DOCTORS’ ORDERS
Under Physician Ownership, San Clemente Hospital Has More Services, Less Red Ink
By VITA REED
A year ago, 12 area physicians pooled their funds, secured a lender and bought San Clemente Hospital and Medical Center from NetCare Health Systems Inc., making it Orange County’s only doctor-owned hospital.
In the year since the buyout, the new owners and the hospital’s administrators have concentrated on beefing up staffing, making capital improvements, creating new programs such as an acute rehabilitation unit and a new MRI facility, and slowing a flow of red ink.
San Clemente posted a net loss of $183,505 last year,down from $493,000 in 2000 and $2.1 million in 1999,on gross revenue of $54.3 million. It projects a $500,000 profit this year, according to Pat Wolfram, the facility’s chief executive.
San Clemente Medical Center LLC, the new owners’ company, decided to buy San Clemente Hospital to keep medical services from leaving the community, said Dr. Ronald McGee, the company’s president. Noting that NetCare had closed several units, including maternity, McGee said the hospital “had a bad track record in the last 10 years. This was a bit challenging.”
“Only 12 of us had the chutzpah to take the chance” to purchase the facility, said McGee, who has practiced in San Clemente for 23 years. He described the period when the doctors were pooling their resources and attempting to find a lender to finance the transaction “as a year of major stress.”
Eventually, DVI Inc., a healthcare financial services firm that was founded in Newport Beach but is now headquartered in Jamison, Pa., agreed to lend to the doctors’ group, McGee said. DVI was originally an owner-operator and financier of diagnostic imaging centers, but divested the imaging centers to concentrate exclusively on healthcare finance.
“I told our investors not to expect to take a penny from the hospital for a minimum of three years,” said McGee, a family practitioner who just completed a term as the hospital’s chief of staff. Although a purchase price wasn’t disclosed, McGee said at the time of the sale that the doctor-owners were planning to spend $2 million to improve services.
San Clemente’s three-year plan, McGee said, is designed to create a “doctors’ workshop” that features upgraded equipment and facilities. San Clemente is even spreading outside its walls,in June, the hospital will open a 26,000-square-foot medical plaza with urgent care, occupational medicine, outpatient physical therapy and physicians’ offices in the Talega masterplanned community.
The investor number has grown to 38 doctors; approximately 260 physicians are on San Clemente’s medical staff. Most prefer to remain private, but two investors,Drs. Gus Gialamas and Bruce Ayres,sit on the hospital’s executive board. Ayres is a general surgeon.
Gialamas is an orthopedic surgeon who owns the boat aboard which doctors thrashed out the idea to purchase San Clemente Hospital.
“We called it the San Clemente Tea Party,” McGee said.
San Clemente has made changes under the physicians’ ownership, Wolfram said. One of those, she said, includes faster decision-making, a function of the hospital’s new independence.
“If I need something, I get it,” said Wolfram, who’s been with San Clemente since shortly after NetCare bought the hospital in 1998. “Typically, there is a bureaucracy (with corporate ownership). You can’t act as fast.”
Having local ownership, Wolfram said, allows the hospital to put more money back into the facility, rather than sending management fees to a corporate office.
In addition, Wolfram said, the physician owners have fostered a more collaborative, participatory work environment for the hospital’s 262 employees.
Nevertheless, San Clemente, as an unaffiliated standalone entity, still faces a challenge in recruiting, Wolfram said.
As a result, Wolfram said, her facility’s pay scale for nurses is comparable to those of larger facilities.
And the hospital has expanded its geographic reach in searching for employees.
“We advertise in San Diego,” Wolfram said, pointing out that a quarter to a third of San Clemente’s staff lives in northern San Diego County. One selling point, she said, is that the stretch of Interstate 5 between Oceanside and San Clemente has virtually no traffic.
As for payers, managed care makes up some 48% of San Clemente’s business mix, while Medicare makes up some 40%, according to McGee.
“We’re a for-profit hospital, we take everybody,” McGee said.
The average age of a San Clemente patient is 38, with approximately 12% of the hospital’s patients 65 or older.
The changes in OC’s managed care market,specifically, the contract contretemps between several managed care plans and Orange-based St. Joseph Health System,haven’t left San Clemente Hospital untouched.
Because of other contract situations, managed care companies are coming to San Clemente, McGee said, as Wolfram interjected, “That’s a first!”
San Clemente had undergone some ownership churn,McGee said that the facility has had three owners in the past six years,and had not been profitable for a better part of a decade. At one time it was owned by Columbia/HCA Healthcare Corp., which was the subject of a federal investigation of its Medicare billing practices in the late 1990s. Columbia is now HCA Inc.
San Clemente Hospital’s changes actually began after NetCare bought it from Columbia in mid-1998 and brought in Wolfram and Shelle Diehm, the hospital’s former chief financial officer. The pair recruited new physicians, including specialists; negotiated with managed care companies for better contracting rates; and purchased new equipment, including a $700,000 CT scanner that was 20 times faster than the old one.
