Boutique Cardiovascular Hospitals

Some cardiologists are creating their ideal environment in a physician-owned setting.


Faced with the dual pressures of shrinking reimbursements and sometimes-unresponsive hospital bureaucracies, some cardiovascular physicians are beginning to change the face of cardiovascular care. Many are leaving their community (multispecialty) hospitals and starting their own physician-owned cardiovascular institutions that specialize in the treatment of cardiovascular patients. These “boutique hospitals” are owned in part by their physicians and managed with an eye towards the optimum satisfaction of both the patients and the physicians themselves. This formula appears to be succeeding in attracting patients and physicians, but the community—and the hospitals they leave behind—may pay the price.

The incentives for physicians to leave their hospitals are abundant. Financially, physicians are being squeezed from all sides. The federal government recently announced that it would be reducing Medicare payments to doctors by 4.4% starting in March 2003. That’s after a 5.4% cut in 2002, due to the flawed Medicare rate formula set by Congress. At the same time, malpractice costs across the country have skyrocketed, sometimes leaving physicians facing premiums that exceed their salaries. Considering the number of years in which physicians defer income while pursing an expensive education, their financial frustration is understandable.

Even more troubling to many specialists is the unresponsiveness of hospital administrators to those concerns that matter most to job satisfaction: better outcomes, more nurses, and newer equipment. With these concerns often overlooked, a number of physicians have chosen to leave their hospitals in search of more satisfying environments.

Galichia Heart Hospital in Wichita, Kansas, is a prime example of the trend. More than a year ago, Jody Galichia, MD, opened this 55-bed cardiovascular hospital, which focuses on nonsurgical approaches to CVD. Approximately 40% of the interventions performed there treat patients with PVD, a condition that Dr. Galichia states coexists with coronary disease in 85% of such patients. Dr. Galichia stresses that the success of the facility is best measured by the results, which he claims are outstanding. After the hospital’s first year of operation, the mortality rate was 0.6%, and 94% of its patients were released to their homes, rather than to another level of care. He states that the key to their success is in attracting patients and top physicians, a task that is accomplished by listening to and meeting their needs.

Boutique hospitals offer physicians the ability to control the conditions under which they work. Before designing the hospital, Dr. Galichia and his management team met with the physicians to determine what they wanted and then implemented those suggestions, from the state-of-the-art imaging equipment purchased for the cath lab to the carport that protects the physicians’ cars from the hot summer sun and hail storms common to the area.

Top Equipment
There are three cath labs and one EP lab, each with state-of-the-art hybrid C-arms and tables that permit both coronary and peripheral procedures (Figure 1). The hospital maintains a homogenous array of equipment so that physicians have consistency regardless of the lab that they are using. There are also two open-heart ORs.

The staff includes vascular surgeons, vascular medicine-trained interventionalists, and cardiologists. A state-of-the-art imaging wing is planned within the next year. The hospital also intends to add radiologists to the staff (CT and MRI are presently handled off-site at other facilities; Galichia has contracted with a radiologist practice to review images). The hospital uses software to digitally store images and patient records. Inventory is tracked using the Pyxis system (Cardinal Health, San Diego, CA), which uses an employee’s thumbprint to ensure proper document tracking and to prevent theft of patient billing information.

Facility Floor Plan
The facility is laid out on one floor, with doctors’ offices attached to the hospital. This setup prevents doctors from spending excess time on elevators or shuffling between facilities. There are a total of 220 employees and 88 physicians with privileges (including 35 physician-owners). There are 110 nurses, with a nurse-to-patient ratio of 1:4 (1:1 in the intensive care unit). There are eight intensive care beds and 10 outpatient beds. The hospital is equipped to perform all cardiovascular procedures except transplants.

In addition to excellent facilities, the hospital also offers physicians equity in the enterprise, which provides pride of ownership in the facility in addition to a decent return on investment. The physician-investors own 40% of the hospital, in accord with the safe harbor provision of the Anti-Referral (Stark) Laws 42 USC § 1395.

Galichia Hospital’s 55 rooms were designed with an emphasis on the comfort and safety of patients and their families. Dr. Galichia notes that they have attracted patients because there is a need for the product. “There is a boutique-like atmosphere. We aim to meet or exceed patients’ demands, so that it seems more like a great hotel than a hospital.” More than 95% of patients surveyed gave positive feedback regarding their experience. There are flexible rules with respect to visitors. The institution has strived to provide better food and more personal nursing care than at community hospitals. Every patient room is private, with a recliner/bed for a spouse, and has a portable monitor allowing conversion to an intensive care room. Patient beds are fluoroscopic and have built-in scales, so patients do not need to be moved for x-rays or to be weighed (Figure 2).

