HOSPITALS: Specialty hospitals make you rich, but everyone else is doing OK

Really good article in the WSJ about specialty hospitals, featuring one surgeon in the thriving metropolis of Rapid City, South Dakota. The founder of Black Hills Surgery Center, a neurosurgeon called Larry Teuber, has made some $9m in selling off his share of a specialty hospital. (I’ll quote fairly liberally as I know most of you don’t have WSJ access).

Medical Facilities Corp., which owns 51% of Black Hills and three other specialty hospitals, went public on the Toronto Stock Exchange last year and now has a market capitalization of just under $300 million. The offering fetched $165 million, of which $145.8 million went to 88 doctors and a handful of other investors in the hospitals. Dr. Teuber says he received about $9 million.The 39 owners of Black Hills, of whom 35 are doctors, together received $37.6 million in profit distributions between 2001 and 2004 and an additional $65 million in the stock offering. For the doctors, that money comes on top of the fees they earn each time they perform surgery.

The success of specialty hospitals illustrates how many doctors, feeling squeezed by health insurers and malpractice-insurance premiums, have found new ways to prosper. Some are trying to get in on the boom in medical imaging via fees for referring patients to scanning centers. Others get paid by pharmaceutical companies to lecture about the companies’ drugs.

What Dr. Teuber doesn’t have is many friends at Rapid City Regional Hospital, the nonprofit general hospital where he used to perform surgery. Regional posted an $8.3 million operating loss last year and has seen its debt rating downgraded. It says Dr. Teuber’s surgery center has siphoned away healthier — and more profitable — patients. Dr. Teuber says his rival’s problems stem from poor management and inefficiency.

Of course the local hospital is taking it in the shorts. Granted all the criticisms Teuber makes about the local hospital are probably true. It probably is inefficient, it probably could be more attractive to patients, etc, etc.  And even if Rapid City might be a small town in a low cost state, the pay of the folks running it isn’t exactly second tier.

Dr. Teuber says Regional administrators have gotten too comfortable with the hospital’s longtime monopoly status. For example, when Regional does a hip replacement it lets the surgeon choose the brand of artificial hip. That means many brands are used, and Regional pays a higher price for each. Black Hills, by contrast, uses a single brand and negotiates deep discounts with the supplier, Dr. Teuber says. Regional’s leaders are paid handsomely by Rapid City standards. According to the hospital’s 2003 report to the Internal Revenue Service, the top-earning doctor at Regional earned $480,000 while Dr. Hart’s predecessor as chief executive was paid $410,000. Dr. Hart is paid $346,000 a year.

However, as Medicare is finally fessing up to with McClellan’s recent statements, the overall DRG payment scale is messed up in that leaves the really complex cases to lose money in the general hospital while the cheaper cases generate bigger profits for the specialty hospital. So really all the specialty hospitals are doing is stripping out the most profitable pieces of the community hospitals’ business. This can’t go on forever, hence the moratorium, but it’s just another in a long, long line of self-referral tricks that doctors have used to generate extra cash, going back to the infusion centers of the late 1980s.

And of course the other thing is that the amount of surgery in Rapid City (which was probably below the national average to start with as rural areas usually are) has gone through the roof. It’s been well known forever in healthcare economics that the demand for surgery is extremely susceptible to supply-side inducement — proving that as Bob Evans once told me a good surgeon will operate on anyone who’ll lie down.

Amid the competition for patients, the frequency of surgery in Rapid City has grown rapidly. Outpatient surgeries — those that don’t require a hospital stay — rose to 45 per 1,000 people in 2003, according to numbers provided by the hospitals. That’s more than double the rate in 1997, the year Black Hills opened. Inpatient surgeries were up 50% to 15 per 1,000. Doctors who work at Black Hills reject the notion that patients are getting unnecessary surgery. The doctors say they serve many patients who previously would have traveled far from Rapid City or suffered in silence because the city was short of good surgeons.

So the culprit here is as ever, fee-for-service medicine, with not too fussy payers (which in South Dakota probably means the local Blues and Medicare) making no attempt to manage the overall care of the population and letting a variety of (literally) cowboy surgeons take them and their clients to the bank. Do I sound like Alain Enthoven here? 

Probably, but of course all the paydays in Rapid City pale in comparison to how to really make cash in American health care. If you really want to get rich you should start a health plan, lobby the government to ramp up the fees it pays for the Medicare program, and then cash out by selling it to United. Yup, Pacificare execs are about to share a modest $230m payout. Shouldn’t some of that money go to the shareholders, or better yet, to the people responsible for Pacificare’s recent success — the taxpayer?

OK, I’ll stop being an America-hating communist and shut up, Mr O’Reilly.

