Case study: Midwest physicians seek hospital ownership deals

Physicians are looking to make substantial investments in two financially-struggling Midwest hospitals, both of which will be majority-owned by doctors if the deals go through. In one case, an entrepreneurial family physician is hoping to restructure the ownership of Cincinnati-based Deaconess hospital as a for-profit joint venture with the hospital's not-for-profit parent. Meanwhile, another venture formed by a Rochester Hills, MI-based urologist is preparing to take over North Oakland Medical Center of Pontiac, MI.

In the Deaconess case, a group of about 100 physicians would buy a 40 percent stake in the hospital, with the remaining 60 percent staying in the hands of hospital operator Deaconess Associations. The idea is to build a model that appeals to individual primary-care physicians and specialists, which should compensate for admissions the hospital has lost as the area's largest groups have been acquired by competitors. Right now, Deaconess Associations showed an operating loss of $5.5 million, a result that incorporates its 24 nursing homes. The hospital lost $5.2 million in 2006.

In Michigan, meanwhile, North Oakland Medical Centers has been underwater financially, suffering an operating loss of $13.4 million in 2007. It had only 18 days' cash on hand at the end of the year, according to Standard & Poor's, and missed a payment earlier this year on $38 million in bonds issued under a lease agreement with the city of Pontiac. The Pontiac City Council has now agreed to sell the hospital property to Oakland Physicians Medical Center, an LLC formed by a consortium of physicians. The physicians expect to invest as much as $6 million toward the $11-odd million deal, and the hospital's owner, McLaren Healthcare Corp., will need to kick in $5 million.

To find out more about these deals:
- read this Modern Healthcare article (reg. req.)