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Fed-Up Cardiologists Invest
In Hospital for Heart Disease

Chapter Nine
Life Flow One
The Solution For Heart Disease

by
Karl Loren

June 22, 1999

Page One Feature

Fed-Up Cardiologists Invest
In Hospital for Heart Disease

NOTE:  In March 2001 bypass surgery came under even greater attack as it was revealed in the New England Journal Of Medicine that more than 50% of heart bypass patients suffered at least a 20% reduction in mental ability -- and that most of these still had that same problem even five years later.  Click here for that full story.

By RON WINSLOW
Staff Reporter of THE WALL STREET JOURNAL

ALBUQUERQUE, N.M. -- Nearing completion along an Interstate highway here is a low, adobe-colored hospital that its owners say will bring top heart care at better-than-market prices. So far, it has brought mostly turmoil.

Though Heart Hospital of New Mexico won't admit its first patient till September, it has already splintered the city's cardiology practices, disrupted doctor-patient relationships and sparked a bitter struggle over money and power in the health-care system.

Local heart doctors, through their practices, own 41% of the for-profit hospital. They stand to reap substantial dividends if it is a success. The doctors say ownership will restore their eroding control over medical decisions and ensure that, amid relentless cost-containment pressure, the best patient care is delivered.

But just across the highway, where 91-year-old Presbyterian Hospital operates Albuquerque's leading heart program, officials call the new hospital a wasteful duplication that threatens to dilute quality of care. They view it as little more than a vehicle for doctors and their investing partners to cherry-pick the most profitable heart patients to enhance their returns.

Profit Center

"The money in medicine is in cardiac surgery," says James Hinton, chief executive of Presbyterian Health Services, the hospital's parent. "Cardiology is unquestionably profitable. That's what they're going after."

Around the U.S., growing numbers of hospital leaders and heart specialists are embroiled in similar conflicts. Frustrated by years of bridled incomes and lessened autonomy, doctors are banding together to regain control of both. Some are forging new relationships with existing heart programs, helping to develop cost-effective care strategies in return for a share of the savings. But others are taking the much more aggressive course of starting from scratch: building stand-alone heart hospitals to go head-to-head with the market leaders for their most lucrative business.

At issue is medicine's single-largest enterprise. The tab for treating ailing hearts approaches $200 billion a year in the U.S., about 20% of the health-care economy. With roughly 15 million Americans suffering from heart disease and tens of millions more burdened by high blood pressure or high cholesterol, treating hearts has become an industry.

More than 1,000 U.S. hospitals offer full-service heart programs. They typically account for more than 20% of a hospital's revenue and sometimes 50% of profits, supporting hospitals' less-lucrative endeavors. "Hearts are what keep hospitals in business," says Los Angeles health consultant Jacque Sokolov.

Under Pressure

Heart doctors enjoy some of the highest incomes in medicine: a $253,000 average for cardiologists last year and $385,000 for heart surgeons, according to the Medical Group Management Association. But managed care and cuts in Medicare reimbursement are taking a toll. The doctor's fee Medicare allows for one common diagnostic test is down 62% since 1989, and the permitted doctor fee for triple-bypass surgery has fallen 39%. Managed care has chopped tens of thousands of dollars from cardiologists' annual incomes in some markets.

Reimbursement to hospitals is under pressure as well, but doctors bear more of the pain. A decade ago, hospitals got about 60% of what Medicare paid for bypass surgery and doctors the rest, but now hospitals get 85%, says CardioVision Inc., a consulting firm in Columbus, Ohio.

Worse, many doctors feel that their judgment is under constant challenge from cost-obsessed hospital and managed-care bureaucrats. Example: A hospital in Little Rock began closing three of its four catheterization labs in midafternoon to save labor costs, causing huge backups for the other one. "I did an elective angioplasty at 11:30 one night on a patient who had been waiting all day," says Donald Meacham, who is now involved in a specialized heart hospital in the Arkansas city. Other physicians complain that hospitals don't consult them when cutting nursing and other staff and that the rise of sprawling health "systems" has increased the distance between hospital boards and doctors.

Patient-Friendly

All this spells opportunity for MedCath Inc., a closely held Charlotte, N.C., company that has opened five heart hospitals since 1996 and has three more slated to begin operations this year. MedCath has an innovative product -- a slick new patient-friendly hospital -- and a knack for exploiting frayed relations between doctors and traditional hospitals.

In Albuquerque, MedCath invited doctor investments of $30,000 each, with the possibility of one added contribution, and held out prospects of annual returns within a year or two of $75,000 or more, say doctors who heard the pitch. Doctors also would get 50% of the board seats.

MedCath counts on doctors' "economic involvement" to make them more efficient and generate more profits, says Steven Puckett, the company's chief executive. But this raises a hoary conflict-of-interest issue. The medical literature abounds with studies showing that financial incentives can influence how physicians decide on treating their patients. Indeed, federal law against "self-referral" doesn't even permit doctors to be the owners of, say, an imaging center or a laboratory for analyzing blood samples. However, a stake in an entire hospital facility escapes this prohibition.

