Contracting Success with a New Hospital Partner

In 2008, our board at Medical Center at Elizabeth Place, a 26-bed inpatient hospital in Dayton, Ohio, saw continued declines in out of network reimbursements. Accounts receivable from the largest payer in the market swelled to more than $5 million in gross bills. We saw payments of $250 on $60,000 inpatient charges. Days in accounts receivable ballooned to more than 152 days. Our cash flow was dropping as were our cases; too many denials from payers who refused to contract with us.

How does this come about? Dayton has two health systems; the Adventist system, Kettering with 46 percent of the market and Premier with 54 percent market share. Two major payers control the commercial market; Anthem with 30 percent share and United with approximately 20 percent. Due to the pressure from Premier, no commercial carrier would contract with us initially. Finally we achieved an acceptable contract with Medical Mutual, which controls about 10 percent of the market. However, Anthem continued to squeeze our facility to the point that we worried about our survival.

All the while, Premier was buying up physician practices. They continued to solicit our partners, offering to buy their practices as long as they agreed to sell their interests in our hospital. The independent physicians were the only benefit that carried us through the difficult first two years of operation. Those doctors were decreasing in numbers each month.

Our board reached out to the Kettering system to see if they would want to partner with us. Kettering, led by Frank Perez, sees physicians as customers and prefers partnerships over employment models. In his gracious way, Frank agreed to explore the possibility with us. After initially deciding not to proceed (since their team was fully engaged in several large capital projects), they did ultimately decide to invest with us and join our board. We closed the transaction at the end of December 2008.

The subsequent months have validated both organizations’ hopes for the partnership. Kettering finalized an Anthem contract on April 15, commencing May 15. We are making progress on United Health Care and expect that to be finalized soon. The case volume has increased by sixty surgeries per month. Collections and net revenue are up $400,000 per month making us profitable on a cash basis and a book basis.

While physician-owned hospitals are in the bulls eye of our national legislators, in Dayton, Ohio, it is working as it should. The physicians maintain an efficient and high-quality work environment. The hospital system establishes productive relationships with their physician partners. And patients have great clinical results, and fewer infections and adverse outcomes. This is truly a win for all involved.

Thomas Mallon, CEO
Regent Surgical Health
P. 708.686.1522
F. 708.492.0547