Subject: Limited-Service Hospitals Find a Market Date: Published: 7/23/92 (166 lines) Source: Wall Street Journal. Copyright Dow Jones & Co. Inc. Health: Limited-Service Hospitals Find a Market ---- By Robert Tomsho Staff Reporter of The Wall Street Journal There's something different about the 47-bed American Transitional Hospitals Inc. facility in suburban Dallas. Although its pastel halls are lined with rooms for patients, it has no high-tech diagnostic equipment, maternity ward or operating or emergency rooms. Even "staff" doctors are part time. But the lack of expensive overhead is one of the primary selling tools for American Transitional and the dozens of nursing homes, psychiatric hospitals and other health-care providers that have jumped into the so-called subacute-care market since the late 1980s. Charging $500 to $800 a day -- compared with $1,200 a day or more at traditional hospitals -- subacute-care providers aim to be a low-cost alternative for patients who no longer need a fullblown hospital but still require therapy or other specialized care before going home. Despite unanswered questions about quality and cost, subacute care has sparked a miniboom within the health-care industry. The still-evolving market niche is a minuscule part of the $300 billion U. S. hospital market, with annual revenue of more than $1 billion, according to some estimates. But some analysts predict rapid growth as employers turn to health-maintenance organizations and other managed-care insurance plans to trim costs, and as insurers hire "case managers" to monitor policyholders' treatment. Insurers "are doing everything they can to keep people out of the hospital," says George Pillari, president of Health Care Investment Analysts, Baltimore. He believes subacute care could be a $5 billion to $7 billion market within 10 years. Outpatient surgery centers, home-care systems and rehabilitation hospitals have also spread as alternatives to the full-service, full-cost hospital. In contrast, subacute-care facilities are generally directed at sicker, already hospitalized patients who, while medically stable, are still too weak to care for themselves or undergo intensive rehabilitation therapy. While treatment specialties vary widely, the patients at these facilities include people who are dependent on ventilators, undergoing chemotherapy or recovering from burns or surgery. "The patients we take have been in the hospitals' intensive-care ward for 14-to-20 days before we get them," says Michael Barr, chief operating officer of Vencor Inc., Louisville, Ky., a chain of 20 subacute-care hospitals that specialize in treating patients dependent on ventilators. Because their staffs are free to concentrate on therapy rather than diagnosing diseases and dealing with trauma, subacute-care providers contend that they can get patients back on their feet faster than traditional hospitals. Ora Bell Thrasher's ventilator-dependent husband was transferred to American Transitional Hospital last winter from the intensive care unit of a larger Dallas-area hospital where he had been getting virtually no therapy. After the move, Mrs. Thrasher says, her husband got regular therapy twice a day from experienced staff members who also pulled him through several medical emergencies, had him off the respirator in two weeks and were unfailingly courteous throughout his eight-week stay. "They showed me what they could do," she says. Still, only about 70% of the facility's 47 beds are filled on an average day, and hospital administrator Jim Thaxton has had to give skeptical area doctors personal tours to prove that he isn't running a nursing home. "We're in an ice-breaking mode," he says with a sigh. For providers who persevere, though, subacute care can be lucrative. Unfettered by the stringent Medicare reimbursement caps that apply to traditional hospitals, they can largely continue to bill the government on a cost basis. And commercial insurers are only beginning to impose price limits on such care. Furthermore, converting medical facilities to subacute care costs less than $20,000 a bed, per-bed revenue is three to five times higher than for traditional nursing-home care, and, despite the need for more highly trained staff, profit margins are also wider. With nursing home care "you're looking at 3% to 5%," compared with 10% to 20% for subacute care, says Michael H. Seeliger of Horizon Healthcare Corp., an Albuquerque, N. M., nursing home operator. So far, the market has been dominated by nursing-home operators who have converted existing wings to subacute care and added nurses, therapists and on-call medical staff. Beverly Enterprises Inc., a nursing-home operator based in Fort Smith, Ark., plans to convert 2,000, or about 10%, of the beds in its 880 nursing homes to subacute care over the next five years. For psychiatric hospitals with beds to fill, subacute care represents an opportunity to diversify. Innovative Healthcare Systems Inc., a Birmingham, Ala., operator of psychiatric and rehabilitation hospitals, has already converted 32 of its 424 beds to subacute care and plans to pursue additional growth by specializing in caring for AIDS patients and pursuing contracts with acute-care hospitals. But some critics question whether subacute care will save money for the nation's health-care system. If hospitals are left with fewer, more resource-intensive patients, they will have to raise their own rates to spread fixed costs over a smaller patient base, the critics contend. "You may just have another layer in the layer cake," says Ron Anderson, president of Parkland Memorial Hospital in Dallas. Some health-care professionals also worry that further fragmentation of the health-care system will mean less coordination among care givers. Others are concerned about the consistency of services, pointing out that regulators and licensing bodies have yet to set standards for subacute care. Although a few facilities are accredited as hospitals, most continue to be licensed as nursing homes and have a wide variety of nursing hours, therapy levels and physician availability. "To be called a subacute-care provider you don't have to do much," says Andy Kramer, a health services researcher at the University of Colorado. A few insurers have taken action on their own. After a survey of the industry last year, Metropolitan Life Insurance Co. of New York signed contracts with five subacute-care providers that set standards for prices, nursing care, staff training and intensity of therapy. Amid ongoing scandals involving unscrupulous recruiting by some psychiatric hospitals and substandard care at some nursing homes and rehabilitation hospitals, some subacute-care providers are urging stricter regulation of their industry. "My concern is that there will be a big crisis or scandal before that happens," says Robert Elkins, chairman and president of Baltimore-based Integrated Health Service Inc. --- Levels of Overnight Medical Care Est. 1992 Revenue Avg. Cost (in billions) Per Day Treatment Acute-care hospital $321 $300-$1,200 Highly intensive, ($800-$1,200 usually short term; intensive care) diagnostic laboratories; staff doctors on site; generally has emergency, operating and maternity facilities Subacute-care facility $1 $600-$700 Low-intensity hospital with emphasis on highly skilled nursing and rehabilitative therapies; usually medium-term stays of 60 days or less; doctors on call but usually not on site full time Rehabilitation hospital $3 $500 Emphasis on rehabilitative therapies; medium-term stay; doctor on call but usually not on site full time Skilled nursing facility $70 $125 Emphasis on long-term custodial care; doctors on standby but rarely on site Source: Health Care Investment Analysis [This article is made available here by Dow Jones Co. for the personal and non-commercial use of callers to this bbs, in the hope that it will be of some help to those who are suffering from the disease and others who are seeking to help them.]