Health Care and Government

Wishard owner fishes growing revenue stream: Health and Hospital Corp. buys 19th nursing home

May 30, 2005

The owner of Wishard Memorial Hospital added a 19th nursing home to its investment portfolio earlier this year, as it continues to pull revenue from a market filled with struggling competitors.

Health and Hospital Corporation of Marion County purchased American Village Retirement Community, a complex of garden homes, apartments and a nursing home near the intersection of East 54th Street and Keystone Avenue, for $2.6 million, said Matt Gutwein, Health and Hospital president and CEO.

Gutwein said the deal, like other nursing home purchases made in the past decade, helps Health and Hospital fulfill its mission of serving the poor. It also adds to what has become the public entity's third-largest revenue stream.

Health and Hospital entered the field about 10 years ago, when Marion County asked it to assume responsibility for a county home now known as Lockefield Village.

The corporation found several advantages in the new line of work, said Gutwein, including the opportunity to help the disadvantaged. Lockefield, like most nursing homes, serves many patients covered only by the Medicaid program.

"We believe that, as a result of being in the business, we've improved the quality of care for those patients," Gutwein said. "That is a necessary and threshold reason for us to be in the business."

The nursing home business reciprocates. It generates referrals to Wishard when residents need treatment. That provides much-needed federal Medicare dollars for the safety-net hospital, which has struggled financially in recent years.

Health and Hospital also recoups more Medicaid reimbursement than a private business can, thanks to its status as a government entity, Gutwein said.

That's no small edge. Nursing home spending on patient care in Indiana outpaces Medicaid reimbursement by about $8 per patient per day, said Art Logsdon, president of Indiana Health Care Association, a trade association for nursing homes and assisted-living facilities.

Medicaid covers about 65 percent of all the patients in Health and Hospital Corp.'s nursing homes, Gutwein said.

Statewide, Medicaid covers about 70 percent of all nursing home patients. Medicare pays for 15 percent, and the rest have some sort of private coverage, Logsdon said.

"The facility that's 100-percent Medicaid has serious trouble," he added.

Health and Hospital Corp. has acquired a string of nursing homes stretching from South Bend in northern Indiana to Clarksville, which sits across the Ohio River from Louisville.

It buys the businesses and turns the keys over to Indianapolis-based American Senior Communities LLC, which handles day-to-day operations.

Gutwein said Health and Hospital Corp. conducts "extremely significant" oversight of each location.

The Marion County corporation has managed growth in a market where occupancy rates are rising but the number of locations is shrinking.

About 95 homes in Indiana have closed since 2000, Logsdon said.

"A few new buildings have been constructed, but it's a drop in the bucket compared to the 95 that closed," he said.

He attributes the closings, and subsequent occupancy increases, to two things: a payment cut and a state Medicaid rule imposed a few years ago that threatens to penalize homes with another payment cut if they fall below 85-percent occupancy.

Logsdon knows of only one private company in the industry adding beds in Indiana, Louisville-based Trilogy Health Services LLC. And he knows of no other government entity in Indiana that owns as many nursing homes as Health and Hospital Corp.

When asked whether the corporation receives an unfair advantage through better Medicaid reimbursement, Logsdon said he "has no opinion" on the topic. His association doesn't represent the Health and Hospital Corp. homes.

"It's the way the federal law was written," he said. "It's a fact, that's just the way the federal program was established."

Gutwein makes no apologies for any extra Medicaid money it can squeeze out of the nursing home business.

"In light of the fact that our mission is to serve Medicaid and indigent populations, it's no different than suggesting Wishard Health Services, as a Medicaid recipient, has an unfair competitive advantage over for-profit hospitals," he wrote in an e-mail response to questions.

The nursing homes have become the third-largest revenue generator for Health and Hospital Corp., behind Wishard and grant money. Last year, the homes generated a $15 million profit, Gutwein said.

He believes Health and Hospital Corp. can make back the money it spent on American Village in three years.

The nursing home venture has not been flawless. Earlier this year, the state Department of Health issued an emergency order to place a monitor at Lockefield and banned new admissions to the facility.

State officials also announced they would seek probationary status for the home's license due to some problems found during a January inspection. Those incidents included one case where a patient identified as an unsafe smoker managed to get ahold of a lighter and set fire to a bed.

Gutwein said the case has been resolved.

Indeed, the ban on new admissions and the monitor requirement lasted only a few weeks. The state also dropped its request for a probationary license, but the case has yet to be dismissed by an administrative law judge, said Sue Hornstein, director of the Health Department's long-term-care division.

A $77,000 penalty assessed by the U.S. Centers for Medicare & Medicaid Services is being appealed. Officials there declined to comment.

Overall, Logsdon said he thinks Health and Hospital Corp. has a solid reputation in the nursing home business.

"You don't hear much about the good places and, since I haven't heard much about them, my conclusion is they must be pretty good," he said.

Gutwein said acquisitions like American Village play a big role in Health and Hospital Corp.'s growth. He noted that the purchase price represents a small slice of the corporation's $500 million budget. And while it paid $2.6 million for American Village, Gutwein said the corporation paid nothing to acquire several homes before it.

"We think it's a very wise investment for our overall mission, both care-wise and financially," he said.
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