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Hospital Predicts Healthier Finances; Heart Facility Has Begun to Break Even After $20 Million in Losses

Posted on: Sunday, 3 July 2005, 15:00 CDT

The Wisconsin Heart Hospital expects to begin making money by early next year after losing more than $20 million since its inception.

The specialty hospital owned by Covenant Healthcare System Inc., doctors and private investors began breaking even on a cash flow basis in May, said Norma McCutcheon, the hospital's president. But she acknowledged that the initial losses were higher than expected.

"We are a start-up company, and start-up companies do struggle," she said.

The hospital, 10000 W. Blue Mound Road in Wauwatosa, opened in January 2004, only months after the ill-fated Heart Hospital of Milwaukee opened in Glendale. The two hospitals, both partly owned by doctors, were the first in the Milwaukee area to specialize in the lucrative but competitive business of cardiovascular care.

Both hospitals set out to break into a market that already had about a dozen heart programs, a challenge proving too difficult for the Heart Hospital of Milwaukee. The hospital, owned by MedCath Corp. and 18 doctors, abruptly closed in November after 13 months.

Despite its rocky start, the Wisconsin Heart Hospital, which had revenue of $24.6 million last year, apparently has shown more promise.

"We are gaining traction, we are seeing positive results," McCutcheon said. "And the feedback from every one, including patients, is very positive."

The hospital also has let Covenant gain market share in the business of treating heart disease.

Paul Dell Uomo, Covenant's president and chief executive, said the health care system expected to see a drop in cardiac patients at its nearby St. Joseph Regional Medical Center when the hospital opened. That hasn't happened.

The gain in market share, though, has come at a price. The heart hospital lost $15.3 million last year. That is on top of a $3.5 million loss in 2003 and its net losses this year.

But, Dell Uomo said, "This is a long-term investment for Covenant."

Covenant owns 49% of the hospital. But its parent, Wheaton Franciscan Services Inc., has guaranteed that it will cover the hospital's losses. For that reason, they are included in Wheaton Franciscan's financial statements.

Excluding Covenant, the Wisconsin Heart Hospital has about 120 investors. Doctors, ranging from cardiologists to internists, own about 29% of the hospital. The rest is owned by other investors.

Wheaton Franciscan will recoup those losses over time if the hospital turns a profit. Still, the losses from the Wisconsin Heart Hospital are more than double Covenant's operating profit of $8.5 million in the fiscal year ended June 30, 2004.

The health care system posted a net loss of $1.4 million for the 2004 fiscal year primarily because it transferred its computer systems to its parent, Wheaton Franciscan. That deducted about $9.4 million from Covenant's net income.

Covenant, which had revenue of $788 million in its 2004 fiscal year, is the least profitable of the five health care systems in the Milwaukee area, in part because of losses at St. Michael Hospital. In the past three years, the hospital has lost $50.9 million, and it was on track to lose almost $30 million in the fiscal year that ended June 30.

Could bolster Covenant income

The Wisconsin Heart Hospital provided it begins to make money next year could provide Covenant with an extra source of income.

Doctors approached Covenant about building a specialty hospital, Dell Uomo said. And he acknowledged that if Covenant hadn't invested in the hospital, someone else probably would have.

Specialty hospitals, which focus on the most profitable medical services, such as orthopedics and cardiac care, have been controversial. The Wisconsin Heart Hospital, for example, narrowly missed an 18-month moratorium on new specialty hospitals imposed in a law that created a prescription drug benefit for Medicare.

Critics say that the hospitals, by focusing on only the most lucrative procedures, siphon money used to subsidize money-losing services, such as emergency departments, in traditional hospitals. They say the hospitals treat fewer Medicaid and uninsured patients.

They also contend that doctors' owning a stake in hospitals is a conflict of interest, giving them a financial incentive to refer the healthiest and most profitable patients to specialty hospitals while referring more sick and costly patients to traditional hospitals.

Covenant notes that about 70% of the doctors practicing at the Wisconsin Heart Hospital are not investors. It also contends that it is providing comprehensive care for all heart patients not just the patients easiest to treat. And the hospital is on track to spend more than $500,000 this year on charitable care.

For doctors, the hospitals can provide a more efficient setting in which to practice, giving them more control over their schedules. And proponents contend the hospitals can provide better care by specializing.

For example, the Wisconsin Heart Hospital has a "door-to-balloon time" the time that it takes for a heart-attack patient to have an emergency angioplasty of 42 minutes, compared with 90 minutes as the recommended standard for hospitals, McCutcheon said.

The hospital has a 24-hour emergency department staffed by board- certified emergency physicians.

Private rooms

Proponents also contend that specialty hospitals can provide patients with a more comfortable and less stressful setting than large medical centers.

The Wisconsin Heart Hospital has private rooms, with accommodations for family members. And patients stay in the same room throughout their stay, instead of being moved from surgical intensive care to a telemetry unit to a medical surgery unit.

"Over time, I think you will see it will be a patient choice hospital," Dell Uomo said.

The hospital's losses were higher than expected partly because of the aggressive response from competitors, McCutcheon said.

Aurora Health Care, for example, stepped up marketing for Aurora St. Luke's Medical Center, which is known for its heart programs.

The Wisconsin Heart Hospital also has had to change referral patterns among physicians, and that takes time. More than a third of the cardiologists who invested in the hospital had not been practicing at Covenant hospitals.

Those cardiologists depend on referrals from primary care doctors just as heart surgeons depend on referrals from cardiologists. And Dell Uomo acknowledged that other health care systems probably pressured their primary care doctors not to refer patients to cardiologists who were practicing at the Wisconsin Heart Hospital.

"You probably could surmise that some of that took place," he said.

Covenant has its own network of medical clinics, giving it an established base of doctors who potentially would refer patients to the Wisconsin Heart Hospital.

The ill-fated Heart Hospital of Milwaukee didn't have that advantage. Its failure to get referrals from primary care physicians was a factor in its abrupt closure.

The Wisconsin Heart Hospital also had an easier time negotiating contracts with insurance companies because it was partly owned by Covenant.

Word-of-mouth also has helped the hospital grow month to month. And Covenant expects that to continue.

"That's what we are banking on," Dell Uomo said, "and so far, it's working."

Copyright 2005, Journal Sentinel Inc. All rights reserved. (Note: This notice does not apply to those news items already copyrighted and received through wire services or other media.)

Source: Milwaukee Journal Sentinel

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