Hospital outlasts controversy, garners high marks; USC University Hospital could break even next year.

Two years after USC University Hospital opened its doors, health care observers have given the hospital high marks.

The 275-bed, for-profit teaching hospital, created to attract super specialists and boost the USC School of Medicine's prestige, has succeeded in hiring top-flight talent and seems on its way to breaking even next year, said sources inside and outside the hospital.

"Against our original expectations, we think it's ahead of where we expected financially, but a little behind in patient utilization," said Sidney F. Tyler, executive vice president for the Hospital Division at National Medical Enterprises Inc., the Santa Monica-based company which owns and operates USC University Hospital and spent the $157 million to get it constructed.

By patient utilization, he is referring to the number of patients being admitted to the hospital.

Tyler said the biggest single factor in determining the hospital's success is getting on board key faculty members. He said the reason the hospital hasn't been more successful is that its executives underestimated the complexity of recruiting new faculty.

One detriment to hiring more doctors is that the adjacent Healthcare Consultation Center, which houses the doctors' offices and research space, is at capacity and new hires must be "shoe-horned" into nooks and crannies, Tyler said.

Still, he emphasized, NME is "very happy" with the recruiting efforts so far. Tyler called the luring away of Dr. Vaughn Starnes, a leader in heart and lung transplants, from Stanford University a "major coup" for the hospital.

USC University Hospital was thrust into the international spotlight earlier this year after Starnes and a team of surgeons performed groundbreaking surgery on a 21-year-old cystic fibrosis patient by replacing her diseased lungs with new ones formed from parts of her living parents' lungs.

Starnes, a professor of surgery at USC, launched the Cardiothoracic Center at USC University Hospital, as well as similar programs at the other two hospitals affiliated with USC -- Childrens Hospital of Los Angeles and Los Angeles County+USC Medical Center.

The hospital has also assembled one of the best neurosurgery centers in the country, said health care observers.

"The USC services that most impress me are neurosurgery, orthopedics and surgery. They were brought together in a skillful way, which told me the hospital is going to do OK," said Anthony J. Abbate, senior vice president of the Hospital Council of Southern California.

When USC University Hospital first opened its doors, NME executives were predicting that the hospital wouldn't be profitable for three years and that target hasn't changed much, said Tyler.

Jerry Bosworth, CEO of the hospital, estimated that in order to break even, the hospital needs to treat about 160 to 170 overnight patients a day. It is currently averaging about 88 patients.

The hospital was built as part of an unusual three-way agreement by private corporation NME, private university USC and the County of Los Angeles.

Under the agreement, USC acquired 14 acres of land next to the Los Angeles County+USC Medical Center in East L.A. from the county and the Los Angeles Unified School District. The university leased eight acres to NME to build the hospital, which is staffed by the faculty of the USC Medical School. Prior to that time, the USC Medical School had primarily devoted its faculty to teaching, researching and caring for the poor at County+USC.

By teaming up with NME, which owns one of the largest commercial hospital chains in the country and has a reputation for concentrating on profit centers, USC found itself in the midst of a lot of turmoil when the hospital first opened.

From its inception, the new hospital was billed as a lure for patients with private insurance or those covered by Medicare, the federal insurance for people over 65 and for the disabled. The hospital was built without an emergency room, the traditional point of entry for poor patients.

About 200 USC faculty members signed a letter to USC President Steven Sample protesting what they saw as a diversion of talent and funds from the besieged county hospital, which serves hordes of indigent patients from Los Angeles, to the new hospital. The same doctors staff both hospitals.

University Hospital CEO Bosworth, a longtime hospital administrator who has worked in both private and public hospitals, including County+USC, countered that University Hospital was a vital addition to USC's health care network. Without a state-of-the-art hospital, the USC School of Medicine couldn't recruit the best and brightest medical talent, Bosworth said. And have the best and brightest helps attract paying patients, who are needed to supplement doctors' salaries and the costs of the hospital.

Since the majority of patients at County+USC are poor and uninsured, or covered by the state's poorly funded Medi-Cal program, the county hospital can't provide much income for the USC doctors, said Bosworth.

Prior to building the University Hospital, the USC faculty only saw indigent patients. Now, the rest of us have access to the USC faculty.

"One of the greatest benefits we have here is that before, the superb faculty was only available to Medi-Cal and indigent patients. Now they are available to you and me," Bosworth said.

One of the biggest challenges facing the USC University Hospital is competing for health care dollars, especially as more and more people enroll in managed-care systems.

Currently, about 45 percent of the patients at USC University Hospital are on Medicare, 25 percent are in a managed-care program, and 30 percent have private insurance, said Bosworth. Others are just plain wealthy, such as the patients from Saudi Arabia and Kuwait.

No expenses seem to been have spared for the hospital. The hospital, with its color-coded food trays and VIP rooms, takes on the air of a hotel. There is even day care and sleep-over rooms for friends and family and a rooftop basketball court for psychiatric patients. The equipment, including patients' charts, are state-of-the-art technology. Eighty-percent of the rooms are private, including all the rooms in the intensive care unit.

Because of the hospital's expertise in specialties, as opposed to primary or emergency care, the hospital is well positioned to accept referral patients from managed-care plans. He said patients who need complex treatment -- such as a reconstructed esophagus, a joint replacement, a heart-lung transplant or the removal of a pituitary tumor -- don't have many options for treatment other than a highly specialized hospital, such as University Hospital.

In addition to staffing County+USC Medical Center and USC University Hospital, the USC School of Medicine also staffs the USC/Norris Cancer Center and the Doheny Eye Institute, adding to its repertoire of specialty care.