Docs buy hospital with windfall from Cox deal

by Paul Flemming

SBJ Staff

What goes around, comes around. The former owner doctors of the hospital at 2828 N. National Ave. now own the facility again and plan to begin operating an acute-care hospital there early in 1999.

This time the doctors own the hospital without debt and with an infusion of $3 million in venture capital to renovate the building and provide startup operating cash.

The members of SGOH Acquisitions Inc. Oct. 30 purchased the former Columbia Hospital North for $2 million.

The deal was part of an agreement struck with Cox Health Systems when Cox purchased Columbia's local operations in July. SGOH, which comprises the doctors who had an ownership interest in Columbia's Springfield operation, was given an option to purchase the North National hospital as part of the deal.

The group's portion of Cox's $23 million cash purchase of Columbia was $2 million, which it then used to repurchase the north hospital, said Dr. William Campbell, president of SGOH's board of directors.

"I'm kind of excited about it," said Dr. William Reynolds, an indpendent plastic surgeon who is one of about 30 doctors forming an operating corporation for the hospital. "A lot of us are risk-takers. I've heard from (employee doctors of St. John's and Cox) who are envious of us. If I want to stay here, I'm going to have to take risks. I don't want to be in the position" of being a hospital employee.

The purchase includes the 100,000-square-foot hospital and the 28 acres of land it sits on within sight of Interstate 44. The hospital will have about 45 beds. The purchase also includes the equipment that was in place when the building last operated as an inpatient hospital. Columbia converted the buiding to an outpatient center in 1996.

A group was formed Nov. 4, as about 30 doctors signed on with $5,000 subscription fees to create the operating entity for the hospital. Tentatively named Doctors Hospital LLC, the group will lease the building from SGOH.

Initially, the hospital will have about 100 full-time-equivalent employees, Campbell said.

A business plan prepared for the group indicated an initial average daily census of about 17 patients, increasing to about 26 daily hospital patients within five years, would produce enough revenue to make the operation succeed.

The plan also supposes outpatient revenues of about 65 percent of hospital revenues. Campbell said this is a conservative estimate, and outpatient income could be significantly higher.

Campbell said a key element of the deal with Cox is inclusion in the managed care systems of Cox. The physicians that are a part of Doctors Hospital are in the process of being credentialed for Cox and various managed care plans. Campbell said the doctors will be a mix of independent physicians and Cox-employed physicians.

"I wouldn't even consider it unless (managed care inclusion) was a part of it," Campbell said.

Another element of the agreement between Cox and the doctors includes Cox operating an emergency room for two years at the North National location. Heidi Hartman, media relations coordinator for Cox, said the agreement stipulates the hospital must be running as an acute-care facility within 100 days in order for Cox to provide the emergency services.

"We're not moving forward until they get closer to bringing the hospital up to that standard," Hartman said.

Doctors Hospital will bill for use of the facilities, and Cox will bill for the physicians for emergency-room patients. After the two-year period Cox has committed to operate the emergency room, Campbell said the doctors' group would assume responsibility for the operation.

Campbell said about half of the $3 million loan from Cox will be used for renovations, repairs and additions to the building. He said the roof needs work and the interior will be remodeled. State regulations require the addition of an emergency surgical area adjacent to the obstetrics clinic, Campbell said.

Payments on the loan begin in three years, though interest accrues on the principal before then under the terms of the Cox agreement.

Upon opening, the hospital will begin the process of receiving a Medicare provider number, a requirement to receive federal payments. He said the process can take from 45 days to several months.

Campbell said the doctors will open the facility prepared to operate fully.

"It's like a new restaurant: Everybody may want to go there when it first opens," Campbell said. "We want to control that to make sure we're able to manage and take care of people."

The doctors involved include 16 surgeons and represent a variety of other practice areas. Campbell said he expects a majority of patients will be within the Cox Health Systems managed care plans, and in those cases patients will most likely stay within the system when treatment is required from doctors not available among the Doctors Hospital group.

The hospital and its property were given a true-value assessment of $4.6 million by the Greene County Assessor in 1997, according to tax records. The adjoining undeveloped acreage was given a true-value assessment of $100,800 in 1997.

The hospital opened in 1967. Additions and renovations in 1977, 1983 and 1986 resulted in its current configuration. When it was last operated as an inpatient facility in 1996, it had about 100 beds.

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