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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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PhilPamelaBob HooverNRick Kiewel Recent comment authors
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Bob Hoover
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Bob Hoover

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.

Phil
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Phil

Teuber is unethical as hell, he cares nothing about patients, only cash.

Pamela
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Pamela

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.

Bob Hoover
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Bob Hoover

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… Read more »

N
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N

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.

Rick Kiewel
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Rick Kiewel

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.… Read more »

fac_p
Guest

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… Read more »

mdrane
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mdrane

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… Read more »

Kay
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Kay

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… Read more »

N. Fleming
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N. Fleming

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… Read more »

J. Davies
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J. Davies

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… Read more »

Matthew Holt
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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.

KH
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KH

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.

Joe C.
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Joe C.

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?

Steve L
Guest
Steve L

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… Read more »