Presbyterian's Mr. Hinton maintains that since Medicare pays a set fee for bypass surgery no matter how long a patient is hospitalized, doctors with an ownership stake will be under pressure, however subtle, to skim the least complicated cases and let complex, high-cost cases go to rival hospitals, where the same doctors still have admitting privileges.

"There isn't a player in the current health-care market that doesn't have some conflict of interest," counters Richard L. Gerety, a surgeon who has invested in the new heart hospital. He says that doctors fundamentally look out for their patients, and that the sickest patients will gravitate to specialty hospitals like this one.

But the experience of a MedCath heart hospital in McAllen, Texas, lends some support to the cherry-picking argument. An analysis based on Medicare data for three years ending Dec. 31, 1997, suggests it tended to treat less-complicated cases.

Bypass patients admitted to McAllen Heart Hospital had an average "predicted mortality rate" of 4.94% within 30 days of discharge, compared with a 5.38% rate at one competitor and 6.21% at the other. Predicted mortality rates are a measure of how difficult the cases are. They are based on such factors as age, sex and whether a patient has had previous bypass surgery, says Health Care Report Cards Inc. of Lakewood, Colo., which did the study.

MedCath's Mr. Puckett questions the figures' relevance, because he says the McAllen hospital was open for just two of the three years. MedCath hospitals avoid high-risk patients in their first six months of operation, he says, adding that he believes more-current data would reflect that its hospitals admit patients regardless of their risk.

Everything Close By

Unquestionably, MedCath offers a seductive haven for disillusioned doctors. They get to design their own facility right down to the color of bathroom tile. While the average 300-bed hospital has about 100 administrators, MedCath officials say, a 60-bed MedCath heart facility has one president and three vice presidents.

Patients stay in rooms close to radiology, pharmacy and laboratory services. At least two nurses are on duty for every seven patients, a much higher ratio than at most places, MedCath says, and meals are served when patients want them, not according to the hospital's schedule. Visitors are allowed 24 hours a day.

The design creates economies. For instance, because the hospital doesn't have to take patients on long corridor treks for various services, it doesn't need a staff to move them. Labor costs are about 25% of revenue, compared with 40% to 45% at a full-service hospital. This is a chief reason MedCath poses a threat to competitors.

Another reason: Patients like it. When Raymond Reeves, a 63-year-old retired oil-lease operator from Norphlet, Ark., had a heart attack a few weeks ago, he had already heard friends rave about the heart hospital in Little Rock. "I said I want to go to the heart center," he says.

But does a MedCath hospital provide better care? It's hard to know. Health Care Report Cards says the McAllen Heart Hospital, the one whose patients averaged a low 4.94% predicted mortality rate, had an actual mortality rate of 6.27%. Then again, that was just close enough to be considered "as expected" -- whereas the two competitors produced actual death rates "worse than expected" by the patient profiles.

Managing Care

The managed-care pressures that push doctors to a hospital like MedCath's are strong in Albuquerque. More than 70% of workers in the area with health benefits are enrolled in managed-care plans, as are about one-third of Medicare patients. And no institution has worked harder to prosper here under managed care than has Presbyterian. It owns not only the region's largest hospital but also the biggest managed-care health plan. Of the hospital's $850 million in revenue last year, 47% came from such operations.

A few years ago, some heart doctors began to feel this growth was coming at the expense of the heart programs. "They were focused on matters besides health care," says cardiologist Kathleen Blake.

Two other forces collided, bringing tensions between heart doctors and hospital administrators to a head. One was a price war among managed-care plans to attract new members, which forced hospitals to crack down on expenses. The other was an explosion of new heart technology, which transformed the delivery of care but also caused costs to jump.

Tiny metal devices called stents that prop open arteries hit the market in late 1994, with a price tag of $1,595. Soon after came a new anticlotting drug called ReoPro that doctors began using with stents, adding $1,350 more. Neither Medicare nor managed care was quick to cover either.

Use of a Costly Drug

By 1996, officials of Presbyterian, alarmed by $1 million in unanticipated costs in its cardiology program, began questioning doctors about use of ReoPro, whose benefits weren't well demonstrated at the time. "We were talking about ways we could make sure use of ReoPro and stents was most appropriate," says Mr. Hinton, the CEO. "The mere fact that we would raise these questions was thrown back in our face as an intrusion into medical practice."

Doctors say that's just what it was. "There were heated meetings about how the cath-lab budget was out of control because physicians were using ReoPro and that had to stop," Dr. Blake says. Another battle emerged over the heart-transplant team's request for a Heart-Mate, a $250,000 machine that takes over for a patient's failing heart during the wait for a donor organ. The doctors said it was essential, but the hospital wouldn't buy one. The hospital's charitable foundation finally agreed to purchase a Heart-Mate, but to surgeon William Deane, the episode underscored doctors' lack of clout and "told us we have to do something else if we're going to maintain the quality of the cardiovascular program."

