Acute care providers set up shop in failed hospitals.

Foreclosed La Mirada Medical Center reopens anew

On April 25, Specialty Hospital of Southern California admitted its first patients and became the second example of a failed L.A.-area community hospital being converted into a long-term acute care center. The other facility to undergo such a metamorphosis is Vencor Hospital Los Angeles in L.A., near the Culver City border.

David Platt, vice president and chief operating officer of Specialty Hospital, explained the advantages of taking over an existing hospital vs. building a new one from scratch. In the case of Specialty Hospital, its Dallas-based parent, Specialty Hospitals of America, purchased the foreclosed La Mirada Medical Center to house its L.A.-area acute care center.

"We were able to get favorable purchase terms (for the La Mirada hospital) because the bank wanted to get rid of it," he said, noting that foreclosed hospital buildings, because they are so customized, have little market value to most buyers beyond the underlying land value.

Since opening its doors for business at the end of April, Specialty Hospital has admitted five patients to its acute care center in La Mirada. Platt said he expects about 35 of the facility's 145 licensed beds to be full by the end of this year.

Vencor Hospital, meanwhile, began admitting patients to its 83-bed acute care hospital in L.A. back in 1992, after purchasing and converting a troubled facility called Maxicare Hospital. Vencor's parent company, Vencor Inc. of Lyola, Ky., has also converted troubled California hospitals into acute care centers in Ontario, Westminster, San Diego, Sacramento and San Leandro.

Fast returns

Both Specialty Hospital and Vencor are taking advantage of the lucrative niche market for long-term acute care to generate strong returns on their investments. Platt estimated that Specialty Hospital of Southern California would only need to fill about 25 of its 145 licensed beds to operate profitably.

In particular, Specialty Hospital hopes to exploit the market for patients requiring hospitalized care for more than 25 days, he said. "Larger hospitals are geared toward shorter length stays," he pointed out, adding that acute care centers can care for long-term inpatients for an average cost of 25 percent less than regular hospitals.

Steven Turner, regional director of operations at Vencor Inc., agreed that there is a demand for long-term acute care centers in California as an alternative to regular hospitals. He said that, while the average hospital stay for an acute care patient is eight days, the average stay for patients at Vencor L.A. is closer to 40 days.

By tapping the demand for long-term acute care, Vencor has grown over the company's 10-year history to include 35 long-term acute care centers nationwide, all of them in converted hospitals.

"This has been an opportune time for us to be doing this (acute care expansion) because hundreds of (full-service) health care facilities are closing every year," he said, noting that many of the closing facilities are good candidates for conversion into new long-term acute care centers.

Less money in California

While Vencor and Specialty Hospitals of America are showing strong interest in California, not all acute care providers have been so bullish on the Golden State. According to Platt, a key reason for their hesitancy has been lower profit margins for operating in California, compared with other parts of the country.

"Some (acute care) companies back East are not interested in California because there are more regulations here for health care providers," Platt said. He added that other factors - such as higher real estate costs and the strong presence of managed care providers in California - also often make doing business in the state less profitable for long-term acute care companies.

Just the same, Specialty Hospitals of America is feeling confident enough about California to consider opening several more acute care centers in the state. Platt said Specialty Hospitals is currently looking at "one or two" potential sites in L.A. County, where the company would come in and take over existing troubled hospitals. He said that any new Specialty Hospitals facilities in L.A. County would likely open within the next year.

"We would typically target hospitals with around 100 beds or so" as potential targets to buy and convert into new acute care centers, he said.

Turner of Vencor also said that, despite higher costs of doing business in California, his company is still strongly committed to the state. As a sign of its commitment, he noted that Vencor is in the process of buying Tacoma, Wash.-based Hillhaven Corp., which owns 38 nursing homes throughout California.