When Tustin Hospital and Medical Center reopened after two years, Chief Executive Jane Wingate and other officials had a decision to make about what role health maintenance organizations would play in their business.
In its previous life, Tustin Hospital bypassed HMO patients for more well-to-do members of preferred provider programs. But that strategy backfired when Tustin missed out on the growth of HMOs in the early 1990s.
The result: a 1996 shutdown of the hospital and subsequent sale from bankrupt Healthcare America Inc. to its current owner, Beverly Hills-based G & L; Realty Corp.
Tustin Hospital, now under the management of Long Beach-based Pacific Health Corp., has bet against HMOs the second time around, too. But this time, it looks like the decision may be paying off.
The Business Journal’s annual hospital list showed the facility’s net patient revenue shot up 304% to $12.6 million in 1999 from $3.1 million in 1998. The gain is in part due to the hospital being open only eight months in 1998, vs. a full 12 months last year. But Tustin officials said they’re seeing revenue growth from inpatient and outpatient surgeries and from their bid to market the hospital’s industrial-medicine program.
The lack of HMO contracts hasn’t hurt either, said Wingate.
“We do not contract much with HMOs,” she said.
Only about 10% of Tustin Hospital’s business comes from HMO contracts, Wingate said. At other hospitals, the figure could run around 40%, analysts said.
Wingate estimated that 35% of Tustin’s patient population comes from workers’ compensation programs, 25% from preferred-provider organizations, and 15% each from Medicare and MediCal.
The 177-bed, 300-employee facility decided against heavy contracting with HMOs because “we’d heard so much complaining about not being paid on time and not being paid enough” for services, Wingate said.
The hospital reported a $3.6 million net loss from operations last year, compared with a $2.6 million net loss for 1998. Wingate attributes the losses to costs associated with restarting the hospital.
Leading the Field
Tustin Hospital is at the head of a trend among hospitals to diversify away from HMOs, observers said. In the past year, a growing number of hospital administrators have opted to not concentrate on one dominant payer, observers said.
“Hospitals are starting to look at their total product mix,POS, PPO, other types of revenue,” said Howard Saner, senior vice president with Costa Mesa-based Talbert Medical Group Inc.
Other analysts, however, think that de-emphasizing HMO contracts is still somewhat risky for Tustin and other hospitals.
“It depends on how big a piece of their healthcare dollar is managed care,” said Mark Pastin, a consultant and president of the Council on Ethical Organizations in Alexandria, Va. Pastin said hospitals could pursue such strategies if, say, they did more Medicare or outpatient services that get more private-pay patients.
But others could miss out, said Judy Fix, a San Diego healthcare consultant.
“HMOs are offered by all insurance companies. If you don’t contract with HMOs, Aetna, for example, could decide not to choose your hospital” as a provider, she said.
Finding a Niche
As for Tustin Hospital, it is looking to position itself in large part as an industrial medical center. The hospital is near a concentrated industrial area along the Costa Mesa (55) Freeway. Wingate said the facility markets its industrial medicine program to area employers by emphasizing completeness.
“We have X-rays and laboratories here. (Injured workers) can have it done right away,” she said.
Wingate also said that being owned by a private company that doesn’t come under Wall Street pressure allows it to make certain decisions about service offerings. She noted that Tustin Hospital’s pediatric sub-acute unit, which cares for chronically ill children, does not make much money, “but we love it. We really do.”
Tustin Hospital first opened in 1970 and closed four years ago after Healthcare America filed for bankruptcy reorganization. Healthcare America later sold Tustin Hospital, its nearby medical office building and 9.5-acre site to G & L; Realty, a real estate investment trust, for $4.5 million.
G & L; officials later awarded a five-year lease to Pacific Health to reopen the hospital. “Obviously, we think they’re good operators,” said Daniel Gottlieb, G & L;’s co-chairman and corporate executive officer.
“When we bought the campus, we wanted to find a good local operator who would turn it around,” Gottlieb said. “Hospitals are very tough to run today.”
Gottlieb noted the hospital industry overall has too many beds and is losing money because, among other things, medical advances have cut down the time that people spend in hospitals.
At Tustin Hospital, Gottlieb said, Healthcare America had tried to position the hospital as an “exclusive high-end” facility catering to executives.
“They simply had not done a good job,” he said.
Meanwhile, Tustin Hospital is planning for more service additions. Noel Hecht, business development director, said the facility’s urgent-care unit will operate on a 24-hour basis by the end of 2000, and added that the hospital would use urgent care as a framework to add emergency services eventually.
