Health Care

Pumping out healthy profits: Stand-alone heart hospitals now bustling, earning millions after overcoming slow starts

October 10, 2005

Business heated up so fast for The Heart Center of Indiana last winter that it averaged 103-percent occupancy for an entire month.

That meant the Carmel hospital often had to hold patients in an emergency room or short-stay location until space opened for them, Heart Center CEO John Stewart said.

"We literally, multiple times, had to refuse [patient] transfers," said Stewart, whose hospital is spending $4 million to add 20 beds that should be ready for patients next month.

After steep first-year losses, both the Heart Center and its north-side rival, The Indiana Heart Hospital, now report gleaming bills of health.

The Heart Center, which opened in December 2002, made a $15.1 million profit last year. That nearly doubles the $7.7 million profit reported by The Indiana Heart Hospital, which opened a couple of months later.

Finance experts decline to declare a winner based on those numbers. They note head-to-head comparisons are difficult because the figures provide only a snapshot of hospitals' total operations.

Even so, it's clear both hospitals are prospering, said Tom Lane of HeartWorks Inc., an Indianapolis-based cardiology consulting firm.

Indeed, both saw healthy increases in patient counts from 2003 to 2004. The Heart Center registered 5,032 inpatients last year-a 65-percent increase-at an average charge of $26,410 each.

This year, the hospital, which draws patients from around the state, will perform 850 open-heart surgeries, the most in Indiana, Stewart said.

The Indiana Heart Hospital registered 3,766 inpatients last year, a 66-percent increase. In addition, it said outpatients last year totaled 9,280, a 3,500-person jump.

A humble beginning

Both stand-alone, for-profit hospitals opened in the middle of a glut of cardiology investment sweeping the Indianapolis market and its four major hospital networks.

In 2001, Clarian Health Partners, the city's largest hospital network, opened a cardiovascular center attached to its Methodist Hospital downtown.

Earlier this year, St. Francis Hospital & Health Centers welcomed the first patient into its $70 million Cardiac Vascular Care Center on its south-side campus. That addition included a consolidation of cardiology resources from its Beech Grove hospital.

Community Health Network also consolidated its open-heart surgery beds into The Indiana Heart Hospital, which it opened in a joint venture with doctors.

St. Vincent Health launched The Heart Center as a joint venture with The Care Group LLC while keeping its cardiology program at its 86th Street hospital in business.

Both new stand-alone heart hospitals started in deep holes. In 2003, The Heart Center lost $869,447 and The Indiana Heart Hospital was $1.8 million in the red.

Consultants say hospitals often lose money their first year due to startup expenses, including new equipment and the training for employees. The Indiana Heart Hospital, for instance, employed a full staff months before it opened.

"We had to have a full hospital up and going and running to care for those patients the minute they arrived," said Mark Dixon, the hospital's interim chief executive officer and Community Health Network's chief operating officer.

Billing complications initially pinched revenue at the Heart Center, as it worked through how to bill correctly and collect all the money it was due, Stewart said.

"It is so complex and cumbersome, if you don't pay attention to it literally every day, it can get out of control," he said.

The Heart Center also renegotiated several vendor contracts to boost its profit margin. Stewart noted supplies-not salary-are the largest single expense in his budget.

Drug-eluting stents can cost $2,500 apiece, and some implantible medical devices run close to $30,000.

Dixon and Stewart say increasing patient counts will further improve the performance of the hospitals, albeit on a smaller scale.

Stewart forecasts a profit for 2005 of $17 million. Dixon thinks an $8 million to $10 million profit is reasonable for his hospital. Both executives, however, stress those figures are tentative.

Helping fuel that success, consultants say, is a perception among patients that they'll receive superior care from a specialty hospital.

"We're in a world of specialization so you think, 'If I got a heart problem, I'll go to a place where that's all they [treat],'" Indianapolis-based health care consultant Mike McCaslin said.

Long-standing debate

The new heart hospitals arrived amid a growing debate over whether providers were flooding the Indianapolis market with cardiology care.

Doctors, hospital executives and other health care experts worry that the additional beds will lead to overuse of cardiovascular services, driving up costs. They've also expressed concern that the new for-profit hospitals will skim profitable cardiology business from not-forprofit counterparts.

Indeed, St. Vincent Indianapolis Hospital on 86th Street saw a dip in cardiology patients after the Heart Center opened. However, the hospital has started to rebound, thanks in part to an expansion of services, said Dr. Michael Wiemann, senior vice president and chief medical officer.

He said the St. Vincent cardiology program, which treats more than 28,000 patients annually, can "grow and thrive" while sharing the market with more competition.

Overuse has not surfaced as a problem so far, according to Anthem Blue Cross and Blue Shield of Indiana, the state's largest health insurer.

It saw no significant increase in the use of cardiac services in the year after both heart hospitals opened, according to Dr. David Lee, Anthem's vice president of health care management.

Lee recently told an IBJ panel discussion on health care that "it's our belief that, at least from the data we've seen so far, that those cardiac hospitals have not driven increased cost of care in Indianapolis."

Lee said the relatively poor health of Hoosiers, as measured by smoking and obesity rates, is playing a much greater role in boosting health care costs.

Stewart agreed. On any given day last winter, at least one of the market's cardiology programs had to divert patients to other locations because it was too full, he said.

Cardiovascular programs generally target 7-percent annual growth. Stewart thinks that is easily within the grasp of the Heart Center.

"If Indiana doesn't start getting healthier, our numbers will far exceed that 7-percent growth," he said.
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