-year-old model.

by Lisa Hanchey and Leslie Turk

A changing health care environment convinced a boutique hospital's 32 doctor-owners that a national partner could enhance their 7-year-old model.

On March 15, Lafayette Surgical Specialty Hospital celebrated its seventh anniversary. But this year, its 32 physician-owners shared the helm with Chicago-based National Surgical Hospitals, which has just closed a deal to purchase a 58 percent interest in the boutique surgery center on Kaliste Saloom Road.

For all practical purposes, the anniversary celebration was just like any other, according to one of the hospital's founding members, Dr. Tom Bertuccini, because the buyout has little impact on the hospital's operations. A prominent Lafayette neurosurgeon, Bertuccini and seven other local physicians, including fellow neurosurgeons, orthopedic surgeons, pain management practitioners and ENT specialists, opened LSSH in 2004 in response to growing dissatisfaction with what they described as bureaucracy at the two not-for-profit behemoths in town, Our Lady of Lourdes and Lafayette General Medical Center.

But LSSH was not alone. Another specialty hospital, Heart Hospital of Lafayette, also launched in March but had a national partner. In fact, the two boutique hospitals opened side-by-side on Kaliste Saloom Road, following a national trend favoring physician-owned specialty hospitals and signaling a major shift in health care delivery in Lafayette. The impact on the bottom line of Lafayette General and Lourdes was immediate.

"Many of us got frustrated, because we weren't able to get the kind of results that were possible with regard to patient outcomes," Bertuccini says. "Nor were we comfortable with the environment we were working in - in terms of its efficiency and responsiveness to physician, patient and nurse's needs. The bureaucracies were sclerotic, slow to react and respond. We thought about the possibility of working with these hospitals in a substantive way, that is, have some direct input in the decision-making, and that just wasn't possible. So, we looked around at other opportunities."

They found that opportunity at a national neurosurgical meeting, where a colleague connected with a group from the physician-owned Oklahoma Spine Hospital. At the time, OSH was spreading the concept of physician ownership across the country. Lafayette's physician contingent visited the facility and was impressed with what the Okie docs had accomplished. After two years of planning and investing more than $20 million, LSSH broke ground on a 75,000-square-foot single-story facility in January 2003. On March 15, 2004, the hospital opened its doors with eight operating rooms, two treatment rooms and 20 inpatient beds. About 5,000 square feet is dedicated to the business office, where LSSH houses its administration, collections department, medical records and conference room.

Since opening, LSSH has grown to 32 physician owners. The hospital performs strictly surgical specialty treatments. "What we stress here and we aimed for and achieved was focused care," Bertuccini explains. "We focus on a certain group of illnesses and patients who qualify, from a health standpoint, to be able to come here. And, as a result of focusing and doing a lot of it with people who are doing the same thing day after day, their results really are excellent. The complication rate is very low, and the outcomes are excellent."

So good, in fact, that LSSH was named hospital of the year in the category of hospitals under 100 beds by the Louisiana State Nurses Association for four years in a row. Recently, the facility was recognized as one of the top 100 best places to work in health care nationwide.

Much has changed since the two boutique facilities opened seven years ago, as both of Lafayette's full-service hospitals have hired new administrators who acknowledge that their managements could have done a better job of keeping these specialists if they'd been more responsive.

"We have failed our physicians," Bud Barrow said in early 2006, in response to questions about how he would do things differently as Lourdes' new CEO. "The great majority of hospital administrators have sought to protect their turf," he added. In Barrow's mind, "patients are physicians' customers, and physicians a hospital's customers," his explanation for why partnerships should have been struck to keep local doctors from jumping ship and leaving hospitals in the cold. "We should have been at the forefront of that. We were not, and we paid a heavy price," he said.

Less than two years after that interview, in late 2007, Barrow reached an agreement to buy out Heart Hospital's North Carolina-based partner, MedCath Corp., to become majority owner of the once fierce competitor. The Lourdes deal was successfully negotiated on the heels of the local physician-owners' failed takeover of Heart Hospital from MedCath earlier that year.