The simplest explanation for the appeal of boutique hospitals to both patients and physicians is the impact of free market forces. Cardiovascular practices have long been profit centers for community hospitals. High reimbursements, combined with a large and growing patient volume, have kept many hospitals afloat for years. The profits from cardiovascular procedures have been used, in part, to subsidize less-profitable aspects of many community hospitals. Naturally, cardiovascular specialists would prefer to have a larger share of those profits used to finance the equipment and salaries of the staff that are generating them. Many community hospitals operating on thin margins (or in the red) are unable to alter this allocation of funds without compromising services in other departments. Cardiovascular specialists are understandably drawn to boutique hospitals because they use their revenue exclusively to fund their practices.

These same market forces are also likely to provide boutique hospitals with an edge over community hospitals in the competition for cardiovascular patients. Among the hospitals competing for these patients, the price is held constant, because the third party payers (usually the US government; approximately 70% of Galichia’s patients are paid for by Medicare) will pay the same amount, regardless of the hospital performing the procedure. With prices fixed, hospitals compete for patients solely on the quality, and not the price, of the product—much as airlines did in the days before deregulation. Boutique hospitals are better suited to provide the higher-quality care that attracts patients; they are smaller, have less bureaucracy, and offer newer facilities with the newest equipment. They are also able to funnel all of their profits back into the facility, their staff, and their investors, many of whom are the physicians performing the procedures. Most importantly, these conditions attract the top physicians needed to lure the patients.

wThe success of cardiovascular hospitals comes at a price. The obvious casualty in this competition is the community hospital. When their profit centers break off, the community hospitals are left holding the bag of unprofitable lines of patient care and often become awash in red ink.

Accordingly, not everyone supports this trend. Jim Wilcox, Senior Vice President with John Goodman & Associates cardiovascular business consultants in Las Vegas, claims that the damage to the community caused by the loss of a full-service area hospital can be horrendous and permanent. He argues that most boutique hospitals would not have been formed if more hospital administrators listened and responded to their physicians.

Mr. Wilcox believes that there are circumstances in which it may be appropriate for physicians to leave their community hospital to start their own boutique hospital. He limits such circumstances to those situations in which ?the present hospital administration is not currently providing the highest quality of care with acceptable levels of average lengths of hospital stays and acceptable levels of utilization, and where the administration will not initiate a formal review process (managed by an outside party) to review and respond to physician concerns.?

Although start-up costs are prohibitive, the greatest impediment in many jurisdictions is not the cost, but the law: Twenty-six states presently require a Certificate of Need (Table 1) before a provider can offer new or expanded services or make major capital expenditures. State approval is contingent upon demonstrating a need for the new facilities or service, and it is unlikely to be granted if there is already a community hospital in the area providing cardiovascular care.

Furthermore, there is no guarantee of the return on your investment. The trend towards boutique hospitals is alarming to many in Washington. In July 2001, US Representatives Jerry Kleczka (D-WI) and Pete Stark (D-CA) introduced the Hospital Investment Act of 2001, which would prevent physician self-referrals to hospitals in which they have an ownership interest unless the interest was purchased on terms also available to the general public at the time. That legislation is still in committee, but may remove some of the financial incentives of the boutique hospital.

Finally, if this trend cripples enough community hospitals, it may well demonstrate a need for a seismic shift in the way that Congress determines Medicare reimbursements. Much as cardiovascular specialists have obtained market clout through their high reimbursements, other specialties appear to be unduly penalized because their reimbursements do not cover their costs. Any change in reimbursements for cardiovascular care will have a profound impact on the profitability of these centers.

Although cardiologists may have blazed the boutique hospital trail, they are not alone. Physician-owned vascular centers are also attracting interest around the country. Mr. Wilcox fields phone calls from many prospective physicians who are interested in pursuing their own facilities. He has noted increasing numbers of interventional radiologists and vascular surgeons interested in pursuing these options as well.

The legal and financial fallout from this nationwide trend is still far from certain. It is commendable that so many physicians are seeking to improve the conditions in which they work with an eye towards improving patient outcomes. At present, that interest appears to be weighed against the interest of the public in maintaining the viability of the community hospitals. Hospitals administrators, specialists, and Congress need to find a compromise that values both interests before it is too late. n

Craig McChesney is Publisher of Endovascular Today.


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Endovascular Today is a publication dedicated to bringing you comprehensive coverage of all the latest technology, techniques, and developments in the endovascular field. Our Editorial Advisory Board is composed of the top endovascular specialists, including interventional cardiologists, interventional radiologists, vascular surgeons, neurologists, and vascular medicine practitioners, and our publication is read by an audience of more than 22,000 members of the endovascular community.