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16 replies »

  1. Phil, You are a weak spineless human.
    Dr Teuber has demonstrated for over 25 years his concern for patients. He built BHSC because of his concern for his patients. The care received at RCRH was substandard and dangerous. He and 40 plus other doctors who own BHSC have been rewarded for their efforts. That is the way of the world economy.

  2. If anyone has any information or comments regarding a Dr. Steven B. Schwartz or Dr. Seljeskog – I would be interested in talking to you. My email is pamelot2000@yahoo.com – Thank you – Pamela.

  3. I have known Dr. Teuber as an educator, physician and business person for over 20 years. He sets extremely high standards of performance and is uncompromising in his concern and care for patients and their family members. He ranks among the top for those who done a great deal to improve the quality and choice in health care in South Dakota. Because of his success he has been the focus or criticism as we read in published blogs. He has spent over 15 years studying to become an excellent neurosurgeon who has an excellent reputation in the midwest among patients and his physician peers as a compassionate care giver, clinician and technical surgeon.
    I personally know and work with a majority of the Rapid City medical community. There is a great deal of political fighting, envy, jealousy for Dr. Teuber and his colleagues’ success. There is overwhelming admiration for his courage, persistence, commitment and advocacy to patient safety and care as well as his dedication to honesty and integrity when dealing with patients. He is among a group of physicians who founded a competing hospital in a monopoly market that has been very successful. As Americans they took the risk and put forth the tremendous effort to start and sustain their business and they are being rightfully rewarded.

  4. For those of you who think Teuber is a hero, you should probably speak to the Rapid City medical community. Teuber is not respected and he is not looked up to as a medical professional. In fact, he is probably loathed by everyone who comes in contact with him. This has nothing to do with jealousy because Teuber is, in my opinion, an evil person who will stop at nothing to destroy anyone who gets between him and his ego. I would like to know how sleeps at night knowing that he has ruined so many lives.

  5. Having followed the story in the Rapid City Journal over the years, concerning Dr. Larry Teuber, Dr. Steven Schwartz, Black Hills Surgery Center and RC Regional Hospital, I have become amazed at the attitudes of folks who obviously have something against those who, by virtue of talent and just plain good business sense have gained success.
    I have known Larry Teuber since he was in medical school at USD. While I consider Larry a friend of mine, he is also my doctor. Due to some unfortunate circumstances, genetics, or whatever, I have a medical condition known as degenerative disc disease. There is no physician I would trust more than Larry Teuber to perform delicate spinal surgery on me. I should know. I’ve had many of them. I’ll more than likely end up having more procedures. Larry will do them. Again, it comes down to who’s hands, as an rational individual, you choose to place your trust, and your life in. I made a conscious and very educated choice when I, 15 or so years ago, placed my medical care in Larry Teuber’s hands.
    I don’t wish for these comments to be a testimonial in any way. However, I do believe that most of the aforementioned postings by others attempt to negatively reflect all of the good that has come from Larry Teuber, The Spine Center and Black Hills Surgery Center.
    BHSC, in my opinion isn’t the competition of Regional Hospital. If anything, BHSC is an alternative. I have had many operations at BHSC. I have found the facility absolutely top notch in all perspectives. I tell folks that if you have to have surgery, and your doc is affiliated with BHSC, that’s the place to have it done.
    On the same hand, I have been a patient at RC Regional Hospital. I have been operated on there a few times. I have spent time in their Intensive Care Unit. RCRH does not have to take a backseat to any other hospital in terms of care. But, I’ll say it again, I think that BHSC is an alternative to Regional. You don’t want to go to Safeway, you prefer to shop at Albertsons. Your choice. You don’t want to have your gallbladder taken out at Regional, you go to BH Surgery Center. Big Deal. It’s your choice. Go to where YOU feel the most comfortable, where YOU feel that you’ll get the best care.
    Some of the above postings are critical of the money being made by physicians, especially Dr. Teuber. Granted, some specialities in medicine can be very financially lucrative, neurosurgery being one of them. But, can you really fault someone being compensated for enriching someone’s life? For freeing someone from a handicap or intractable pain? It’s pretty tough to think of it in those terms, isn’t it? Dr. Teuber had a dream of the Black Hills Surgery Center. The place, according to news articles has been financially successful. Great! I’m happy for them. But, put the “financially successful” term aside for a minute, and visualize “medically successful” for a minute. Visualize someone entering BHSC in a wheelchair because of a back problem. Then visualize that same person walking out of there a couple of days later, after a successful operation. Sure, that could have happened at Regional Hospital as well. But, that person has the option, the freedom and the right to choose Black Hills Surgery Center.
    Having said all of that, my purpose of these remarks is merely to express that in the field of medicine and surgery, and business, jealousy, in my opinion has no place.