LGMC opened its own 60,000-square-foot facility, Lafayette General Surgical Hospital, as part of a joint venture with the hospital and local physicians. Recently, LGSH announced an extensive renovation, adding 22,000 square feet at a cost of approximately $4 million.

LGMC CEO David Callecod acknowledges that surgical hospitals have raised the bar on services. "Across the country, specialty hospitals have added needed capacity to the health care system and have certainly led to raising the bar on service excellence," he says. "Most specialty hospitals have a significantly higher percentage of insured patients versus community hospitals; therefore, the effect has been that community hospitals have had to become much more efficient and focused on cost control. Our partner, Lafayette General Surgical Hospital, is a fine example of a successful hospital/physician partnership. It consistently ranks very high for patient satisfaction and quality, in particular having a near zero record in infection rates."

Bertuccini has also noticed an attitude adjustment at the local not-for-profit hospitals. "LSSH has had an impact, not just in terms of patient care, but in forcing the other hospitals to change how they do business," he says. "And they have, willingly, and have gotten involved in the game by emulating what we've done. Imitation is the greatest form of flattery."

Administrators' viewpoints aren't the only changes in recent years. Health care reform has created much uncertainty about how any hospital model will operate in the coming years. "With health care reform looming ahead, I anticipate even greater collaboration with physicians in virtually all areas of health care delivery," Callecod says. "At Lafayette General, we are focused on providing our physicians with a voice and input on every aspect of health care delivery."

Bertuccini and his partners fear that health care reform could make operating a hospital a lot less profitable."The health care legislation that was passed last year may have monumental effects on medical care," Bertuccini observes. "Even without that, the big problem in health care today is not the technology we have or the ability to take better care of patients, but the cost. The way the government is going about it is changing health care for everyone, particularly on the reimbursement side and on the regulatory side."

Seeing the handwriting on the wall several years ago, NSSH's docs got serious about exploring the benefits of partnering with a hospital organization. Bertuccini was involved at the national level with Physician Hospitals of America, an organization representing about 225 physician-owned hospitals throughout the country. Through PHA, LSSH learned about NSH, an owner, operator and developer of surgical hospitals and surgery centers in partnership with local physicians.

"We met some of NSH's other facility leaders through PHA, which sort of introduced NSH to us," explains LSSH CEO Buffy Domingue. "So, we got to talking with their leaders in Chicago, and got the partnership opportunity perspectives from that."

LSSH had partnership discussions with NSH on and off for a while, but the talks got serious in 2010. On Feb. 1, the deal was official. The Chicago group is an owner, operator and developer of surgical hospitals and surgery centers in partnership with local physicians. The purchase increased to 15 the number of surgical hospitals owned and operated by the company nationwide.

Bertuccini admits to a reluctance to give up partial control. "I have to say, we struggled with the decision," he says, "because we've done so well on our own. The outstanding outcomes, patient and family satisfaction, employee satisfaction, low complications rate and the competitive pricing have all made this health care model a significant contribution to the community."

In the partnership, the six-member board structure remains the same, with three members each from LSSH and NSH. "Basically, there's really not much change - no bank change, no name change, no NSH on payroll checks, no change in employee benefits," Domingue explains. "The change is going to be seamless from the other side on how we operate the facility. But, now that we are associated with a national partner, we'll be able to take advantage of even bigger savings to help with physician growth."

These advantages include greater buying power, access to a more sophisticated IT system and sharing best practices.

"By partnering with all of these facilities under the umbrella of National Surgical Hospitals' organization, we are going to have more resources to draw from," Bertuccini says. "And, we believe that's going to help provide us with legacy that we want for this hospital, which is ongoing excellent care for the patients of the community and the surrounding region.

"Buffy and her team have worked very hard over the past few years recruiting physicians who see the value of controlling their own environment and having input into the decision-making about how the facility is run," he continues. "So, it's that legacy that we want to continue, and by attracting new physicians, by expanding services as we are able to, and continuing to get the kind of results that we've been getting, we want to go long into the future."