Major Hospital Alliance In Works
Mobile Register, Friday, July 29, 2005 Section: Page:
Author: Jeff Amy

Mobile Infirmary would lease Knollwood Hospital, and USA would move new cancer center site to Midtown under terms of deal, sources say

The University of South Alabama and Mobile Infirmary were poised Thursday to unveil a sweeping hospital business alliance this morning.

The key parts of the deal, as of Thursday evening, looked like this: Infirmary would lease Knollwood Hospital from USA, and USA would halt construction of its cancer research facility at Knollwood in southwest Mobile.

Instead USA would build the institute near the Infirmary, off Spring Hill Avenue, according to a USA trustee who spoke on condition of anonymity. The trustee emphasized that USA's board hadn't voted on the proposal yet.

Another source close to the university also confirmed the cancer center move.

In combination with the announcement Wednesday that Infirmary would lease and operate Thomas Hospital in Fairhope, an Infirmary-USA alliance would entirely re-arrange the health care map of Mobile and Baldwin counties. It would also mean a major shift in plans for the $100 million Cancer Research Institute project, the signature initiative of Gordon Moulton's presidency at USA.

"The cancer center is going to be built," said the trustee who spoke with the Mobile Register. "The location is probably going to change."

The leaders of USA and Mobile Infirmary both declined to confirm any pending agreement Thursday afternoon, but neither denied that they were in talks.

"It's just premature to provide any comments on this at this time," Moulton said. "... Tomorrow, I can talk to you about it."

"I can't talk about it today," said E. Chandler Bramlett, president and chief executive officer of Infirmary Health Systems. "I will be happy to talk with you about it tomorrow. It's embargoed until tomorrow."

It was unclear Thursday who initiated the talks between Infirmary and USA or when they began.

Two other USA trustees and several medical school employees said they knew the university was in talks with Infirmary. They said the plans would be discussed today at an 8:30 a.m. meeting of the USA trustee executive committee.

Two-hour meeting:

Moulton, medical Dean Dr. Robert Kreisberg and other leaders met with the department heads of USA's College of Medicine for two hours Thursday afternoon and told them about the plans, according to Dr. Allan Tucker, the pathology department chairman who said he was present. He declined to discuss the plans.

The leaders of privately owned Springhill Medical Center and Roman Catholic-affiliated Providence Hospital -- the other two major hospitals in the Mobile area -- said Thursday that they didn't know about the Infirmary-USA talks.

Combined, Infirmary and Thomas admitted 41.5 percent of all hospitalized patients in Mobile and Baldwin counties in 2002, the last year for which figures are available. USA admitted 19.5 percent of the all the patients in the two-county area.

Those numbers, collected from the State Health Planning and Development Agency, don't reflect outpatient procedures, which have become an increasingly important part of hospital business nationwide.

If Infirmary, including Thom as Hospital, worked together with USA, their combined heft could give the group greater bargaining power, especially with Blue Cross and Blue Shield of Alabama, the state's dominant private health insurance provider.

"That might be the strategy," said Dr. Sam Strada, an associate dean of USA's medical school. Interviewed Wednesday night, Strada said he only knew "bits and pieces" about the talks.

Employee impact:

The deal could also mean changes for some of the approximately 4,200 employees of Infirmary and 2,500 non-physician employees of USA's hospitals. Excluding physicians, about 550 people work at Knollwood, said USA spokesman Keith Ayers.

Several trustees said they weren't sure exactly what this morning's meeting would be about. Dr. Steve Stokes, a Dothan physician who is the USA trustees vice chairman, said he received a fax Wednesday notifying him of the meeting.

He said he was told it was about "the future of the hospitals," and he said he had heard USA was in talks with Infirmary.

Stokes, an alumnus of USA's medical school, said some USA physicians had called him to talk about rumors circulating inside USA's health care system.

Trustee Larry Striplin, a Selma businessman who is not a member of the executive committee, said he knew USA was in talks with Infirmary

USA's hospital operations, especially at Knollwood and at the USA Medical Center in northern Mobile, have been consistent money-losers, although the system overall made $5.5 million through nine months of the 2004-05 budget year.

Millions in losses:

Overall, USA's three hospitals lost about $8 million in 2003-04.

About $16 million in losses came from the Medical Center, where many adult patients are uninsured. Knollwood lost between $3 million and $4 million. USA Children's & Women's Hospital made about $12 million in profits, because delivering babies pays well under Medicaid and because the hospital is fully used.

USA's $5.5 million hospital profit for the nine months of this budget year -- Oct. 1 to June 30 -- stems from an even stronger performance at Children's & Women's and sharply reduced losses at the Medical Center.

Children's & Women's has made $14.8 million so far, while the Medical Center has lost $6.5 million. Knollwood so far has lost $2.8 million. USA projects total hospital revenues of $296 million for the entire 2004-05 budget year.

Mobile Infirmary's main hospital is a consistent moneymaker. According to federal tax documents, the entity that controls the main hospital had profits of $8.7 million on revenues of $263.7 million from April 2003 through March 2004, the last year for which numbers are available.