  6. Personally, I wish that the stranglehold that Essent Healthcare has on our city brokered some competition.
    Christus sold our healthcare system after insuring that it would be almost impossible to be profitable: They bought their competition. So out of the two hospitals that were once here with 368 licensed beds, we are utilizing approximately half, and that is supposed to pay for the two campuses, plus the ancillary properties.
    The situation has gotten so bad that patients and staff are running to Dallas, Tyler, and Texarkana in record numbers. The result is that some floors have 4 out of 5 nurses from temp services while other floors are closed because of staffing problems. Patients are afraid to get necessary care here.
    An outright sale would not change the situation, only a bankruptcy that would mandate a breakup can really solve things.
    A specialty hospital would push them over the edge, heck, so would a feather. At least we could redirect the flow of patients back into community facilities.

  7. While some may choose to fixate on the political debate here I know first hand the importance of quality doctors. My father injured his back in 1993, after long battles with workman’s compensation he underwent surgery. His doctor was a board certified neurosurgeon and the surgery was performed in a public hospital. His pain and mobility was as bad or worse after the surgery, his doctor (the one that worked with the hospital) said there was nothing more to be done. After moving to a different state my father learned of Dr. Teuber and the BHSC. It was a long battle to get workman’s comp to allow him a second opinion but well worth it. Dr. Teuber performed surgery in 2004 and it was a great success. Dr. Teuber did what we felt the first surgeon should have done but refused, afraid that my father wouldn’t be able to work (the man hasn’t worked since his first surgery). After more than 10 years of pain, frustration and depression Dr. Teuber was a hero to our family, my children now get to have a grandfather. In my little world I don’t really care how rich Dr. Teuber is (HELLO, he is a specialist–he’s gonna be)I care about what he did for my father, he took away the pain. It is plain to see that the surgery center is making a lot of people a lot of money, but what is really important here is that there is quality care. Yes, surgeries probably have increased in Rapid City–look on a map and you will see that due to location the “customer base” so to speak can be very broad. I live in Montana, because of the reputation of Teuber and his associates people here are requesting to be seen by Teuber, my father traveled from Wyoming for his surgery. You need to understand that in our part of the country cities that are large enough to offer these services are few and far between, Billings and Great Falls are probably the only two cities in Montana that you can have neurosurgery. By the way, a friend of mine requested his doctor to refer him to Dr Teuber (a physician must refer you, you can’t just call and make an appointment), after examining my friend and reviewing the test results from the first doctor, Teuber told my friend he could operate but felt there would be little improvement so these doctors aren’t operating on anyone and everyone. Turns out my friend really didn’t need back surgery, at over 400 lbs he had gastric bypass and during that surgery they discovered the source of his pain–his gall bladder was completely full of stones. He hasn’t had back pain since they removed it–of course losing weight didn’t hurt things, either.

  8. Black Hills Surgery Center physician’s practice suspended for 90 days
    By Dan Daly, Journal Staff Writer
    RAPID CITY — The state Board of Medical and Osteopathic Examiners has ordered Dr. Larry Teuber, the controversial surgeon and entrepreneur of Rapid City, to stop practicing medicine for 90 days.
    According to the board’s disciplinary action report, the suspension of his practice was due to “unprofessional conduct not related to the quality of patient care.”
    It is unclear what Teuber has been accused of doing.
    Paul Jensen of the medical board staff, citing confidentiality rules, declined to specify details of the board’s action against the doctor. He said the 90-day suspension was a voluntary agreement between Teuber and the board. Teuber also agreed to pay costs associated with the action. The suspension became effective Aug. 19, according to the disciplinary action report.
    Teuber was not available for comment Monday afternoon. The neurosurgeon has been an outspoken critic of Rapid City Regional Hospital. He is also founder and partner in Black Hills Surgery Center, a specialty hospital that competes with the hospital for surgical patients.
    Rapid City Regional and Black Hills Surgery Center have engaged in a war of words since the center opened in 1997 just up Fifth Street from the hospital.
    Teuber admitted in 2003 that he sent anonymous letters to four patients of Dr. Steven Schwartz, a competing neurosurgeon who performed operations at Regional. In his letters, he suggested they sue Schwartz for malpractice.
    Several patients — including at least one that was contacted by Teuber — did sue, and Schwartz closed his practice here in 2003. After the Schwartz incident, Rapid City Regional Hospital and Teuber parted ways completely. He has not had hospital privileges there since July 2004.
    Teuber and his clinic attracted the attention this summer of the Wall Street Journal. In a lengthy front page story, the national business newspaper looked at the Rapid City battle as an example of the nationwide debate over doctor-owned specialty hospitals. General hospitals complain that specialty surgery centers siphon off the profitable procedures and leave the money-losers to them.
    Contact Dan Daly at 394-8421 or dan.daly@rapidcityjournal.com

