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County looks to salve pain of its hospital.

Thursday, October 18, 2007
Chicago Tribune
by Bruce Japsen

Right prescription for alleviating financial drain may need to come from outside specialists

If Cook County decides to move away from operating Stroger Hospital, it would be joining a trend by governments to distance themselves from running health-care facilities.

That said, more hospitals in rural and suburban areas, rather than urban facilities, are moving to outside management companies because those institutions face less competition. Stroger, like other urban government-owned facilities, operates in a competitive market of nearly 100 hospitals and treats an abundance of uninsured that makes it a more complex business to run.

Stroger Hospital and its affiliated health facilities and clinics represent one drain on the finances of Cook County, which has a $300 million budget hole. As part of its effort to attain financial health the county is publicly mulling a change in the management of Stroger and the rest of the county health system, with no options specifically ruled out.

Increasingly, government-owned hospitals have negotiated outright sales, management deals and even long-term lease agreements with outside companies, according to industry statistics. Some have generated savings while shedding the facilities altogether to free up taxpayer dollars for roads, infrastructure and even funding indigent care over the course of decades.

In return for management of the hospital, outside companies are paid fees or, if they take an ownership stake or lease the facility, reap profits and pay the seller in the form of proceeds from a lease or outright sale.

Although an outright sale of the Cook County system is unlikely, industry analysts say outside management deals represent one option.

Short of a sale or lease, some government hospitals also are turning to non-political boards or public authorities, one option the county has said is under consideration.

County Board President Todd Stroger, along with his health chief, Dr. Robert Simon, have pushed through cuts in services and are now looking at other possibilities to improve operations.

Stroger and Simon, who met with the Tribune's editorial board Wednesday along with other county executives, said the county is in the early stages of studying how to go about improving the operation at the county hospital and is not ready to make recommendations on what to do. But they are not ruling out outside management.

"I have no problem changing over governance," Stroger said.

Getting outside expertise would be a good idea, hospital analysts say.

"There are things that government hospitals can learn from private hospitals, and so they usually go outside to figure out what are they behind on in terms of everything from contracting with physicians to buying supplies to collecting bills," said Sandy Lutz, director of the Health Research Institute at PricewaterhouseCoopers consulting firm.

In other areas of the country governments have moved to get out of the hospital business, for various reasons. Some have sold, particularly rural facilities, to for-profit companies while others have hired management firms. Some have made strides to distance their facilities from politics by creating outside authorities to run the hospitals.

Suburban and rural focus

Hospital management companies and for-profit firms that have taken over government owned hospitals tend to look at suburban markets and rural areas where the facility it is poised to run tends not to face the competition for patients that exists in the Chicago area.

For example, Tennessee-based Community Health Systems, which is the largest publicly traded hospital company in the U.S., operates a hospital management company, QHR, formerly known as Quorum, with a growing interest in running government hospitals.

The company would not provide details, but the list on its Web site indicates that most of the hospitals under management are in smaller markets.

Tom Scully, the former head of the Centers for Medicare and Medicaid Services in the George W. Bush administration and now a partner in a New York private-equity firm, said Cook County officials should consider an outside public authority to run its system.

In Atlanta, Fulton County commissioners are considering a transfer of daily management of publicly owned Grady Health System to a "non-profit, community-based group," according to a report in last Friday's Atlanta Journal-Constitution. The health system is projecting a deficit of more than $50 million this year, the report said. Dr. Simon said Grady is among the public health systems Cook County officials are monitoring.

"The real issue is to insulate the hospital from politics and setting up a private authority would do that," Scully said. "You could sell it, but do you want to sell a public trust?"

Scully also said finding a for-profit management company to run it could "add significant value and detach the system" from the county.

Politics may be a problem

But some people who are familiar with what for-profit hospital firms are interested in say it's unlikely a company would want to buy Stroger or take an investment stake in a facility with so many political issues.

"As far as large urban county hospitals, it's extremely difficult to think one of those would be sold, and no one I know would be willing to expose themselves to the political firestorm that would ensue," said Josh Nemzoff, president of New Hope, Pa.-based Nemzoff & Co., a financial advisory firm that works with government and non-profit hospitals on merger issues and restructurings.

Nemzoff thinks one solution may be to ensure the hospital has good management rather than hire an outside firm.

"It would be a lot cheaper just to go out and hire a good management team and let them run the place," Nemzoff said. "If you hire a management company, its mission in life is to stay there as long as possible because they are paid by the hour. And before you know it, you will have 11 people from the management company and you might not be better off than you were before."



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