Georgia on my mind: New Hospital Development Model Emerges

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Ty-Cobb-Room.jpg - Ty Cobb Room
The facility includes 56 private beds.
Source: Ty Cobb Regional Medical Center

Ty Cobb Regional Medical Center in Lavonia, Ga., received its first patient July 1, 2012, after several years of planning and a creative business model that allowed the $57 million state-of-the-art facility to be built when others in the rural county were shuttering their doors.

The inspiration

In Northeastern Georgia, the 62-year-old Cobb Memorial Hospital in Royston closed in June 2012. One month prior, Hart County Hospital in Hart had shut down because “it was no longer financially feasible to operate,” according to a letter sent to the Hart County Hospital Authority.

The reasons that rural hospitals are in danger of failing are multifactorial, says J. Jeffrey Marshall, MD, an interventional cardiologist with the Northeast Georgia Heart Center and medical director of cardiac cath labs at Northeast Georgia Medical Center in Gainesville, Ga. One contributing factor, he says, results from the Hill-Burton Act, a federal law that provided funding to improve the physical plant of rural hospitals while requiring them to provide a “reasonable volume” of free care for residents in the facility’s catchment area. States and municipalities were required to prove the economic viability of the facility prior to building. Also, the law enabled rural areas to build much-needed hospitals, nursing homes and rehabilitation facilities after World War II.

As these hospitals aged, some fell into disrepair and didn’t meet current building codes. “This can put rural hospitals at a competitive disadvantage in the marketplace,” says Marshall.

While private physician-owned hospitals have been able to avoid certain government provisions, the Patient Protection and Affordable Care Act (PPACA) of 2010 amended the Ethics in Patient Referrals Act, known as the Stark law, to place additional regulatory constraints on physician-owned hospitals. PPACA limits the expansion of these hospitals and effectively prohibits the building of new physician-owned hospitals.

Over the past several years, most counties have wanted their own hospital as a source of revenue, which has caused unsustainable competition in fairly small markets, explains Marshall. Case in point: In a letter to the Hart County Hospital Authority, the hospital’s chairman said that occupancy rates were 30.5 percent in 2006 and dropped to 8.3 percent in 2011. In 2006, the provider experienced a loss of $1 million and $2.76 million in 2011. Small rural hospitals are finding it more and more difficult to make payroll, the letter read.

As a result, Ty Cobb Healthcare System of Royston, Ga., which operated the two hospitals, “determined that neither Hart County Hospital nor Cobb Memorial Hospital, standing alone or together could survive very far into the foreseeable future.” Thus, in June 2010, the state of Georgia granted a certificate of need (CON) to begin a new project.

The new model

To address this shortcoming, the nonprofit Ty Cobb Healthcare, physicians and local jurisdictions partnered to develop a new hospital. The project is comprised of five entities:

  1. Landlord: A real estate company firm, NGTC Health Properties (NGTC), developed and owned the hospital’s land and building;
  2. Tenant: Hospital operating company (Ty Cobb Regional Medical Center);
  3. Joint venture hospital management company;
  4. Medical office building: Physician-owned (Ty Cobb Physician Center); and
  5. Land Investment Company: Physician-owned (Clear Creek Investors).

This model is based in real estate ownership, explains Larry Unger, CEO and managing partner of Medical Partners of America (MPA) in Atlanta, which served as the developer of the project. NGTC was formed by MPA of Georgia to acquire land and develop and own the bricks and mortar of the hospital.

The 57 physicians, including cardiologists and hospitalists among other specialists involved with the project, are not hospital employees. “Physicians are at their best when they can act as private entrepreneurs, because they are more focused on quality patient care,” says Unger.

The physicians own the hospital land and the hospital building. As the landlord, they executed a 35-year lease with Ty Cobb Regional Medical Center, the hospital operating company, according to Marshall, who serves as chairman of NGTC.

“There is no current or proposed federal or state prohibition against physicians owning healthcare real estate or in a joint venture hospital management company,” stresses Unger. “This new delivery model has been deemed to be fully regulatory compliant under Stark