  9. J. Davies comment about “free standing surgery centers” is quite certainly off the mark. While I agree that certain members of the medical community make excessive amounts of money (so do NFL players, by the way) the surgery center in and of itself is far more than a mere cash cow.
    Have you ever been inside the surgery center? If you have, you would know that, from a tactile perspective, it feels nothing like a hospital. It feels more like you’re in a resort.
    Additionally, if you were fortunate enough to undergo surgery in this place, you would know first hand how important it is for your family to be comfortable during thier stay with you while you recover. You would also feel the difference carpet, wood grain, fine art and air that doesn’t smell like medication and illness has on your emotional well-being.
    Study after study after study has shown that treating the whole person is a more effective means of dealing with illness than simply “fixing the problem” or “getting rid of the bad stuff.”
    What the surgery offers is a higher quality level of health care. And, if people make a lot of money in the process, so be it. It happens every day in all kinds of industries.
    Do people who figure out how to get rich under the capitalist system in which we live deserve to be rich? Yes. And for those of us who are angry because they have put in the time and the energy to create that life, may want to rethink our life strategy. You, too, could be filthy rich J. Davies. You just haven’t figured out how to do it yet.
    Those “greedy healers,” as you call them, have found a formula for a level of health-care that is in demand by the one generation who can afford to pay for it. They’re called Baby Boomers. They are the first “materialistst.” They are the first yuppies. They are getting older. And they want not only what they feel they deserve, but what they need to live longer, healthier lives. Holistic health care is in demand by the largest, most powerful consumer group in the history of the world. And the health-care industry is answering the call with places like the Black Hills Surgery Center.
    An ounce of market research will tell you that BHSC is not some scheme dreamt up by money-hungry, Dr. Capitalist. It is a product of consumerism and the public’s cry for value in a world where their government can’t (or won’t) provide the kind of medical care that heals the whole person. Some more research will tell you that people who are treated in places and with practices such as those found at BHSC get better faster.
    So, really, it’s a win-win, isn’t it? Can you pick on a doctor who’s focus is getting you feeling better and out of the hospital sooner?
    There’s alot more to it than just money. There’s an ineffible component of the healing process that many people don’t understand. It involves compassion, warmth, humanity, and personal attention from loved ones and the ones who care for you.
    You won’t find that at any old hospital.

  10. We all know that these free standing surgery centers are nothing more than a method for surgeons to line their pockets with more money than they already have. If a surgeon has the choice to send his/her patient to the hospital or “his/her surgical center”, “the center” will be chosen more often than not.
    Day surgery was supposed to help reduce the costs of modern medicine, however, these medical mafiosi have derailed this with their greed.
    Greed drives some of these so called healers more so than healing. They brag about how much money their “surgery centers” will earn for them.

  11. I think the last two comments give us an idea of the diversity of opinion on my site — I love it. Although I dont think Teuber’s a terrorist under any description, and I’m not sure that exploiting a loophole in the Medicare law/regulation and sticking it to the taxpayer as a consequence qualify him for “visionary” status. So I guess I’m still the wishy-washy moderate around here.

  12. In my opinion, Dr. Larry Teuber is a white collar terrorist who has become rich at the expense of others by trying to destroy his competition anyway he possible can. If the government would investigate this immoral so called doctor, they would prosecute, convict and send him to prison along with his Enron buddies. Any doctor who writes anonymous letters to patients under the guise of malpractice and whistleblowing in order to destroy his competition is an enemy of the medical community and should be booted out.

  13. Dr. Teuber is my new professional hero. A visionary with guts to be a whistleblower against a system designed to ensure mediocrity of care and quality. And he gets rich doing it, to boot! When will the governmentaholics catch up?

  14. Problem is, you can’t fight 200 years of rugged individualism and do-it-yourself capitalism in healthcare, medicine, way of life. The argument goes something like this: Why should I pay for your (or your son, daughter, mother-in-law et al) healthcare? So you need heart surgery and you don’t have insurance? Well then pay for it yourself! It’s truly sad… Thing is, the health insurors (sorry, Managed Care providers) make money off of keeping people out of hospitals, or getting them out as fast as possible, as well as from premiums. Seems like the managed care firms are taking a page out of the pharmaceutical pricing playbook. Imitation is the sincerest form of flattery!

  15. Kinda inronic that Pacificare can come up with $230M for golden parachutes and we as a nation can’t come up with nearly that much for NHIN…