Health reform prods partnership of St. Vincent, OrthoIndy

November 13, 2009

St. Vincent Health and OrthoIndy are the latest hospital and physician groups to run into each others' arms in response to the reform winds coming out of Washington, D.C.

The two Indianapolis-based organizations announced Friday they will create a management company to handle physician work at St. Vincent's hospitals in Indianapolis. St. Vincent also acquired a minority stake in OrthoIndy's orthopaedic hospital, located a few miles west of St. Vincent's flagship facility on West 86th Street.

Both organizations say they want to expand their offerings of orthopaedic care around the state, particularly to rural areas in which orthopaedic physicians are scarce.

But they are also positioning themselves for a future that they expect will include lower reimbursement payments from federal programs, as well as incentives for hospitals and doctors to work more closely.

“Clearly, when we did this transaction, we had an eye on health car reform,” said John Martin, CEO of OrthoIndy, a group of more than 70 physicians who specialize in bone, joint and spine therapy.

All doctors face a 21-percent cut to Medicare reimbursement next year unless Congress steps in to change it, which it has done in the past. And Martin said that, with Congress spending nearly $1 trillion to expand health insurance coverage, he’s not banking on reimbursement from federal programs reversing their recent trends of falling or staying flat.

Stagnant reimbursement hasn’t prevented OrthoIndy from steadily increasing its profit margins at its Indiana Orthopaedic Hospital. It opened in March 2005, and generated a gain of $2.6 million that year, or 4.5 percent of gross revenue.

But, in 2008, the hospital posted a gain of nearly $29 million, or 18.2 percent of gross revenue, according to information from American Hospital Directory Inc.

It’s no surprise why St. Vincent was interesting in owning a piece of that hospital. Margins at its Indianapolis hospital were one-quarter as large last year, at 4.5 percent. Both hospitals’ results included gains from investment income.

OrthoIndy and St. Vincent officials declined to say how large a stake St. Vincent bought, or how much St. Vincent paid for the stake.

When OrthoIndy opened its hospital, St. Vincent officials criticized the physicians for skimming off the most profitable patients.

But relationships have warmed since then, with OrthoIndy physicians conducting surgeries at St. Vincent hospitals and participating in its Sports Performance program. OrthoIndy also provides orthopaedic emergency department services at St. Vincent Indianapolis Hospital.

Further integration can only help improve quality and reduce costs more, Martin said, which will be key to thriving if health reform leads to lower reimbursement. Health reform bills in Congress call for incentives to encourage hospitals and doctors to form partnerships to better coordinate care for patients.

“We’ve developed a pretty efficient clinic model,” he said of the Indiana Orthopaedic Hospital. “We’d like to leverage some of that in other places.”

Other local hospitals are already deep into similar efforts. Community Health Network has hired or signed integration agreements with more than 250 physicians this year.

Clarian Health is forming a joint venture with the Indiana University School of Medicine to combine their physicians under the Indiana Clinic banner. So far, about 375 doctors have signed up. Clarian is also trying to sign physicians to integration agreements under a program called Clarian Quality Partners.

And St. Vincent said it’s not done with the OrthoIndy deal.

“We will continue our approach to programmatic growth through physician alignment and trusted partnerships with health providers across the state,” said Kevin Speer, St. Vincent’s chief strategy officer, in a prepared statement. St. Vincent is a subsidiary of St. Louis-based Ascension Health, the nation’s largest operator of Catholic hospitals.

Even though OrthoIndy is formally partnering with St. Vincent, Martin stressed that OrthoIndy would continue to serve patients in the city’s other hospitals, including Methodist, Community South, St. Francis and Hendricks Regional. OrthoIndy will also start seeing patients at Hancock Regional in Greenfield next month and at Major Hospital in Shelbyville in January.

“We continue to support all the other hospitals in town,” he said.


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