In early 1997, doctors from the city's two independent heart practices, New Mexico Heart Institute and Southwest Cardiology Associates, invited MedCath officials to town to hear their pitch. They also persuaded Presbyterian and its chief heart rival, St. Joseph Healthcare, to consider joining them in a venture for a stand-alone heart hospital. For a short time, all were at the same table.

Just Adding Capacity

Presbyterian soon bowed out. Its Mr. Hinton says that in effect, the city's largest heart program was being asked to share its most profitable cases with a joint venture, keep the high-cost cases at its own hospital -- and somehow manage to maintain its margins with the payout from its investment.

The hospital also said that the venture would add unnecessary capacity that could hurt quality by reducing the volume of cases done at each facility; that patients with multiple health problems might be ill-served by a specialty hospital; and that it would siphon off resources needed to finance money-losing services such as treating trauma cases and uninsured people.

St. Joseph, however, enthusiastically allied with the doctors to take on its chief competitor. Folding its heart program into the new venture will reduce St. Joseph's revenue at first, says CEO Steven J. Smith, but meanwhile it benefits as doctors affiliated with the new heart hospital shift business to St. Joseph. (St. Joe will own 35% of the heart hospital, MedCath 24% and the two cardiology groups 41%.)

Cardiologist Neal Shadoff decided not to join the new venture, out of concern over how money might affect decisions about patient care. "If I have two patients who need to be admitted to the hospital and one has insurance that will pay handsomely while the other has no insurance, where are they going to be admitted?" he asks.

He was also disturbed by the emphasis he says MedCath was giving to bypass surgery over "interventional" care -- angioplasty and stents. "MedCath made it very clear that bypass is where you make money and interventional procedures are where you spend money," he says. "The implication was the more your mix was toward bypass, the greater your revenue would be." If he became an investor, he says, "I was worried that might alter how I think about treating a patient."

MedCath says that money can be made on both procedures and that physicians will make the decision that is right for the patient.

Dr. Gerety, one of the doctors joining in the heart-hospital venture, makes no apology for the possibility that he might profit. "What is it that makes the hospital or the insurance company more entitled to the money than me?" he asks. But he and the others say money isn't their chief motive. Says Dr. Blake: "I just want a good place to work and take care of my patients."

Fighting Back

Once it was clear the new hospital was going forward, Presbyterian went on the offensive. Benefiting from the schism in the cardiology community, it recruited Dr. Shadoff and nine other doctors away from the two practices.

They didn't come cheap. Presbyterian had to pay their former groups $250,000 for each doctor -- a total of $2.5 million -- to buy out noncompete clauses. Then it signed them to five-year contracts that essentially doubled their annual incomes, according to some of their former partners. Presbyterian won't confirm the terms but says they reflect the physicians' market value.

In early 1998, Presbyterian told the doctors investing in the heart hospitals they would be dropped from the managed-care plan Presbyterian runs. One cardiology group, the New Mexico Heart Institute, fought back. Even though only 3,000 of its patients were affected, it notified 32,000 patients of Presbyterian's plans. Some of them, irate, went to the press.

Presbyterian backed off. It revised the initiative to minimize any patient impact, then abandoned it. As of next month, the doctors investing in the heart hospital are back on Presbyterian's health-plan roster, though they won't be covered for operations done at the new facility.

Stay Away From the Patients

Dr. Shadoff says his former practice, the New Mexico Heart Institute, played hardball as well. After he joined Presbyterian, he says, he got a long letter raising the possibility of legal action if he even tried to contact his patients. Months after he resigned, he says, "I ran into one of my patients at the hospital. He thought I'd left town."

The heart hospital is going up rapidly, aiming for a late-September opening. Giving a tour of the 70%-finished facility, Dr. Gerety is effusive about its features. "There is no intensive-care unit," he observes. "If a patient needs to be in an ICU, we bring the equipment to the patient."

Another feature: a set-up room just outside the operating rooms where a nurse can assemble instruments needed for one procedure while another surgery is under way, cutting operating-room turnaround time to 25 minutes from 90.

And the elevators. On television's "E.R.," elevators are barely big enough for a gurney. The five in this hospital are massive, and they have to serve only two floors.

Over at Presbyterian, Dr. Shadoff calls these things marketing gimmicks. He concedes the patient experience may be better, but adds, "Will lives be saved? No."

Dr. Shadoff also has something to show off at Presbyterian: a brand-new $500,000 nuclear-imaging machine that takes moving 3-D pictures of the heart. His former colleagues investing in the heart hospital are indirectly responsible: The machine is one of the ways Presbyterian is fighting back by beefing up its cardiology program.

The things heart doctors need, says Larry D. Stroup, chairman of Presbyterian's parent organization, are now "all higher on the list than they used to be." He also has moved to address the professional-autonomy issue: Presbyterian's heart program, he says, "is now absolutely hands-on driven by our heart physicians."

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