Infirmary has a number of other subsidiaries, some of which are for-profit corporations and thus don't file publicly available tax documents, so it's hard to get a full picture of profitability. Infirmary officials say revenues this year for all subsidiaries will total $365 million.

The unnamed USA trustee said that the new alliance would not include the university's physician-practice group. Incorporated as a nonprofit, the group would remain under USA's management and control.

Because most of USA's medical school faculty members are partially paid by the physician plan and partially paid from other school revenues, USA must control the revenues of the physician practice to be able to control faculty salaries. The practice plan also makes payments to the state pension system on behalf of USA doctors.

If Infirmary begins managing some USA assets, it's unclear what will happen to the status of those employees in the state pension system. When USA handed off its helicopter ambulance to Pensacola's Baptist Health System, some employees didn't want to transfer because they were close to earning a state pension.

Despite Knollwood's losses, the university has seen the hospital as its eventual promised land, almost since the school bought it in 1990. Knollwood is surrounded by affluent suburban neighborhoods.

Knollwood problems:

University officials have said Knollwood's losses came in part because the hospital is inefficient. Knollwood is often mostly empty but must pay for a full hospital staff no matter what.

USA leaders have been working over the last several years to steer more patients to Knol lwood to cover its overhead. For example, the school shifted most of its physicians who care for adults to the Knollwood campus in 2004 in an attempt to increase business there. Building on that, the university said in February that it planned to try to send patients from the Medical Center to Knollwood.

Also, university leaders have said they expected the new cancer institute to bolster Knollwood's bottom line by creating more inpatients and more outpatient procedures there.

Any deal that gives Infirmary access to USA's Cancer Research Institute would mean letting outsiders into another venture that the university sees as critical to its future. The school has spent years lining up money for the project from the federal, state and local governments, as well as from the USA Foundation and private donors.

In April, at an event attended by Gov. Bob Riley, both of Alabama's U.S. senators and a host of other local leaders, USA broke ground on the $40 million, 100,000-square-foot structure.

$60 million for doctors:

USA has already hired more than 50 researchers and other support staff for the cancer center. So far, though, relatively few doctors who will focus on treating patients have been hired.

The university has $60 million set aside to hire more doctors, as well as to support the current hires until they become self-sufficient through research grants or patient income.

Construction stopped earlier this month at the cancer building site. USA officials publicly attributed the halt to problems with stormwater runoff and previously undiscovered wetlands. The work stoppage has fueled rumors that the cancer institute was part of a looming deal with Infirmary.

An official with the earth-moving contractor said Thursday that his company had not been given an explanation of why USA halted the work.

A source close to the university said that linking up with Infirmary would allow the cancer institute to move ahead more quickly toward its goal of being recognized as a top center by the federal government's National Cancer Institute. The deal will mean that Infirmary's oncologists will work with USA's institute to treat patients, and the institute might also benefit from Infirmary's cash.

Cancer center site:

Right now, the source said, officials are looking to build the institute on a site between Infirmary and USA Children's & Women's Hospital. That location would be convenient not only for adult patients, but for cancer patients from the pediatric hospital.

Stokes said that USA had explored alliances with other local hospitals in the past. But those discussions never produced fruit. When USA's medical school was founded in 1973, the idea was that all local hospitals would cooperate in staffing the school and training its students.

But USA took over the money-losing Mobile General Hospital from the county as the medical school was being founded, converting it into USA Medical Center. In 1990, USA paid $38.5 million to a Tennessee company for Knollwood and Doctors hospitals. Doctors was renamed USA Children's & Women's in 1996.

Once USA was a hospital owner, relations between it and other medical centers in Mobile chilled, as all sought to add new services and attract well-paying patients.

In late 1990 and early 1991, USA and Infirmary each raced to buy up the Walshwood Avenue neighborhood that bordered the two hospitals off Spring Hill Avenue. The two hospitals ended up splitting the property, after they had bid up prices on the cul-de-sac.

All but one of the houses were torn down. USA turned its part into a park and a driveway connecting Children's & Women's Hospital to Spring Hill Avenue. A Ronald McDonald House, for the families of seriously ill children, was set up near the thoroughfare.

After the bidding war, in 1992, Infirmary blocked the entrance from Mobile Infirmary Drive to Center Street, which had been the most direct route to Children's & Women's.

In 2004, USA opposed Infirmary's plans to devote 33 beds to a long-term acute care hospital within Infirmary's larger hospital. That plan was rejected by the state Certificate of Need Review Board, which reviews applications for some types of hospital expansions and changes.

The unit, to be run by a Texas company, was designed to house a growing number of patients who stayed at Infirmary for long periods, and would have cut hospital losses associated with such long stays.

But the business could have threatened USA's long-term acute-care hospital at Knollwood, which operates alongside the regular inpatient unit. In 2002, the Knollwood long-term unit had about 36 patients per day and had seen a 5 percent decrease in patient days over the previous five years. Infirmary said its unit would have cared for sicker patients.

(Mobile Register Staff Re porter Penelope McClenny contributed to this report.)

This article reproduced with special permission from the Mobile Register.