Dr. Shahram Ravan has treated patients at Midway Hospital Medical Center for nearly 20 years. It wasn't until the cardiologist became one of the hospital's new owners and began examining its books recently that he was able to diagnose why the Los Angeles facility was bleeding red ink.
One clue popped out of a pharmacy bill. It showed the 200-bed hospital was paying $3.20 per pill for an ulcer medication. Ravan asked his pharmacy manager how a commonly prescribed drug could cost so much. Doctors were prescribing two ulcer medications, he was told, splitting the small hospital's order in half and allowing the vendor to charge a premium for both.
Trying to get doctors to drop a drug to save money was the kind of idea that would have been dead on arrival had it come from a corporate bean counter. Not this time. Ravan and his fellow doctor-owners persuaded the staff to drop one of the hospital's ulcer medications, but only because they believed the remaining drug was just as effective. The result: Midway now pays 32 cents a pill, saving nearly $3 a pop.
"The healthcare system is broken," Ravan said. "Unless you get people in the trenches, the nurses and the doctors, involved in the solution, it's not going to get fixed."
Physician-owned hospitals are as rare as house calls these days. But their numbers are growing. Of California's 353 hospitals, as many as two dozen are owned by groups involving doctors, double the number of a few years ago.
Last fall Ravan, 53, and six other physicians ponied up a down payment, got a bank loan and bought Midway for $12 million. It was one of 28 hospitals that financially struggling Tenet Healthcare Corp. put on the block last year. Midway was no cash cow: The hospital lost $9 million in the last seven months of 2003.
The new owners, who include two surgeons, an orthopedist, a pulmonologist, a gynecologist who is good with computers and a dentist with an MBA, have a common goal: balance good medicine with good business. They want to make a reasonable return on their investment and plow money back into Midway in a way its corporate parent hadn't for years. After all, the operating margin for California's 100 for-profit hospitals in 2003 averaged 11.15%.
Still, it's a risky business. The doctors' plunge into hospital management comes at a time when a third of the nation's hospitals are losing money. Soaring medical costs, a rising number of uninsured patients and a byzantine billing and reimbursement system have created a crisis that has forced many hospitals to close unprofitable emergency rooms or shut down altogether.
Local healthcare advocate Lark Galloway-Gilliam is concerned about doctors buying hospitals at a time when even large chain operators are reeling.
"These are trying times," said Galloway-Gilliam, executive director of Community Health Councils, a Los Angeles-based nonprofit. "The real question is, 'Do these people have the staying power, the resources and the knowledge to run these hospitals?' "
Others are concerned about the potential for physicians' financial stakes to conflict with what is in the best interest of their patients.
What's driving doctors to buy hospitals is a desire to have "more control over the quality of patient care, and right now they feel like they have none," said Jeremy Hogue, founder of Sovereign Healthcare, a Newport Beach hospital investment company. His firm is helping a group of physicians buy ailing Brea Community Hospital in Orange County. It is also working with doctor groups in California and Arizona to acquire other hospitals.
Doctor-run hospitals once were common. Many celebrated medical institutions, including the Mayo Clinic, were founded by physicians. In recent decades, however, doctors have been pushed to the sidelines as not-for-profit operators and for-profit corporations transformed the healthcare landscape by piecing together regional and multi-state chains. Bigger wasn't always better, though.
HCA Inc., with 190 hospitals in 23 states, struggled for years before agreeing in 2003 to pay $631 million to settle whistle-blower allegations of false Medicare and Medicaid claims and kickbacks to doctors. Now Tenet, the nation's second-largest hospital chain, faces numerous government investigations over allegations of business and medical practice improprieties. As its finances plunged into disarray, Tenet decided to unload nearly one-third of its hospitals, many of them unprofitable or struggling, such as Midway.
Tenet was set to turn over Midway to its new owners Dec. 1. A few minutes before midnight Nov. 30, Ravan and a couple of partners went to the hospital, ordered enough pizza to feed the nurses, technicians and others on the graveyard shift, and made the rounds. They were greeted with cheers.
"They were coming to our rescue," said Marguerite Rabb, a nurse who has been at Midway since 1974.
